Healthy Compensation Structure

Healthier compensation structures should normally have three elements. First, a large chunk of any bonus above a modest size should be paid in equity, so that bankers have an interest in their colleagues' behavior. Second, equity should vest over several years to ensure that bankers worry about the longer term. Third, part of the bonuses earned each year should be put in escrow -- with the understanding that it will be clawed back if the recipients post losses in subsequent years.