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-{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}
+{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}A financial instrument developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}.
-A financial instrument developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}.
 ====Genesis====
-{{Drop|W|hen midway through}} 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, 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 including, on the other side of the trade and at far greater scale, his employer’s.
+{{Drop|W|hen midway through}} midway through his customary annual rant about the meaningless of his life as viewed through the lens of his pay packet, it struck Barkley — an amateur [[fi-fi]] novelist, financial services naturalist and tiresome windbag, not in that order — that just as his own fortunes at work were a material, unhedged contingency in his life having little to do with how good he was at it (his work, or life for that matter), so too were everyone else’s.
-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 included, at far greater scale, his employer. Barkley believed himself, rightly, to be short an ugly [[option]] to the Man. But by the same token a good-sized bank would have an annual ''variance'' in its total wage bill, even before accounting for ''changes'' in in its staff, 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. The ''market''. Hence [[Human resources|human capital management]] staff are apt to talk about “benchmarking”, as if there is some indexed rate.
+This variance bore little relation to the bank’s own performance, none to its employees, and a lot with ''everyone else’s'' performance. The ''market''. [[Human resources|Human capital management]] trading staff were apt to talk about “benchmarking”, as if there were some indexed rate.
-''Perhaps there should be'', reasoned Barkley.
+''Perhaps there should be'', reasoned Barkley. It was easy enough to calculate this variance, but ''knowing'' about it was a different thing to ''managing'' it.
-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?
+Barkley reasoned that different types of firm were “long” or “short” the babbling hysteria drove the employment market.  Barkley called the measure of this “madness” characteristic ''π<ref>From the Greek παράνοια, (''paranoia''). It was also pleasing that it conveyed sentiments of going around in a circle, running on a hamster wheel and so on, all of which Barkley recognised to be fundamental properties of the employment relationship.</ref>''. Upon its onset, “legacy”, “bricks-and-mortar”, “trad-fi” firms were typically short ''π'' and start-ups long. As the lunacy tailed off and employment relations [[Mean reversion|reverted to mean]], the ''π'' curve would invert. If one could only match off a long and a short firm, they each could hedge changes in π.
+==== The first ERS ====
+{{Drop|T|he first so-called}} [[employment rate swap]] was thereby conceived, between sleepy, ops-heavy mid-market broker [[Wickliffe Hampton]], at the time losing hundreds of compliance and onboarding staff each month, and [[lexrifyly]], a [[legaltech]] startup darling with no product, business model, customers or plan but flush with stupid amounts of VC cash, a great [[Microsoft PowerPoint|deck]] and an unshakable conviction in the wisdom of goosing its burn-rate by hiring lots of staff.
+One evening over canapes Wickliffe Hampton’s Chief Operating Officer Anita Dochter had been bellyaching to her  old friend and former trainee, now lexrifyly’s CEO, [[Cass Mälstrom]].
+“But we actually ''need'' the staff,” she complained. “They actually do productive things for us. But unless we pay ''your'' stupid rates, which we cannot afford to do — and give them free fruit, working from home and a soft play area — they won’t stay with us. By contrast, you, right now, don’t need any staff: you simply need to show you are clever, imaginative and on point doing fashionably insane things. This does not require actual staff. If you are not actually hiring anyone, you could be hedging your employment rate risk of not doing so.
+As luck would have it, Hunter Barkley was waiting tables that evening and overhead the conversation. He presented them with a pitch book with the check:
+For an initial period of three years, Wickliffe would pay its wage bill for its entire operations team in London, controlled for performance, to lexrifyly. In return, lexrifyly would pay its projected wage budget for an equivalent sized-team to Wickliffe Hampton.<ref>This was slightly complicated as it was denominated in [[crypto]] and needed to be converted back to Sterling.  </ref> 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, should she ever be asked for a raise, the [[Vampire Squid]]’s fearsome [[GC]] would theatrically throw open a draw stuffed with unsolicited resumes. “I am sure we’ll find someone to do your job if you’re too good for it.”
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 Enter Barkley’s invention: [[employment rate swap|employment rate swaps]] promised to change that by tanking lateral movements — which were necessarily highly entropic in that they cost a lot in transaction friction, institutional leakage and so on and 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 banks could sell these derivatives directly to employees, saving the bother of having to hedge themselves.