Bloomberg News has an unusual practice of paying some of its reporters explicitly for publishing "market-moving" stories.
This is one of many metrics that is factored into reporters' annual bonuses.
This practice is not widespread in the financial news industry, and journalists we spoke to from other outlets were not aware that it is used at Bloomberg. We also canvassed traders, bankers and public relations professionals. None of them had heard this before, either.
Most of the people we spoke to, especially traders, were startled to hear about this practice, worrying that it might create an incentive for Bloomberg reporters to "push" or stretch stories with the specific aim of moving markets. Traders react instantly to headlines and news stories, and the decisions they make often make or lose significant amounts of money.
We asked Bloomberg about the practice. A company spokesperson acknowledged it.
"It isn't news unless it's true. At Bloomberg News, the most important news is actionable. That means we strive to be first to report surprises in markets that change behavior and we put a premium on reporting that reveals the biggest changes in relative value across all assets."
The tidbit about Bloomberg's compensation practice was buried in a New York Times article by Stephanie Clifford from 2010 and mentioned in a 2011 article by Jodi Enda in American Journalism Review. It was also recently mentioned again in a New York Times article this summer by Amy Chozick.
A former Bloomberg News employee, who spoke on the condition of anonymity, confirmed to Business Insider that Bloomberg News does track market-moving stories reporters publish and that these types of stories do factor into reporters' bonuses.
Not surprisingly, given this compensation structure, the reporters at Bloomberg definitely care about moving the market.
"Anyone who moves the markets gets a bonus. Your team gets awards. If you don't move the market [it's] like there's something wrong with you. You don't get a full bonus."
Bloomberg News reporters get a compensation report each year, the former Bloomberg employee says. The bonuses are calculated based mostly on the reporter's team's performance as well as market moving stories. A percentage of the bonus is also based on personal performance, and it's all weighted.
Bonuses for Bloomberg reporters used to be tied directly to sales of the Bloomberg Terminal. Now, half of the bonus is tied to company performance (Terminal sales) and the other half includes a range of seven or eight different metrics such as accuracy and market-moving stories.
A person familiar with Bloomberg's view of this compensation practice says concerns about it are overblown. Accuracy, above all, is the most important metric in reporters' bonuses, this person says.
"Say you make $50,000 and your total bonus is $10,000—$5,000 of that is tied to overall company performance (revenues, sales targets). Journalists have no role other than you're part of this bigger community. The other $5,000 is rated on a number of different metrics. Accuracy is a huge thing," the person says.
It's also up to the reporters' manager to decide the bonus, the person familiar with Bloomberg's view added.
"If I'm covering Wal-Mart and I sit next to a person covering a Texas company, my Wal-Mart stories are probably going to move the market more. But the Texas company person did well getting some awesome scoops. Maybe they had a few mistakes here and there. All of that weighs in, too. So it's ultimately up to the manager who decides how the bonus is figured in. To say that people are getting a big $5,000 bonus for some market-moving win is completely wrong."
"It shouldn't be surprising that there is a financial incentive for reporters to actually break news," the person familiar with Bloomberg's view added. It's also seen as a competitive advantage, the person familiar explained.
The practice of compensating reporters partly for moving the market creates the concern that reporters might push stories further than they should.
There have been a few memorable instances where Bloomberg stories have moved the market when they really shouldn't have. (To be clear, we're not saying that the reporters and editors who published these stories were motivated by their bonuses.)
For example, on Sept. 25 of this year, Bloomberg News reported a story with the headline "Wal-Mart Cutting Orders as Unsold Merchandise Piles Up," citing an email exchange between an unnamed Wal-Mart headquarters order manager and a supplier. Wal-Mart shares fell nearly 3% on that report.
Bloomberg News's Editor-In-Chief Matt Winkler later tweeted about the market impact of this story.
Wal-Mart shares drop as much as 2.9% on @BloombergNews report that company is cutting orders http://t.co/m9kmFEDO1Bhttp://t.co/pWA75VPxZc
— Matthew Winkler (@BloombergWay) September 25, 2013Shortly after the story was published, however, a Wal-Mart spokesman told CNBC "the entire story is misleading," Wal-Mart shares then rallied back.
In another example, Wednesday, Nov. 13, at 4:30 p.m. EST, Bloomberg News published a "HOT" headline from an embargoed story about Janet Yellen's written testimony from her confirmation hearing before the Committee on Banking, Housing, and Urban Affairs.
The "red" breaking news headline on the Bloomberg Terminal read "Yellen Says U.S. Economy Performing 'Far Short' of Potential."
On this news, risk assets like equities, the Treasury market, and currencies all screamed higher, and there was a sharp selloff in the dollar. It was 4:30 p.m., so futures and after-hours equities were still being traded. The markets aren't as liquid at this time as they are during the rest of the trading day. What's more, traders will tell you that they react to headlines before reading the full article because of time constraints.
Then, at 5:50 p.m. EST that day, an hour and 20 minutes later, when the futures markets were closed, the Bloomberg terminal headline was changed to a more neutral depiction of Yellen's written testimony, "Yellen Says U.S. Economy Must Improve Before Fed Tapers QE."
Traders we spoke to said it was because the first headline sounded so dovish that the market responded as strongly as it did. Later, as traders digested Yellen's full remarks, the market moved back to pretty much where it was before the news. (The headline on Bloomberg News' website remained unchanged from the original.)
This particular instance warranted a foreign-exchange veteran at a Wall Street investment bank to email the following note to clients after the Bloomberg headline came out. (Emphasis ours).
"At 430pm yesterday afternoon BBRG ran a story titled "Yellen Says U.S. Economy Performing ‘Far Short’ of Potential" {NSN MW80ZG6S972T <go>} which they later changed to "Yellen says US economy must improve before Fed tapers QE." Revision or not I would argue that the article missed the point of what exactly Yellen said.
"If you take the time to read the text of this morning's Yellen testimony it's not nearly as dovish as the market reaction (I've attached it). In fact I think that the line the aforementioned BBRG article is referring to is "I believe the Federal Reserve has made significant progress toward its goals but has more work to do" which doesn't sound nearly as low for long / QE forever as the headline."
There's nothing wrong with a news story moving the market: It means a story is important. But compensating reporters specifically for moving the market creates at least the appearance of a conflict of interest — specifically, an incentive for reporters to publish stories and headlines with the explicit aim of moving the market.
Dow Jones, another market-news service, does not compensate its reporters for moving markets. As Bloomberg continues to gain more power in the financial world, its news practices — such as the Terminal "snooping" scandal of earlier this year and recent reports that Bloomberg killed a China story to avoid irritating the Chinese government — are coming under increased scrutiny. It would not be surprising to see the practice of paying reporters to move markets draw similar questions.
