We're seeing some interesting attempts in Europe to better align bankers' pay with performance and sound risk strategies. Credit Suisse, for example, gave toxic assets to some executives as part of their compensation plans. Now comes an idea from Barclays that is drawing attention on both sides of the Atlantic: Using contingent convertible bonds--so-called cocos--as part of pay packages for top executives, reports the Financial Times.  

These securities convert into equity when the bank gets into financial trouble, based on various triggers, such as capital levels. The equity would then count toward the bank's capital cushion.

The personal incentives might change if bankers were paid in such securities. They would be less interested in outsized stock gains. And if the bonds are ever converted, the stock would then present the opportunity for personal losses as well as personal gain.

Regulators seem to find this preferable to huge cash or stock grants. Barclays seems set to formally adopt the strategy. An announcement may be coming soon.

These hybrid bonds have yet to catch on in the United States, as a compensation tool or as an asset class. So, I doubt we'll see this become reality soon.

But the idea of paying bankers partly in some sort of fixed income will likely get a bit more attention. It would be nice to see the top U.S. banks step forward with some innovative compensation ideas.   

For more:
- here's the FT article

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