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{{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}Financial instruments designed to manage the risk of employment variability. First developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}. | {{a|myth|{{image|Ironmountain1|jpg|}}}}{{d|Employment derivatives|/ɪmˈplɔɪmənt dɪˈrɪvətɪvz/|n|}}Financial instruments designed to manage the risk of employment variability. First developed in the early part of this millennium by derivatives pioneer and perennial boiler of pots, {{author|Hunter Barkley}}. | ||
====Genesis==== | ====Genesis==== | ||
{{Drop|W|hen midway through}} midway through his | {{Drop|W|hen midway through}} midway through his annual rant about the meaningless of life as viewed through the lens of his income, it struck Barkley — an amateur [[fi-fi]] novelist, financial services naturalist and [[tiresome]] windbag, not in that order — that just as his own pay packet was 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 was everyone else’s. | ||
This included, at far greater scale, | This included, at far greater scale, employers. Barkley believed himself, rightly, to be short an ugly [[option]] to the Man. But by the same, token so too was the Man short an option to the tide of corporate hysteria that regularly floods the market. | ||
For no other reason than deluded euphoria, a boring employer like a bank would see 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 bore | This volatility bore no relation to its own performance, none to its employees’, and a lot with how ''other'' employers were doing in adjacent, more exciting sectors. | ||
Barkley reasoned that different types of firm were “long” or “short” | Barkley reasoned that different types of firm were “long” or “short” this babbling hysteria, which he labelled ''π'',<ref>From the Greek παράνοια, (''paranoia''). It was also pleasing that π conveys circularity, running on a hamster wheel and so on, all of which Barkley recognised to be fundamental properties of the employment relationship.</ref> at different points in the hype cycle. | ||
[[ | At its onset, “legacy”, “bricks-and-mortar”, “trad-fi” firms were typically short ''π'' and fantastical start-ups long. As the lunacy tailed off, reality set in and employment relations [[Mean reversion|reverted to mean]], the ''π'' curve would flatten and then invert. | ||
If one could only match off a long and a short firm, Barkley reasoned, each could hedge its exposure to changes in π. | |||
In one of | But how to measure π? | ||
[[Human resources|Human capital management]] trading staff were apt to talk about “benchmarking”, as if there were some indexed rate. | |||
''Perhaps there ''should'' be a rate'', he thought. The variance was easy enough to calculate, but ''knowing'' about it was a different thing to ''managing'' it. Instinctively, he knew there was something in this idea but could not figure out a way of monetising it. | |||
In one of those cruel ironies to whose martial cadence our lives keep time, Barkley was laid off shortly afterwards and and sent to prison for manipulating LIBOR. On release, he was obliged to find work wiping tables by night as he worked on his novels and developed his derivative ideas. | |||
==== The first [[employment rate swap]] ==== | ==== The first [[employment rate swap]] ==== | ||
{{Drop|B|arkley’s fortunes would}} change following a chance encounter in an upscale cocktail bar in West London. As she neared her [[Schwarzschild radius of alcohol consumption|gin horizon]], [[Wickliffe Hampton Asset Management|Wickliffe Hampton]]’s Chief Operating Officer Anita Dochter bellyached to her old pal and erstwhile trainee [[Cass Mälstrom]], now CIO of legaltech darling [[lexrifyly]]. | {{Drop|B|arkley’s fortunes would}} change following a chance encounter in an upscale cocktail bar in West London. As she neared her [[Schwarzschild radius of alcohol consumption|gin horizon]], [[Wickliffe Hampton Asset Management|Wickliffe Hampton]]’s Chief Operating Officer Anita Dochter bellyached to her old pal and erstwhile trainee [[Cass Mälstrom]], now CIO of legaltech darling [[lexrifyly]]. | ||
At the time, [[Wickliffe Hampton]] — a sleepy mid-market broker — was losing hundreds of compliance and onboarding staff each month to venture capital funded tech | At the time, [[Wickliffe Hampton]] — a sleepy mid-market broker — was losing hundreds of compliance and onboarding staff each month to venture capital-funded tech start-ups. [[Mälstrom]] was just one. | ||
Her new shop, [[lexrifyly]], was exactly the sort of [[legaltech]] startup darling that was poaching them: it had no product to speak of, no business model, customers or plan but was flush with stupid amounts of cash, a great [[Microsoft PowerPoint|deck]] and an unshakable conviction in the wisdom of goosing its burn-rate by overpaying for bums it didn’t need on seats it didn’t have. | Her new shop, [[lexrifyly]], was exactly the sort of [[legaltech]] startup darling that was poaching them: it had no product to speak of, no business model, customers or plan but was flush with stupid amounts of cash, a great [[Microsoft PowerPoint|deck]] and an unshakable conviction in the wisdom of goosing its burn-rate by overpaying for bums it didn’t need on seats it didn’t have. |