82,853
edits
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit Advanced mobile edit |
Amwelladmin (talk | contribs) No edit summary Tags: Mobile edit Mobile web edit Advanced mobile edit |
||
Line 1: | Line 1: | ||
{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}} | {{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}} | ||
A financial | A financial instrument developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}. | ||
When midway through his customary annual rant about the meaningless of his life and meagreness of his pay packet, it struck Barkley — an amateur fi-fi novelist and financial services naturalist — that just as the variable cost of his own employment was a material, and largely unhedged, contingency in his own life — Barkley believed himself, rightly, to be short a very ugly option to the Man — so too was everyone | When midway through his customary annual rant about the meaningless of his life and meagreness of his pay packet, it struck Barkley — an amateur [[fi-fi]] novelist and financial services naturalist — that just as the variable cost of his own employment was a material, and largely unhedged, contingency in his own life — Barkley believed himself, rightly, to be short a very ugly [[option]] to the Man — so too was everyone else’s in modern finance and therefore, on the other side of that trade, but on a greatly levered magnitude, were banks’. | ||
A good-sized | A good-sized bank, he reasoned, would have an annual ''variance'' in employee compensation, without accounting for any ''changes'' in employment, in the billions of dollars.<ref>The maths was like so: assume 40,000 people at an average total compensation of about $300,000, with a ratio of discretionary to fixed of between 20% and 50%</ref> | ||
This ''variable'' cost of employment had little to do with the bank’s own performance, let alone that of its employees, and a lot to with ''everyone else’s'' performance. A firm having a bad year while its competitors feasted had no option but to hike pay to stop flush rivals piratically raiding its meagre stocks of [[human capital]]. By the same token, a firm that was knocking the ball out of the park while its competitors floundered, did not need to pay its own staff outsized bonuses. Where were they going to go? | |||
Legend has it, upon being timorously asked for a raise, the [[Vampire Squid]]’s fearsome [[GC]] would theatrically throw open a draw with all the unsolicited CVs she had collected in the last week. “I am sure we’ll find someone to do your job if you’re too good for it.” | |||
But this only works when the industry is not in the grip of some mania, as it tends to be from time to time: dot-com startups, hedge funds, crypto and private equity have all skewed the market for unremarkable drones in recent times. This is why you have to pay a brainless trainee two hundred grand. | |||
So that option is ugly both ways. Even for a vampire squid. Banks were themselves structurally short a rising bid. If rapacious [[private equity]] firms, or gormless [[crypto]] startups were poaching mid-ranking operations bulls, the banks had little choice but to follow the bid — for replacement hires. The banks thereby had duration risk: current staff would put up with a certain amount of stuff arming, but there were limits. Traders in the [[human capital management]] desks traders priced staff were like callable fixed rate term debt with a three month call. New staff would come in at the prevailing astral rates, so hedging strategies became vital. | |||
Employment rate derivatives promised to change that by taking rebenching lateral movements — which were necessarily highly entropic - they cost a lot in transaction friction, institutional leakage and so on, which could be avoided by just paying the employees more. | |||
The first employment rate swap was between the mid market broker [[Wickliffe Hampton]] and then start-up darling [[lexrifyly]]. WH swapped its discretionary pool for Lexrifyly’s — complicated cross currency issues as it was denominated in crypto. | The first employment rate swap was between the mid market broker [[Wickliffe Hampton]] and then start-up darling [[lexrifyly]]. WH swapped its discretionary pool for Lexrifyly’s — complicated cross currency issues as it was denominated in crypto. |