Risk (Management) and Reward

"We're going to be taking a look at broader reforms so that executives are compensated for sound risk management and rewarded for growth measured over years, not just days or weeks."
--President Obama, 4 February 2009

In one line from a White House speech on the economic crisis and executive compensation, President Obama seems to have hit on something near and dear to the hearts of risk managers everywhere: being compensated for sound risk management.

As GlobalRiskjobs has been active in risk and compliance forums during the crisis, we know that the topic of how it happened / how do we stop it in the future is a constant. One of the more prevalent themes is how do risk managers get a bigger voice in profit-driven organizations run by those paid to push the envelope to make more money for the firm? Individuals are compensated for making money and risk managers have too often been viewed as advisors who are more of a drag on maxing out these earnings than contributing to the safety of those earnings.

So, have we reached an inflection point in the financial markets where someone will finally figure out - or even mandate - a way to compensate individuals for sound risk management? If we are not there yet, it would seem to be as good a time as any for risk managers to find a way to better align their compensation with the goals of the firm: protection of the ability to earn consistent returns ad limit capital destruction.

How do risk managers and compliance people raise their profiles in the organization? How do they measure their own performance within the performance of the organization as a whole? We would love to hear from you with ideas on how to do this.

A quick tour of the headlines:

• It's Employment Friday and the numbers are ugly. The 7.6% unemployment rate is the highest since 1992 and payrolls were down 598,000.
• A life insurance unit at The Hartford missed a capital target.
• Geithner looks to be favoring guarantees over the Bad Bank plan.
• Moody's is worried about the financial position of the U.S.
• Credit cards are showing signs of big strain.
• Felix Salmon of Portfolio weighs in on a broken model at hedge funds.

Have a great weekend.