posted on February 15, 2009 11:13:06 PM new
Or, as consultant supreme Tom Peters recently put it, if all the CEOs of the Fortune 500 were exiled to Elba, the performance of their firms, on average, wouldn't suffer noticeably.
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Rosa Brooks
Wall Street's crybabies
For some, the economic crisis means they can't buy groceries. For those who can't learn to live on $500,000 a year, it's just too bad.
Rosa Brooks
February 12, 2009
You "can never be too rich or too thin," said the Duchess of Windsor, who was wrong on both counts.
As the economic crisis deepens, many Americans may soon discover what it means to be too thin, an insight that until now has been largely reserved for denizens of the developing world. This is changing. In January, U.S. food banks saw a 30% increase in the number of people who couldn't afford to buy enough food on their own, but 70% of food banks reported that they lacked the resources to feed those extra mouths. (Call it the Economic Crash Diet.)
Meanwhile, other Americans are shocked to discover that the rest of us think they're too rich. Listen to the chorus of Wall Street whining that greeted President Obama's proposal to cap executive pay at firms that take federal bailout money. (A measly $500,000 salary? Who can live on that?)
But yes, Wall Street, it is possible to be too rich.
There's nothing inherently immoral about having a lot of money, if you can keep it in perspective. The median U.S. household income in 2007 was $50,233, and only 5% of U.S. households had incomes of more than $177,000. Statistically, if your income is anywhere near $500,000 a year, you're rich. If you make as much as the CEOs of the nation's 500 biggest companies (whose compensation averaged $12.8 million in 2007), you're very, very rich. If you took in the $657 million averaged in 2006 by each of the top 20 private equity and hedge fund managers, you're insanely rich.
But are you too rich?
Well, if you find yourself appalled at the thought of getting by on $500K a year, and you're not the sole support of 10 special-needs children or perhaps a small Third World village or two, you've gotten too rich. If charity balls, chauffeured limos, a household staff and private jets feel like necessities rather than luxuries, you're too rich. And if you've come to feel you have a God-given right to feed at the government bailout trough, but you denounce it as creeping socialism when you're asked to show some personal financial self-discipline in exchange, then yes, you're too rich.
But, but, but, squeal opponents of executive compensation caps. Link executive pay caps to the receipt of bailout funds and the executives themselves will bail out!
As Meredith Whitney, an analyst at CIBC Oppenheimer bank, recently put it on Bloomberg TV, "Wall Street attracts the best and the brightest because of its compensation structure." Impose pay caps and "the best and brightest will still figure out a way to make money, [but] it may not be on Wall Street when those minds are needed the most."
Call it the "best and the brightest" theory of executive compensation: Smart people are greedy, but we need smart people to get our financial system out of this mess, so we'd better enable those smart Wall Streeters to stay in the ranks of the super-rich.
This would be a persuasive argument if those very same smart people hadn't gotten us into this mess in the first place. Recall that the phrase "the best and the brightest" gained popular currency with David Halberstam's 1972 book of the same name chronicling how the brightest minds of the Kennedy administration embroiled America in the disastrous Vietnam War. In the '60s, the "best and the brightest" brought us Vietnam. In the '00s, they brought us subprime mortgages, credit-default swaps and a global financial crisis of unprecedented scale. (For the record, it is possible to be too smart.)
So if some of the so-called best and brightest flee Wall Street rather than scrape by on $500,000 a year, I'm not sure it's a great loss to the nation.
In the end, linking government bailout funds to executive pay caps shouldn't be seen as a form of punishment for Wall Street, though. It should be seen as an appeal to Wall Street patriotism at a time when the nation faces an economic crisis as dangerous as any war.
Over the last weeks, I've watched dozens of talented people gladly take big pay cuts to work in the Obama administration. The president earns only $400,000 a year, the Treasury secretary earns less than half that, and lower-ranking officials earn less still. Yet hundreds of smart, highly paid people continue to compete for lower-paying government jobs because they want to help clean up the hellish mess we're in. They're willing to be a lot less rich if they can help keep the rest of America from getting too thin.
Is it really too much to ask Wall Streeters to do the same?
--
_____________________
"Here in America we are descended in blood and in spirit from revolutionists and rebels - men and women who ***dared to dissent*** from accepted doctrine. As their heirs, ***may we never confuse honest dissent with disloyal subversion."*** --Eisenhower
posted on February 16, 2009 07:38:48 AM new
These weasels whining about a half million dollars a year is beyond comprehension. It would be interesting to see how many of them could survive an actual job.
posted on February 16, 2009 07:44:05 AM new
Not to be a crybaby myself, but I can tell you that $500k in this area does not include "charity balls, chauffeured limos, a household staff and private jets." It can't be had for $1 million either, unless you're willing to live beyond your means. We live well, but I don't feel an ounce of guilt or sheepishness about it.
Let me say that my wife works for the only large investment bank that has not taken any government money (neither US nor German): Deutsche Bank. So, I'm not trying to justify her income while feeding at a government trough.
She works in Information Technology, so her bonuses are more moderate than the traders. Still, she does very well. OTOH, she is "on" 24/7 (actually 24/6.5, because there's half a day where Asia hasn't started up yet, but that's also when most upgrades happen to global systems).
For example, our school superintendent makes $232,981 per year. I'm sure that it's a tough job and very important to the community, but I'm sure that there isn't a stress level close to my wife's. It takes a lot of effort to lose that job, whereas my wife has to fight every day to keep hers.
posted on February 16, 2009 11:01:50 AM new
Here's another 2 cents. Many of the highest paid people on Wall Street are the traders. Many of them are just lucky (see Taleb's The Black Swan or his Fooled by Randomness). It's pretty much heads I win, tails you lose (or more accurately, my next employer loses).
It isn't that they're inherently bad people; it's the way the incentives are structured.
Years ago, I was at Bankers Trust when we lent a lot of money to Pan Am and Donald Trump. I asked, "why are we doing this? there's no chance either of them will EVER pay in full." I was told, IBGYBG - I'll be gone, you'll be gone. The bonuses are based on origination of the loan, not the paying back. By the time we own planes housed in the desert and an FU from the Donald, the loan originators will be far gone. As it happens, they made rational economic decisions based on the incentives as structured. The real shame goes to the firms that structured the incentives they way that they did.
OTOH, I have known some financial types that were the equivalent of Warren Buffett; they made money most years, year after year, and didn't swing for the fences -- they worked under control. They deserve every penny they get.
posted on February 16, 2009 01:58:40 PM new
Cash - I don't think the author was suggesting that $500,000 would buy charity balls, chauffered limos, etc. The way I read it, the people in question feel like they need much more than $500,000 a year so that they can live the charity ball . . . private jet lifestyle.
And your superintendent example rubbed me the wrong way. While, I obviously don't know your school superintendent or your wife - I think you're missing a point - not all work stress is related to whether or not you think your job is secure. It seems awfully presumptuous to be sure that the superintendent's stess is less than your wife's.
I'm not trying to start a fight - just two little nits I felt compelled to pick.
posted on February 16, 2009 02:57:32 PM new
Cherishedclutter,
Your first point is entirely valid; I jumped at a conclusion.
We'll have to agree to disagree on the second point. While I don't have the example of the superintendent and my wife in particular, I do have a related example. The person who hired me at my last bank job is now an assistant principal. I run into him at kids' hockey games, and he sure seems more relaxed (I worked with him daily for 2 years; he was definitely stressed during that time). We discussed it, and he said that it took him a year or two to become accustomed to the changed finances, but that he was happier, felt more fulfilled, enjoyed his work more, and felt less stress. His wife agrees, and is thankful that he no longer works in banking.
I know it's only a sample size of one, but that's all I've got for examples.
From my personal experience, having worked at banks for 20+ years, there is no question that even for IT people, it's more stressful than most jobs.
If you think that we're being paid a multiple of what an off-shore resource costs to provide IT without anything expected in return, I think you're mistaken. Remember, these are positions that are not revenue generators; they're a COST center rather than a profit center. Whatever the front office pays my wife comes out of what they have to split for THEIR bonuses. If they don't think they're getting value for money, you're history in a NY minute. AND, to the extent that some front office people believe that IT professionals are fungible, many IT people have become history. You can rent a few dozen off-shore resources for what my wife and I cost.
I worked at a number of IT jobs before banking: NASA, AT&T, Capital Cities/ABC. I switched to banks first because they had better technology than NASA and AT&T and I was more challenged there. I stayed for the challenge and the money, and then eventually just for the money. I gave it up because the stress just wasn't worth it, and I wanted to spend more time with my kids.
No, it isn't just the stress of losing a job. It's also true that I've never been a school superintendent, so I can't make a direct comparison from personal experience. I nevertheless have no doubt that my assumption is correct, whether I'm being awfully presumptuous or not.
posted on February 16, 2009 04:58:04 PM new
A person is worth what they are worth, and a job is worth what it is worth.
These "best and brightest" didn't start this mess. Nobody in their right mind would issue the loans they did. They were told to whom loans were to be issued and under what conditions.
Much of the compensation given these people is stock options. Which is why the rabble cry of "tax the rich" is laughable. The "rich people" have almost overnight been cut in half.
If you think you'll see a recovery based on all those "hard working" people providing investment capital you'd better dream on.
And brokers are not "lucky". Well maybe your Aunt Rosie who daytrades is. Investment firms always tell you "We pushed Intl Fuzz, it's up 300%!", but ask how their firm has done compared to the AVERAGE.
I must have been "lucky" when my broker got me out of anything real estate 3 years ago. I similarly "lucked out" when he sold most of my stocks and started buying commodities and gold more than a year ago.
Recovery is YEARS away, and salary caps and executives flying coach, etc, is all just sop for idiots. Tells us all about the warm and fuzzy feelings you get from each meaningless speech and check off each new company going out.
posted on February 16, 2009 05:10:30 PM new
I can tell you that the superintendent of our school system (Cleveland) earns every penny he is paid. His job is extremely stressful. He makes $278,000/year. I wouldn't take it for $500,000/year. While I've no doubt, cash, that your wife's job is stressful, don't underestimate how stressful the job is of the person in charge of an entire school district.
posted on February 16, 2009 07:08:59 PM new
Cheryl,
Cleveland's population is 20 times larger than Millburn-Short Hills, N.J. Also, Cleveland was again rated the poorest major city in the U.S. in 2006, with a poverty rate of 32.4%.
I have no doubt it would be stressful to be the school superintendent of Cleveland, and I'm sure that he earns every penny of his pay.
Neither am I saying that Millburn's superintendent has a cushy job, but everything considered, he gets paid well for a tough but IMHO job not stressful.
I guess I got off on the wrong foot by turning it into a pissing contest ala my wife's job is more stressful than xxx's job. It came out that way, but it wasn't my intention.
posted on February 16, 2009 08:35:07 PM new
If the "best and brightest" didn't create this mess, they are never the less complicit in it's creation, and apparently not very bright after all, for going along with those who gave the orders. If this crisis lets their kids learn about wearing hand-me-downs, it will be a lesson well learnt.
I have a few years experience with education, in both management and the classroom. Superintendents of large districts, rich or poor, don't have the luxury of having to answer to incompetent ninnies who are directly above them. They have to answer to faceless bean counters a thousand miles away in state and federal legislatures who early and often are eager to trash their budgets in the name of fiscal salvation while in the same breath mandating education programs they know nothing about. "Stress" isn't something that can be quantified, nor is it the reason someone is highly paid. If it is, how come our cops and firemen aren't having their tax breaks taken away by President Obama? And if it is, how come "role models" in sports are making such obscene money in betwen their dog fighting matches? "I have more stress than you."...great, you win the prize for not being able to handle it. Competent school superintendents are very hard to find and grossly underpaid.
posted on February 16, 2009 09:02:48 PM new
Cash: As I see it, your wife was dealing in money. School supts. and others deal in people's lives. Of course, the money part of your wife's job dealt with PEOPLE's money. Still, it wasn't as hands-on, day after day. Unless I'm misunderstanding her job.
My DH was a university dept. chair, then dean of science, then academic V.P. Literally, his job took 12 hours a day, most of the time 7 days a week. He was dealing in people's lives and careers, students (18,000), deans (10 or 12) and faculty (400), and I can't imagine more stress--unless he'd been an 8-hour-a-day brain surgeon.
If campus cops found a parked car with a dead body in it (in summer heat, 2 or 3 days old), they drove straight to our house on a weekend to confer with my husband, for example. Work was brought home nearly every night.
Stress is stress. We all handle it differently. My husband's a runner, so he handled the stress better than most.
_____________________
"Here in America we are descended in blood and in spirit from revolutionists and rebels - men and women who ***dared to dissent*** from accepted doctrine. As their heirs, ***may we never confuse honest dissent with disloyal subversion."*** --Eisenhower
posted on February 17, 2009 06:36:50 AM new
Roadsmith,
Actually most of my wife's work consists of dealing with people, but not in the same way as it would if it were kids' education. She does not manage people's money, but the firm does. She's responsible for making sure that if DB agreed to deliver x and receive y on this date to these accounts, it actually happens. It's more than a million transactions per day, and those transactions can be large (I think the average size is US $5 Million).
She has some 600-700 people that report to her, quite a few "peers", internal clients (front office, operations, compliance), regulators from many countries, vendors, and her management. I'd say that the majority of her job is dealing with people issues; the technical aspects are a walk in the park by comparison.
FWIW, my wife resumed her running a year ago. Last week she ran 56 miles (she's training for another marathon). It works wonders for her mentally and emotionally.
OKAY, UNCLE! I PICKED A BAD EXAMPLE WITH A SCHOOL SUPERINTENDENT. I PICK PAULA ABDUL AS MY SECOND EXAMPLE
posted on February 17, 2009 08:49:12 AM new
IF you ask me, the only explanation for Paula Abdul's craziness has to be that she is under a lot of stress. Working with that Simon guy must be too much for her
I used to head a department that put together the GNMA and FNMA mortgage pools that the brokers traded. Those deadlines are definitely stressful - I don't miss it a bit. (Of course in those days the mortgages were not junk).
The best and brightest argument about executive compensation does not carry much weight with me. It was those best and brightest that got us in this mess. Best and brightest says nothing about morals and character and that is the very quality that seems to have been absent during Wall Street's betrayal of Main Street America. If they were so best and bright, why didn't they see this coming? I could see it coming as I looked at all the new housing in my affluent suburb. They knew it was coming and as Cash says, the IBGYBG philosophy prevailed. As in all Ponzi schemes, the good times have to come to an end and some of those IBGYBG best and brightest happened not to be gone when it came time to pay the piper. How are they still entitled to their best and brightest compensation? They are not. And where exactly will they go if they don't like it? Let them go.
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posted on February 17, 2009 10:05:48 AM new
Cash: Your wife's job sounds phenomenally stressful to me; bless her for handling it well by running.
I suppose we could all go on and on about levels of stress, but I don't think we're going to change anyone's mind.
_____________________
"Here in America we are descended in blood and in spirit from revolutionists and rebels - men and women who ***dared to dissent*** from accepted doctrine. As their heirs, ***may we never confuse honest dissent with disloyal subversion."*** --Eisenhower
[ edited by roadsmith on Feb 17, 2009 10:07 AM ]
posted on February 17, 2009 11:01:16 AM new
Let's not forget that the phrase "best and brightest" was, if I'm not mistaken, used ironically.
As to why they didn't see it coming, I think many of them did. They however reacted rationally (if unethically and immorally) did what the incentives pushed them to do. The first foul was on the incentive structure; it is asking quite a bit to have people work against their best interests.
posted on February 21, 2009 08:11:35 AM new
This is one of the few articles/editorials with a balanced tone and a bit of history. From today's NY Times:
February 21, 2009
Talking Business
First, Let’s Fix the Bonuses
By JOE NOCERA
“If you weren’t getting a bonus, what would you not do? Would you take longer lunches, or leave early on Wednesday?”
So asked Representative Barney Frank, chairman of the House Financial Services Committee, of John J. Mack, the chief executive of Morgan Stanley. The tongue-in-cheek question was posed last week, when the C.E.O.’s of the eight largest financial institutions in the country — all of whom had taken billions in government bailout money to shore up their balance sheets — testified before the committee in a widely publicized hearing.
Mr. Mack didn’t miss a beat. “We love what we do,” he replied smoothly. “If we had no bonuses, we would still love it.”
To which I remember thinking: yeah, right.
•
Ever since it was revealed that John A. Thain had paid out $3.6 billion in bonuses two days before Merrill Lynch was acquired by Bank of America — and just weeks before it posted a staggering fourth-quarter loss of $15.3 billion — the country has been up in arms about Wall Street bonuses. According to the New York State comptroller’s office, total 2008 Wall Street bonuses were $18.4 billion, a number that seemed so blatantly outrageous that President Obama condemned them. How can it be, people fume, that companies that have brought themselves down with their poor decision making and short-term greed, and have very nearly brought the country’s financial system to its knees — how can the employees of these companies still feel entitled to multimillion-dollar bonuses? How can they be so callous, so tone-deaf, so arrogant?
“When I’m trying to explain to my constituents why we are doing this stuff to help the financial system, they just want to talk about the bonuses,” said Senator Christopher J. Dodd, the chairman of the Senate Banking Committee. “I can’t ever get to the big picture because this keeps getting in the way.”
Mr. Dodd added testily, “I would like to see one of these Wall Street guys go to a Caterpillar factory, where 20,000 people have lost their jobs, and explain why they need their bonus.”
Late last week, Mr. Dodd did something about Wall Street bonuses: he inserted an amendment into the stimulus package that pretty much chokes them off for the five top executives — and, far more horrifying for Wall Street — for the top 20 earners as well. The antibonus amendment applies to any company that has received bailout money (it gets tougher the more money a company has received) — and the only sure way a company can get out from under these new strictures is to give back the taxpayers’ money.
With the signing of the Dodd amendment into law this week, it’s now Wall Street’s turn to sputter in anger. Don’t the politicians understand that the best performers will be most hurt by these new strictures? Wall Street executives mutter to themselves. Don’t they realize that some of those companies didn’t even want the bailout money—and only took it to because former Treasury Secretary Henry M. Paulson Jr. forced them to? Don’t people realize that this is just political pandering on Mr. Dodd’s part?
“Dodd wants to pay people like congressmen,” said Brian Foley, an independent executive compensation consultant, “all up front and without regard to performance.”
I agree that the Dodd amendment is a poorly conceived piece of legislation that will have unintended consequences. But that doesn’t mean the Wall Street bonus system isn’t a problem. It is. Until the bonus system undergoes a long-term fix, Wall Street won’t be fixed either.
•
It may seem hard to believe now, but Wall Street pay wasn’t always in the stratosphere. “When I became a partner at Lazard in 1961, my salary was $51,000,” recalled Felix G. Rohatyn, perhaps the best-known investment banker of his era. “And until I left the firm in 1997,” he added, “my compensation was always based on what percentage interest I had in the firm. Everybody was working for the greater interest of the firm.”
And why wouldn’t they? Like all Wall Street firms in those days, Lazard Frères was a private partnership. Every year the partners drew a percentage of the annual profits as their compensation — but they also had to keep most of their capital in the firm until they retired. They had a keen interest in ensuring that the firm had a healthy, long-term future.
Today’s bonus system is a warped legacy of those old partnerships. Starting in the 1970s, Wall Street firms began going public, which meant that the partners’ capital was replaced by shareholder equity. But the firms never abandoned the idea that salary was only a small portion of employee pay — and that the big payoff came at the end of the year at bonus time.
In addition, trading began to overshadow advising as an investment bank’s primary way of making money. Valuable traders whose operation made hundreds of millions of dollars for their firms demanded a significant piece of those profits for themselves — or they took their services elsewhere. So that quaint notion that the firm’s long-term health came first slowly gave way to a more cutthroat ethos. Whereas the incentives during the partnership era fostered loyalty to the firm, the new incentives turned everyone into a greedy free agent like, say, Alex Rodriguez.
By the time the late, great housing bubble was in full throttle, the compensation incentives were moving the financial system toward disaster. Firms made short-term underwriting fees for packaging mortgage-backed securities that have since become known as “toxic assets.” Traders booked short-term profits trading them (or simply marking them up). Executives pushed their subordinates to take more risk because that would yield more profits, and bigger bonuses. Nobody had any incentive to worry about whether those securities would someday “blow up.” Too much bonus money was at stake.
Is this the problem Mr. Dodd is trying to solve with his amendment? Alas, no. He seems mainly trying to send a message that people who take money from taxpayers need to show restraint. And surely they do.
But as Mr. Foley pointed out to me, the Dodd rules won’t force the ones most responsible for the current problems to give back the tens of millions they made as they led their firms off the cliff Secondly, Wall Street is actually right that the best performers will be hurt the most, and they’ll jump ship. (It’s already happening. Just recently, a group of Merrill Lynch bankers, shortly after getting their share of the Merrill booty, split for Deutsche Bank, which does not have any American bailout money.)
Perversely, under the Dodd rules, the merely above-average performers have a better chance of making the big bucks than the true superstars at the top. And finally, the new rules encourage firms to give back the bailout money to avoid the pay restrictions. Given the still-fragile state of the financial system, that’s not a very smart idea.
What Wall Street really needs is smart pay incentives instead of dumb ones. Bonuses are not inherently evil — indeed, they are probably a sensible way to encourage risk-taking — so long as the bonuses reward genuine performance and calculated risk-taking, rather than the smoke-and-mirrors lunacy of the past few years. (The sheer size of bonuses, still based on the glory years, also needs to drop, though the market is likely to cure that problem as Wall Street’s business continues to deteriorate. After all, you can’t pay out money you don’t have.)
Thus, instead of the Dodd amendment, wouldn’t we be better of with an approach that requires everyone who gets a bonus to have a large chunk of it deferred? “You can have a pool of cash and common equity that would comprise the compensation that is being deferred,” said Jaidev R. Iyer, a managing director at the Global Association of Risk Professionals. “That way everyone would have skin in the game in terms of the ongoing health of the firm.” Traders would get the deferred portion of their bonus paid out over a number of years, as the profitability of their trades were assured. And if the trades went sour, traders would have to give some, or all, of their bonus back. That way, traders would have an incentive to act for the long term, instead of churning out short-term, often illusory, profits.
As it turns out, the one big Wall Street financial institution that comes closest to this approach is Mr. Mack’s firm, Morgan Stanley. Last year, it instituted new bonus rules that say the more senior you are, the more of your bonus you get in stock. What’s more, 65 percent of a trader’s bonus is deferred, and it vests over three years. If deals or trades you worked on later go bad, that portion of the bonus can be clawed back by the firm. It’s a step in the right direction.
During his testimony last week, Mr. Mack told the committee that he took no bonus in 2007 or 2008. He also likes to point out that in 2006, his bonus was all in stock.
I did a little checking. That 2006 bonus? It was worth $40 million at the time, making it, at least for a while, the largest bonus ever given to a Wall Street executive. No wonder he loves coming to work.
posted on February 21, 2009 08:17:49 AM new
And, for what it's worth, Deutsche Bank (which the article indicated had taken no US bailout money, true enough, but they also have taken no German or other bailout money either) has paid out this year's bonus in a deferred manner. It was paid out a bit more than 1/4 this year, and then equal amounts 1, 2, and 3 years from now, subject to restrictions each recipient had to agree to before getting a penny.
At the very least, the firms that accepted bailout money should have had to reduce the bonuses at least as much as DB did.
posted on February 22, 2009 08:39:19 PM new
Ditto. Our teachers and state workers are forced to accept mandated furloughs. The payoff is that they still have their jobs and benefits. So if the whiz-kids lose their bonuses and quit their jobs who is going to lose? There are hundreds of applicants who would love to have their jobs.
posted on February 23, 2009 05:46:21 AM new
Cheryl and Pixiamom,
I agree that there should be severe restrictions on bonuses at firms that accepted bailout money, but there are two factors that mitigate it.
1. Some firms were pressured into accepting bailouts. For example, Deutsche Bank was called "unpatriotic" by German politicians for not accepting funds on the theory that they made other banks look bad. To DB's credit, they still didn't accept the funds. The bonuses were cut in roughly half from previous years and considerably deferred.
2. The compensation at banks is strange for historical reasons. They should be allowed to give at least as much bonus as is necessary to bring pay up to standards found in other industries (e.g., big pharmaceutical firms). For example, my wife's salary has not changed for most of her 25 years at DB; I don't think she's gotten a salary increase in at least a decade. The bonus makes up for that. Her salary is around 20-30k more than her secretary's even though the responsibilities are disproportionate.
I understand the anger at whiz-kids and such. I am no happier than you are at having a large part of my taxes, and the future taxes of my children, going to bonuses for spoiled, gambling, unethical, self-interested louts. They are however only the most visible and anger-creating aspects of this; there are also hundreds of "normal" workers for each one of the whiz-kids who make a much more down-to-earth income, but still mostly consisting of bonus.
posted on February 23, 2009 09:00:20 AM new
"They should be allowed to give at least as much bonus as is necessary to bring pay up to standards found in other industries (e.g., big pharmaceutical firms)".
Why? When I worked in the corporate world, most of my compensation was in the form of bonuses. They were never a given. Awarding employees of banks that made their numbers by issuing a slew of imprudent loans with bonuses is ridiculous. Sure, deregulation is to blame but some banks didn't issue bad loans just because they could and didn't need a government hand-out. Let their employees get bonuses.
posted on February 23, 2009 10:58:22 AM new
Pixiamom,
I agree to some extent, but you're effectively telling those banks to close up shop. I'm not entirely opposed to that, but it's quite a step to take in anger.
Forget the "whiz-kids" for a minute. Why would a reasonable accountant, IT professional, project manager, etc. work for a bank that the government precluded from paying what they could make in any number of industries? To the extent that those other jobs exist, they would be filled by the more capable accountants, IT professionals, project managers, etc. that had worked at the banks. As I say, that might be the right thing to do, but if it is, lets just call it what it is and close those banks. They're barely staying alive as it is; you can argue that they're on government paid life support. They surely won't survive with the more capable people leaving.
I'm not suggesting that the people involved in making bad loans get a bonus; they should be shown the door without severance. AIG had thousands of people running businesses with prudent underwriting and turning a profit. A scant 500 people or so were hitting home runs in (I believe) London, and then suffered losses big enough to affect the firm. That's the fault of top management and the 500 people, not every person in the firm.
From my family's personal viewpoint, it works out well for us. DB has not taken any govt. money, and they've already taken on some quality people from other firms. I don't have any personal stake in Citi, BOA, etc., but what I'm saying is that we shouldn't let anger push us into taking actions that can have huge unintended consequences. I'm as angry as you are, but just as you should never mail an email you wrote in anger unless you've given it 24 hours to reconsider, I think banning all bonuses from any company that accepted govt. money is unlikely to end well.
posted on February 23, 2009 11:53:17 AM new
"Why would a reasonable accountant, IT professional, project manager, etc. work for a bank that the government precluded from paying what they could make in any number of industries"?
"Could make" if the economy was healthy. I don't know about your neck of the woods, but in Oregon there are many talented accountants, IT professionals, project managers, etc. who are collecting unemployment after their company/division/department closed shop. They would jump at a chance for the pay check sans bonus the banking employees are willing to leave behind. Times are tough, but believing that the loss of bonuses is going to lead to a major loss of talent and will close the banks down is giving way too much credit to the employability and desirability of the banking personnel.
posted on February 23, 2009 12:11:12 PM new
Pixiamom,
It's no better here. To paraphrase an old joke, "what do you call a financial services professional?" Answer: "Waiter!"
There might not be a "brain drain" but I expect at least a normalization of how comp is managed at these banks. That might be a good thing for most of us, since it is difficult to budget monthly when most of the comp shows up annually.
I don't have much sympathy for people who went to work for hedge funds or other known high-fliers, just as I had little sympathy for people who went to high-flying Internet startups when they imploded. OTOH, there were many people working for AIG, for example, who had NO idea that they worked for an insurance company that had a side business devoted to outsized gambles on credit default swaps.
posted on February 24, 2009 08:31:45 PM new
Cash, the closest I ever got to the banking sector was as a director in (at the time) the leading U.S. banking software provider. I was amazed at the longevity of mediocre, non-productive employees and attributed it to the banking culture vs the software culture that pervaded the company. My little sister is the manager of a branch of a small locally-owned bank. She has worked for them since college and will probably stay with them until she retires. IMHO, job security in the banking industry is WAY higher than in the software industry and the accompanying stress is lower. My job was only secure if I met but did not overly exceed quarterly predicted forecast, dicey for those of us who insisted on solid sales for the company and who did not shelve current deals in the desk drawer for future quarters. Edited to add: I lost a job because I wouldn't accept a lowered quota for my department's quota. I knew we could make the original numbers and felt the lowering would adversely affect morale. We exceeded the original quota by 15%, the revised predictions by much more. I and my staff got our bonus but I lost my job.
[ edited by pixiamom on Feb 24, 2009 08:49 PM ]
posted on February 25, 2009 05:08:05 AM new
Pixiamom,
I think you're likening retail banking to investment banking. DB has a huge retail banking network, and what you say does apply there to some extent (it's a bit different in Germany where most of the retail operation is, as opposed to the US). In retail banking, I think you have to pee on your boss's desk to get fired.
Investment banking in general, or in my wife's case more specifically settlement of all non-equities transactions GLOBALLY, is a hugely different game. The word globally is in caps for a reason: as an example, the only conference call I can recall my wife opting out of because it was too inconvenient was a 3AM call on Thanksgiving day. It is not unusual for me to wake up at 2 or 4 and find her on the phone with work. She checks her Blackberry to the point that it's almost a nervous tic. She keeps travel to a minimum, but even the minimum usually includes an annual round-the-world trip, frequent London trips, occasional Frankfurt trips, and odds and ends to Singapore, Hong Kong, Sydney, etc. Frequently she showers at the airport (Heathrow has facilities for it) and heads straight for a meeting.
Mistakes can quickly run to millions of dollars. A duplicate payment or overdraft, even if recovered, can cost the firm a lot because of the overnight interest.
I marvel at what people will accept in IT in most industries. Even in investment banking, I find behaviors that would have gotten me fired 10 years ago. This crisis is useful insofar as it has allowed most of the dead weight to be pruned; unfortunately, it has also cut into the muscle. Dead weight is a relative term; someone let go a few years ago at DB had a good career afterward at an airline as their CIO; thank goodness he's not a maintenance person working on planes, he was what we called a NOOP (if you're too young to have used Assembler, that refers to "No Operation", i.e., a placeholder).
