The best proposal yet for aligning Wall Street pay with performance

There's been lots of talk lately about fixing Wall Street pay so people don't get rewarded so lavishly for taking crazy risks that blow up later. And there have been some pretty convincing explanations of why that will never work.

But now, in a comment to this very blog, Curious Capitalist regular and Wall Street veteran That Anonymous Dude offers what I think is the best Wall Street pay plan (well, really it's a firing plan, but same difference) yet. Here it is (with a tiny bit of cleanup because he was typing fast), the TAD Regulatory Plan:

Eliminate (permanently) the bottom 5% of all wall street performers each year. If these guys can't get with the trend and at least perform to avg level, these are the guys who are going to be suckered into buying stuff they don't understand and are going to get blown up sometime in the future (hello orange county, ca). Wow, who knew tulip bulb/tech stock/derivatives prices could go down as well as up?

Also, each year eliminate the top 5% of all wall street performers. Statistically, you'll probably be getting rid of them next year anyway. If they are having a multi-year run they're probably doing something quite clever that will turn out not to be in a few years. Again, why wait til tomorrow to do what you can today? OMG, that event I thought was only .0000000000000001% likely, happened 3 days in a row.

After about 5 years of this, eliminate anyone left. Honestly, anyone who doesn't understand the risk/reward ratio under the TAD regime shouldn't be managing money anyway. Also, by permanently eliminating people, we get rid of the serial exploders (hello Mr. Meriwether) who hop from place to place.

I've got to say that I don't fully understand the third paragraph. (If you eliminate anyone who is left, then who is left?) But the idea of eliminating the top 5% of performers every year is genius.