The idea that banks have to talk about bonuses with any specificity to anyone other than individual employees or in generalities to anyone other than a small group of shareholders is a rather recent one.

Only since the peak of the most recent boom has the size and structure of bonuses been of widespread interest.

And it was only during and after the financial crisis that this interest turned from detached wonder to focused criticism.

So it is not surprising that when banks talk about bonuses they tend to use a relatively small number of tropes to deflect attention away from just how much money they are paying their employees. One topic banks love to talk about, and reporters love to write about, is stock. There's been a flurry of high-profile coverage recently abut employees getting paid in equity.

It is hard to find a public statement from a bank on bonuses that does not refer in some way or another to equity compensation. But when you hear things like "most bonuses will include an equity component" or "we have created a long-term incentive by paying bonuses in stock", you should take those statements at face value.

Even if most bonuses do include some equity, they key issue is how much. It is now common practice at banks for the senior-most executives to be compensated largely if not almost exclusively in stock, but what about more junior employees? Or even those just below the cut-off to be considered listed corporate officers whose compensation packages are required to be disclosed? These employees often receive a token number of shares, making up a tiny portion of overall compensation, but allowing the bank to include the employee as one who received some form of compensation in stock. We've heard of employees getting as few as 9 shares. And yet those employees still get counted as having received a portion of their bonus in equity.



Take this into account when you hear that some astronomically high percentage of employees were paid in stock.

The second major item to pay attention to is vesting period, because it's the only way to tell precisely how long-term, if at all, the stock that's been given actually is. In terms of the duration of the incentive, stock with no vesting period or a ridiculously short one of something like 30 days functions identically to cash. And yet, many banks provide stock with almost no vesting period and pretend that it is somehow different than cash. Stock does of course have the ability to appreciate in value, which cash does not, but now you get into an argument about the cost that shareholders bear when companies give away loads of stock.

And as Warren Buffett said on this subject, stock options are either an expense or they not. Applying his statement to the same topic in a different context, if a bonus seems too big, adding equity doesn't make it just right.