For employees, the tale of Lehman, especially after Enron, is a reminder of the danger of having too many savings tied up in the firm where you work. More of the truly talented will now demand their bonuses in cash, or perhaps ask for even more shares. That surely will have an effect on the way that firms recruit staff and on employee share-ownership schemes. Paying ordinary workers in shares is expensive-because equity is costly to issue and discounted by employees. And the idea that ordinary workers who own shares in their firm will stop senior managers taking bad decisions has taken another knock.
The structure of bonus schemes is more important than their level-especially in finance. Foolish short-term risk-taking could be discouraged by matching the timing of bankers’ pay to the timing of the risks they are trading. Britain’s Financial Services Authority may ask banks to put up more capital if their pay structures are dangerously risky. That makes far more sense than capping pay. But in the end companies and shareholders are better at setting salaries than bureaucrats.