No Bonus without Malus. The Agency problem.
Jos Nieland, Teacher, Netherlands, SIG Leader
Taleb gives some principles for a system, organization, or society to be robust against black swans. In my opinion, an important one is:
Don't let someone with an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. There should be no incentives without disincentives: capitalism is about rewards and punishments, not just rewards.
Daniel Kahneman also has strong opinion about this issue. He warns for the big differences between individual goals and those of society and organizations, mostly connected with time. Individuals are short-term oriented en systems more long-time.
So to solve agency problems and moral hazard: never bonuses without maluses?...