According to the CEO of Unicredit, if you think there was a moral hazard problem before with folks taking excessive risk to maximize short term profits and bonuses, just see what happens if you remove the carrot and just pay them everything as a fixed salary.With the global push towards bonus reduction in full force, Alessandro Profumo had some words of caution for those wanting to see guaranteed bonuses morph into guaranteed salaries.
"If you don't have any link of your compensation to your long-term results, you are incentivized to take risk, by definition," Profumo told journalists at a meeting in Istanbul.
"If you have only fixed compensation you don't have any link between your compensations to the value of the company," he said. "I can take all the risk I want and my compensation won't change."
Sounds like a perfect reason to implement performance-based compensation in DC.