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Most events that drive shareholder returns happen behind the corporate veil. The secrecy is necessary for competitive reasons. However, there is a strong potential for managers to have different incentives – occasionally even contradictory incentives – from the owners. As a result of this recent crisis, large financial institutions are revamping their pay policies. For example, the CEO of Goldman Sachs – Wallstreet’s most profitable and influential securities house – is receiving an all-stock bonus. With the proper restrictions in place, this should align his interests with other long-term investors.

Is it enough to pay the top executive in all restricted stock? When a company has tens of thousands of managers and pays billions of dollars in compensation, isn’t his bonus little more than populist appeasement? Deutsche bank has gone even further, with 75% deferred stock and 25% deferred cash payouts this year. That seems like better alignment for the organization.

Did Bank of America / Merrill Lynch get the point? Kinda. How about Morgan Stanley? Not really. JPMorgan followed suit. I would love to hear how Citibank is handling this bonus season…

Let’s not forget that this is only in the financial services industry and only after significant political pressure, regulatory outrage and populist outcries. The rest of the corporate world is continuing on with business as usual: managers paid for today’s performance, in cash, every year (with the exception of a few CEOs who take home huge piles of restricted stock). I can say first hard, it is great for the manager – not necessarily so great for a shareholder.

Finishing off this post with a ‘Thank you’ to Judge Rakoff, who refused to allow the SEC and Bank of America to settle the SEC lawsuit over Bank of America’s non disclosure of Merrill Lynch bonuses prior to the merger. How much pain did the SEC want to extract? $33 million. It is better for shareholder’s everywhere for our legal system to show that light still is the best disinfectant.

On the episode I watched last night, a neuroscientist, James Fallon kicks off the program by explaining his theory on the mind of a psychopath.  Dr. Fallon claims that he has identified certain physiological changes that occur in the womb that deaden certain areas of the brain.  A person born with this trait and further conditioned by repeated abuse or acts of violence are destined for psychopathic behavior and likely to become serial killers.  I am sure my synopsis does far less justice to the theory than even the television show, but for my purpose the technicals of the argument are unimportant.

The interesting concept being explored here is the application materialism, or the idea that everything has its roots in the material world, including human personalities and intentions. A materialistic argument leaves the door open to both rationalizing and predicting human behavior; naturally it invokes a strong reaction from those who sit more in the ‘free will’ and ‘moral responsibility’ camps. After all, if the foundation of a psychopath is laid in the womb and the condition is triggered by environmental factors, it becomes exceedingly difficult to hand down punishment to the afflicted person.

The counter argument to this idea has always been that not all individuals raised in violent circumstances evolve into serial killers. Dr. Fallon’s argument (albeit on a television drama) is particularly interesting because it gives us a glimpse of the future: what happens when we deduce why some individuals raised in violent circumstances evolve into serial killers and some do not – and what if that reason is solidly outside of the realm of things we can assign accountability for? As we peel back the onion, it becomes harder and harder to support this counter argument.

My view is that social attitudes toward free will, justice and personal accountability will evolve slowly, slightly lagging the pace of the scientific (or material) discovers that raise these questions. Basically we are doomed to always live in a slightly uncomfortable spot of uncertainty; there really will be no ‘eureka’ moment that resolves these conflicts.

A prominent academic named Dr. Thomas Szasz has been trying to suppress these ‘materialistic’ ideas and their implications for some time through his anti-psychiatry movement (no matter how scary the materialism argument is to you, visiting the Scientologist sponsored CCHR website that works for Dr. Szasz’s vision should be equally as spooky). Wacky scientology website aside, Dr. Szasz’s fundamental beliefs seem to be strongly libertarian. For example, he rejects the idea of involuntary hospitalization of the mentally ill. Likewise, he believes that the right to drugs and the right to suicide are fundamental. While the headline may read that he denies the existence of mental illness, it really is less a denial of the phenomena of mental illness and more about its categorization.

My first, 10,000 foot, gut reaction to his views is that here is a man who has seen the vacuum created by rationalizing away human free will and has firmly rejected it on every front, despite the resulting absurdity of some of his views.

I am left with one thought about the paradox of human free will-moral responsibility-individual accountability and our fundamental nature as material beings: if we are able to rationalize, and in essence justify, socially abhorrent behavior on behalf of certain individuals due to circumstances beyond their control, can we also rationalize, and in essence justify – on similar grounds – a society that punishes such behavior and removes the offender?