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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 annual rant about the meaningless of life as viewed through the lens of his income, Hunter Barkley had an epiphany. For sure, his own pay packet was a material, unhedged contingency in his life. The perpetual disappointment that it rained upon his sorry existence had, he knew, little to do with how good he was at it (work, or existence for that matter). He knew, too, that his experience was common to the great dreary sweep of humankind as myopically it crawled across the clanking gears of the global machine.  
{{Drop|W|hen midway through}} midway through his annual rant about the meaningless of life as viewed through the lens of his income, Hunter Barkley had an epiphany. For sure, his own pay packet was a material, unhedged contingency in his life. The perpetual disappointment that it rained upon his sorry existence had, he knew, little to do with how good he was at it (work, or existence for that matter). He knew, too, that his experience was common to the great dreary sweep of humankind that crawled blearily across the clanking gears of global industry.  


But that was not the revelation. It was this: just as Barkley and the great collected horde of mortgaged servants were severally at the whim of wanton Gods — so too, necessarily, was an employer who stood the other side of the trade, only at far greater scale. Businesses — particularly ''boring'' businesses — were at the mercy of the fickle tides of hysteria that regularly flood the market.   
That was not his revelation, but this: just as that great collected horde of mortgaged servants were severally at the whim of wanton Gods, so too, necessarily, were the employers who stood the other side of the trade. Firms were long what what their servants were short. Only at ''far greater scale''. Businesses — particularly ''boring'' businesses — bobbed ineptly at the mercy of hysteria’s fickle tides when they flood the market.   


A turgid employer of multitudes — a good-sized bank, for example — was in a constant war to prevent essentially pedestrian operations personnel from being lured by exciting but basically stupid enterprises chasing the latest techno-craze. Just stemming this outflow might inflate its total wage bill by ''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> As the inflated expectations of the latest technology then predictably foundered the bank would find itself spoilt for choice in a buyers’ market, and its wage bill would collapse.
An employer of turgid multitudes — a good-sized bank, for example — was in a constant war to prevent its pedestrian operations personnel from being lured away by exciting but stupid enterprises enraptured by the latest techno-craze. Just the effort to stem the outflow might cost a bank ''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> As the inflated expectations in the new sector foundered, the bank would find itself spoilt for choice and its wage bill would collapse.


In any case this volatility bore little relation to the bank’s own performance, none at all to its employees’. It was a simple measure of background market euphoria. 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.  
In any case this employment cost volatility bore little relation to the bank’s own performance, none at all to its employees’. It was a simple measure of that background market euphoria. 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, “trad-fi”, “bricks-and-mortar” firms were short, and delusional start-ups long, ''π''. As the lunacy levelled off, reality set in and employment relations [[Mean reversion|reverted to mean]], the ''π'' curve would flatten and then eventually invert. If one could only match off long and a short exposures, Barkley realised, firms on either side of the bid could hedge their exposure to π.   
At its onset, “[[Trad fi|trad-fi]]”, “bricks-and-mortar” firms are [[Short|''short'']], and delusional start-ups, [[Long|''long'']] ''π''. Eventually, the lunacy levels off. As reality sets in and employment relations [[Mean reversion|revert to mean]], the ''π'' curve flattens and then eventually inverts. If one could only match off long and a short exposures, Barkley realised, firms on either side of the bid could hedge their exposure to π.   


In one of those cruel ironies to whose martial cadence our lives keep time, before he could figure out a way of monetising his idea, Barkley was laid off and, shortly afterwards, imprisoned for manipulating [[LIBOR]].   
In one of those cruel ironies to whose martial cadence our lives keep time, Barkley was laid off and, shortly afterwards, imprisoned for manipulating [[LIBOR]], before he could figure out a way of monetising his idea.   


On release, he was obliged to find work wiping tables by night as he worked on his [[Fi-Fi]] novels and developed his derivative ideas.
==== A chance encounter ====
 
==== 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]], HR manager Anita Dochter, was bellyaching to her old pal and erstwhile colleague [[Cass Mälstrom]], about the unstaunchable stream of defections from her firm, a sleepy mid-market broker headquartered in Peterborough.  
{{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]], HR manager Anita Dochter, was bellyaching to her old pal and erstwhile colleague [[Cass Mälstrom]], about the unstaunchable stream of defections from her firm, a sleepy mid-market broker headquartered in Peterborough.  


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“But,” complained Dochter, “we actually ''need'' our people. They actually do productive things for us. You know: [[MIS]] reports. Operational [[deep dive]]s. [[Netting]] audits. But unless we pay ''your'' stupid rates for them, which we cannot afford to do —” at this point she fell off her stool briefly — “and give them free fruit, unlimited working from home and a soft play area — they won’t stay with us. But, ''you'',” she hissed, clambering back up and jabbing [[Cass Mälstrom|Mälstrom]] on the lapel, “right now, ''you'' don’t need ''any goddamn'' staff: you just need to show your investors you are clever, imaginative and on point doing fashionably insane things. That does not take actual staff. So stop taking ours.”   
“But,” complained Dochter, “we actually ''need'' our people. They actually do productive things for us. You know: [[MIS]] reports. Operational [[deep dive]]s. [[Netting]] audits. But unless we pay ''your'' stupid rates for them, which we cannot afford to do —” at this point she fell off her stool briefly — “and give them free fruit, unlimited working from home and a soft play area — they won’t stay with us. But, ''you'',” she hissed, clambering back up and jabbing [[Cass Mälstrom|Mälstrom]] on the lapel, “right now, ''you'' don’t need ''any goddamn'' staff: you just need to show your investors you are clever, imaginative and on point doing fashionably insane things. That does not take actual staff. So stop taking ours.”   


As luck would have it, Barkley was attending their table that evening. As he presented them with the check and some after dinner mints Barkley cleared his throat and dropped a document on the table.
As luck would have it Barkley, fresh out of gaol and making ends meet waiting tables, was their host for the evening. Presenting them with the check and some after dinner mints, he cleared his throat.


“Forgive me for imposing, but I could not help overhearing. If you are not actually hiring anyone, why not hedge your employment rate risk to someone who is?”
“Forgive me for imposing, but I could not help overhearing. If you are not actually hiring anyone, why not hedge your employment rate risk to someone who is?”


Dochter fell off her stool again.  
Dochter fell off her stool again.
 
Barkley dropped a slim document on the table.  


Mälstrom indicated the booklet. “What’s this?”  
Mälstrom indicated the booklet. “What’s this?”  
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“[[NDA]]. Call me.”
“[[NDA]]. Call me.”


So was the first “[[employment rate swap]]” conceived. For an initial period of three years, Wickliffe would pay its entire operations wage bill, controlled for performance, to lexrifyly. In return, lexrifyly would pay its absurd, grossly inflated but as yet unallocated wage budget for an equivalent sized-team — there was no such team, of course: this was exactly the point — to Wickliffe Hampton.<ref>This was slightly complicated as it was denominated in [[crypto]] and needed to be converted back to Sterling.  </ref>  
==== The first employment rate swap ====
{{Drop|S|o was the}} very first “[[employment rate swap]]” conceived. For an initial period of three years, Wickliffe Hampton would pay its entire operations wage bill, controlled for performance, to lexrifyly. In return, lexrifyly would pay its absurd, grossly inflated but as yet unallocated wage budget for an equivalent sized-team — there was no such team, of course: this was exactly the point — to Wickliffe Hampton.<ref>This was slightly complicated as it was denominated in [[crypto]] and needed to be converted back to Sterling.  </ref>  
 
This way, Wickliffe Hampton had the cash required to preemptively bid back restless staff, and lexrifyly could, in time-honoured fashion, guilelessly piddle its investors’ cash up a wall without troubling the operating resiliency of the banking sector, or for that matter, the [[Human resources|HR department]]. 


This way, Wickliffe Hampton had the cash required to preemptively bid back restless staff, and lexrifyly could, in time-honoured fashion, guilelessly piddle its investors’ cash up a wall without troubling the operating resiliency of the banking sector, or for that matter, needing an [[Human resources|HR department]].   
If this seemed like a bad trade for lexrifyly, in actuality it was not.   


If this seemed like a bad trade for lexrifyly, but in actuality it was not. Firstly, it didn’t care: what was money? Secondly, the economics would change markedly upon the onset of a more hawkish monetary policy, the dissipation of hysteria or any of the other things that could precipitate a tech winter, and the widescale redundancies and hiring freezes that was sure to follow it.  And ironically, at that point, a counterparty short ''π'' in an ERS would have sensible amount of cash coming in  it could use to hire some people.  
Firstly, it didn’t care: what was money, when it came to it? Secondly, Barkley’s models demonstrated that the economics could change in any number of circumstances: for example, a market crash, hawkish monetary policy, the dissipation of mass hysteria or incipient tech winter. At that point, widescale redundancies and hiring freezes were sure to follow across the sector, while the boring old banking industry would box on as it always had done.  


There remained a problem: it was easy enough to quantify a bank’s presumptive wage bill (once it was controlled for hysteria) as it was more or less static. But what about the ever-changing hypothetical wage bill of a startup? How to gauge that in real time? And could not a startup not game this very easily, by just pretending its actual preparedness to pay stupid money was lower that it really was?
Ironically, at that point, a startup short ''π'' under an [[Employment rate swap|ERS]] would have sensible amount of cash coming in from its bank counterparty to keep the lights on. 
    
    
====The “LIEBOR” submission process====
====The “PIEBOR” submission process====
{{Drop|W|hat was needed}}, Barkley reasoned, was an observable, objective measure of startup insanity, ''π''. He had just the means for achieving it. Under the auspices of the British Human Capital Managers’ Association (BHCMA) a committee of fashionable startups would meet each afternoon in a WeWork in Shoreditch for an kombucha martini and to state publicly, in front of a live panel of venture capitalists, how much they would be prepared to pay an underperforming settlements and reconciliations specialist to join them and drive customer engagement.   
{{Drop|I|t was easy}} enough to quantify a bank’s presumptive wage bill since, once it was controlled for hysteria, it was more or less a fixed rate. But what about the ever-changing hypothetical wage bill of a startup? How to gauge that in real time? And could not a startup not game this very easily, by just pretending its actual preparedness to pay stupid money was lower that it really was? 
 
The market needed an observable, objective measure of “prevailing startup insanity”, which Barkley denoted “''π”''. He had just the means for achieving it. Under the auspices of the British Human Capital Managers’ Association (BHCMA), he arranged for a committee of fashionable startups to meet each afternoon in a WeWork in Shoreditch and over kombucha martinis to state publicly, in front of a live panel of [[venture capitalist]]<nowiki/>s, how much they would be prepared to pay an underperforming settlements and reconciliations clerk to join them and drive customer engagement. They expressed this as a premium of discount to ''π''', being the equivalent value for the preceding day.   


The BHCMA would trim the top and bottom estimates, average the remainder and compile and publish the trimmed arithmetic mean rate as the [[London Inter-Employer Basic Offered Rate]] ([[LIEBOR]]). LIEBOR quickly become the ''de facto''  measure of  ''π'' and was soon factored into the “floating” leg of [[employment rate swap]]<nowiki/>s as standard.
The BHCMA would trim the top and bottom estimates, average the remainder and compile and publish the trimmed arithmetic mean rate as the [[London Inter-Employer Basic Offered Rate]] ([[LIEBOR|PIEBOR]]). PIEBOR quickly become the ''de facto''  measure of  ''π'' and was soon factored into the “floating” leg of [[employment rate swap]]<nowiki/>s as standard.


The banks could even sell these derivatives directly to employees, saving the banks the bother of having to hedge themselves. By the same token employees could hedge away their intrinsic loyalty discount, and restricting their need to find new jobs to genuine changes in role or idiosyncratic hatred of their bosses. But there was no need to simply “benchmark” themselves periodically any more.
The banks could even sell these derivatives directly to employees, saving the banks the bother of having to hedge themselves. By the same token employees could hedge away their intrinsic loyalty discount, and restricting their need to find new jobs to genuine changes in role or idiosyncratic hatred of their bosses. But there was no need to simply “benchmark” themselves periodically any more.
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