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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. It's bonus season on

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Speaker 1: Wall Street, and it's expected to be a good year.

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Speaker 1: Executives at Morgan Stanley, Bank of America and JP Morgan

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Speaker 1: are reportedly planning to give out some of the biggest

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Speaker 1: bonus increases since the pandemic. But these bonuses aren't typically

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Speaker 1: paid fully in cash.

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Speaker 2: You're usually given a dollar figure, but what you're actually

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Speaker 2: given is shares which fall and rise in life.

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Speaker 1: Laura Noonan covers global finance for Bloomberg.

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Speaker 2: So if you're getting twenty thousand shares and the share

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Speaker 2: price is two dollars today, they will call that a

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Speaker 2: forty thousand dollars bonus.

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Speaker 1: But you don't get all forty thousand dollars worth of

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Speaker 1: stock today. Bonuses usually pay out over several years, and

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Speaker 1: by the time you're forty thousand dollars worth of stock

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Speaker 1: fully vests, it might not be worth forty thousand dollars anymore.

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Speaker 1: So Laura and her colleagues developed a bonus calculator. They

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Speaker 1: looked at data from a dozen of the world's biggest

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Speaker 1: banks and dug into how much these bonuses were really

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Speaker 1: worth once they were paid out.

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Speaker 2: If you were, say, weighing an offer from two banks

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Speaker 2: back in twenty fifteen, and you want to see how

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Speaker 2: your bonus would have fared if you picked the other bank.

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Speaker 2: You can just check. So we did it. Assuming you're

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Speaker 2: getting a one hundred thousand dollar bonus.

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Speaker 1: What they found is a one hundred thousand dollars bonus

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Speaker 1: does not always mean the same thing. It can vary

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Speaker 1: widely depending on what bank you work for, what year

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Speaker 1: you get your shares, and what year you cash them out.

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Speaker 2: One of the cases we looked at was in twenty eighteen,

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Speaker 2: adoutsche Bank trader awarded a one hundred thousand dollars If they

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Speaker 2: cashed out everything in each year as they could have,

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Speaker 2: that would have gone down to forty six thousand, six

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Speaker 2: hundred twenty eight, so they lost half, whereas a JP

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Speaker 2: Morgan person given the same amount would have got about

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Speaker 2: one hundred and thirteen thousand.

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Speaker 1: This is the big take from Bloomberg News. I'm Sarah Holder.

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Speaker 1: Today on the show how Much is a Big Bank

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Speaker 1: Bonus Actually Works? Laura Noonan shares what she found about

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Speaker 1: the true value of bonuses promised by some of the

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Speaker 1: world's biggest banks. Let's imagine you've just been offered a

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Speaker 1: job on Wall Street. Congratulations. Chances are you're being offered

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Speaker 1: a hefty salary plus an even heftier bonus.

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Speaker 2: The bonus can be a very big proportion, so you

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Speaker 2: could be talking three or four times your salary in

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Speaker 2: your bonus. Depending on how well you do. As you

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Speaker 2: get more senior, the bonus can get even bigger relative

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Speaker 2: to your actual salary. It wouldn't be unusual to earn

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Speaker 2: most of your money within bonuses.

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Speaker 1: That bonus offer. It's not set in stone. You might

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Speaker 1: actually take home more money or less depending on how

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Speaker 1: well your company's stock performs. Laura told me that's actually

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Speaker 1: the point, and it didn't always work like this.

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Speaker 2: Before the financial crisis, a lot of that bonus was

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Speaker 2: paid in actual cash, so on the bonus day you

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Speaker 2: get your check, it just got into your pacelip. Since

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Speaker 2: the crisis, there was a lot of talk about the

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Speaker 2: fact that people made very big bonuses on things that

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Speaker 2: then went disastrously wrong years later and actually lost a

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Speaker 2: lot of money, But the bankers had already walked away

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Speaker 2: with their millions of bonuses. So in an effort to

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Speaker 2: better align how bankers are paid with how things ultimately

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Speaker 2: play out. What they did was instead of getting all

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Speaker 2: your bonus in cash, you would get a big potential

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Speaker 2: of it in shares or in other things which are deferred.

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Speaker 1: So you might be promised a certain number of shares,

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Speaker 1: but you can't sell those shares at once they vest

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Speaker 1: over a year or two or three.

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Speaker 2: The other thing that the deferrals did was it makes

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Speaker 2: you stay well. In theory, it makes you stay in

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Speaker 2: the bank because you only get paid if you stick around.

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Speaker 1: So then let's fast forward three to four years I've

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Speaker 1: been and during my time at the big bank, how

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Speaker 1: do I figure out how much money I'm actually going

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Speaker 1: to get paid?

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Speaker 2: So the total amount, we're going to assume that you

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Speaker 2: sell everything as soon as you can. So maybe when

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Speaker 2: you got the stock it was worth ten dollars. When

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Speaker 2: you sold the first batch, it was worth twelve, the

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Speaker 2: second batch it was worth nine, the final batch it

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Speaker 2: was worth eight. Basically, all of those together will tell

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Speaker 2: you the average share price that you sold at, and

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Speaker 2: you can add up all the money and see how

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Speaker 2: much you got.

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Speaker 1: Laura looked at the average value of a one hundred

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Speaker 1: thousand dollars bonus across a dozen different banks between twenty

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Speaker 1: and eight and twenty twenty three. She found that if

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Speaker 1: you worked at Morgan Stanley or JP Morgan during that

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Speaker 1: time span, your annual one hundred thousand dollars bonus might

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Speaker 1: wind up making you one hundred and twenty five thousand

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Speaker 1: dollars on average, but at Deutsche Bank you'd walk away

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Speaker 1: with closer to ninety thousand. Laura says if you follow

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Speaker 1: banking news, it won't surprise you to know that bonuses

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Speaker 1: at Deutsche Bank had one of the lowest average values.

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Speaker 1: The bank had a streak of bad years during that period,

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Speaker 1: depressing their stock.

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Speaker 2: But if you look at individual years, I don't think

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Speaker 2: anybody would have thought that the most valuable bonus ever

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Speaker 2: granted was by Bank of America in twenty twelve. That

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Speaker 2: to me was surprising. It's just a confluence of how

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Speaker 2: share price just did over the period. So in that

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Speaker 2: case Bank of America's twenty twelve award, for every one

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Speaker 2: hundred thousand, you would have got just over two hundred

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Speaker 2: and seventy thousand dollars by the time you actually catch

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Speaker 2: them out, which is huge. I mean, it's a big,

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Speaker 2: big differential, and the reason for that is Bank of

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Speaker 2: America's share price was quite depressed when they granted the award,

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Speaker 2: and then subsequently rose for several years.

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Speaker 1: Trying to use these kinds of past insights to maximize

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Speaker 1: your future bonus can be a challenge, but there are

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Speaker 1: some general trends Laura found looking at the data with hindsight.

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Speaker 2: You know, you don't want to work for a European

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Speaker 2: bank generally unless it's UBS. American banks were generally much

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Speaker 2: more stable. They didn't have the same kind of highs

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Speaker 2: and loads. European bank just went through and mild swings.

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Speaker 2: I would take UBS out of that because UBS has

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Speaker 2: more of the characteristics of a US bank, and also

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Speaker 2: it's outside the EU, it's a big wealth manager. It's

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Speaker 2: the only one that actually was not bottom half in

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Speaker 2: terms of average bonus currency. But the other European banks

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Speaker 2: they're just structurally less profitable banks. They're in smaller markets.

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Speaker 1: But over the last few years, those differences between banks

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Speaker 1: have gotten less significant. Since twenty nineteen, the gap between

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Speaker 1: bonus values at the best performing banks and the worst

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Speaker 1: has narrowed. And there's a big asterisk here. The analysis

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Speaker 1: doesn't account for another variable that can change how much

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Speaker 1: of a bonus you actually get to take home taxes.

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Speaker 2: So this is basically purely looking at how much those

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Speaker 2: shares are worth, not how much the shares are worth

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Speaker 2: to you.

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Speaker 1: But what can all this teach people in the banking

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Speaker 1: world about what these bonuses might end up worth to

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Speaker 1: them and how much they can bank on their bonus payouts.

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Speaker 1: That's coming up. Bloomberg's Laura Nonan told me the idea

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Speaker 1: behind a bonus was to be just that, a bonus

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Speaker 1: gravy on top of your salary. But bonuses have become

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Speaker 1: such a large proportion of Wall Street bankers compensation packages

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Speaker 1: that many people plan major life decisions based on the

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Speaker 1: figures they're promised.

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Speaker 2: Originally, I mean, bonuses were meant to be exceptional for

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Speaker 2: the very high performers. It was a way to incentivize

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Speaker 2: them because they feel like, I'm making my bank all

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Speaker 2: this money. I want to be paid something special on

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Speaker 2: top of my salary. Now, bonuses did become almost an

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Speaker 2: entitlement for banks, Like or people expected them every year,

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Speaker 2: and they expected a minimum level of bonus every year.

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Speaker 1: It's like being at a concert. The audience is conditioned

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Speaker 1: to expect an encore, so everyone stays waiting for their

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Speaker 1: favorite song to play, even after the band has left

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Speaker 1: the stage. But what if the audience makes it to

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Speaker 1: the end, claps their hearts out, but the band just

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Speaker 1: doesn't come back to play the hit. That's kind of

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Speaker 1: like a Wall Street bonus in a bad year.

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Speaker 2: And that has been problematic, Like some people rely on

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Speaker 2: bonuses to pay their school fees because they've become so

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Speaker 2: recurring that people don't treat them as this exceptional nice

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Speaker 2: to have. They just build it into their day to

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Speaker 2: day living expenditure.

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Speaker 1: But as you said, they're not that stable.

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Speaker 2: Necessarily, they're not that stable, and they are head up

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Speaker 2: in chairs. And the other thing about it is like

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Speaker 2: credit we speneut. If you have most of your wealth

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Speaker 2: in shares of the bank you work in and the

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Speaker 2: bank collapses, you lose both your job and your savings

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Speaker 2: at the same time. I mean, people have a very

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Speaker 2: big one way risk on these banks. And that's partly

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Speaker 2: why we did it based on the if you sell

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Speaker 2: as soon as you can, because it doesn't make sense

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Speaker 2: to have everything bet on the same company, And a

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Speaker 2: lot of people are actually quite lazy and they just

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Speaker 2: let them roll over, which is fine until goes badly wrong.

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Speaker 1: For employers looking to retain talent, Bonuses aren't always such

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Speaker 1: a reliable strategy either. Sure, people waiting for their payout

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Speaker 1: might stick around longer than they would have otherwise, but

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Speaker 1: Laura says it's common to negotiate with a new employer

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Speaker 1: to compensate you if you leave a bank before your

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Speaker 1: bonus fully vests. What advice would you give someone looking

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Speaker 1: to maximize their bonus earnings based on what you've seen

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Speaker 1: in this calculator? Is that something you can game out.

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Speaker 2: If you have a high risk appetite and you're looking

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Speaker 2: to maximize, then you probably want to go for something

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Speaker 2: with a pretty low share price if you believe it

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Speaker 2: will appreciate. You know, I'd be thinking more a City

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Speaker 2: or a Wells Fargo than a Jping Morgan. If you

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Speaker 2: want to have a high bonus value over time, something

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Speaker 2: that's going to almost always pay you more than you expect,

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Speaker 2: then you want Jping Morgan. You want a Morgan Stanley

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Speaker 2: because those banks have almost always you've ended up getting

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Speaker 2: more than you were promised on the day. So it

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Speaker 2: depends on your time horizon and on your risk appetite.

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Speaker 1: Of course, if you don't work in banking. You might

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Speaker 1: be listening to this and thinking I'd be happy with

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Speaker 1: any of these bonus amounts. But there are some takeaways

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Speaker 1: here for anyone to consider. Be careful what you expect

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Speaker 1: when a company makes you promises in stock. Think about

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Speaker 1: selling your shares right when they vest, so your employment

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Speaker 1: and financial eggs aren't all in one basket. And while

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Speaker 1: some companies are more stable than others, it's not always

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Speaker 1: a bad idea to work for a company that has

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Speaker 1: some room to grow. If you take a chance on

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Speaker 1: the underdog, you might just wind up with a big

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Speaker 1: bonus upside. This is The Big Take from Bloomberg News.

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Speaker 1: I'm Sarah Holder. This episode was produced by Julia Press.

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Speaker 1: It was edited by Tracy Samuelson and Jenny Seraine. It

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Speaker 1: was mixed and sound designed by Alex Suguiera. It was

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Speaker 1: fact checked by Adriana Tapia. Our senior producer is Naomi Shaven.

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Speaker 1: Our senior editor is Elizabeth Ponso. Our executive producer is

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Speaker 1: Nicole beamsterboard Sage Bauman is Bloomberg's head of Podcasts. If

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Speaker 1: you like this episode, make sure to subscribe and review

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Speaker 1: The Big Take wherever you listen to podcasts. It helps

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Speaker 1: people find the show. Thanks so much for listening. We'll

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Speaker 1: be back next week.