Why pay a $50-100 million bonus to an executive that will lose you $800-900 million or even several billion dollars? Anybody on the street can bankrupt Merrill Lynch and would do it at the base salary. Pump and dump. We saw how that worked out. Could things have been worse with a different bonus structue? I don't think you can do worse than out of business.
Everyone is doing poorly this year. You need to retain the best and brightest so that they can figure out what the best strategies going forward are going to be and so that they can think of the next big ideas. If you don't pay bankers or traders a bonus, they are going to leave to rival companies or the buy-side. Companies may be laying off employees in mass quantities, but they certainly won't pass up the opportunity to hire a superstar from another firm regardless of the state of the economy. Wall Street comp is an entirely different animal from other industries and like others have said in this thread, the base is generally very low at the lower ranks. They work a ton of hours, get treated like garbage by their superiors, are on call pretty much 24/7, and have an impact on multi-billion dollar transactions. A first year analyst will generally make in the range of $55k - $60k plus a bonus that used to range anywhere from 50% - 200% of base. The times have changed for the next few years and I doubt they will probably be making close to 50% - 75% of base for their bonuses. I know GS first year analysts got a stub bonus of only 10k - 20k this year, which is a far cry from 2007. The money being made on Wall Street is probably incomprehensible to most people who don't work in the industry, but they do create a lot of value for a price and time that cannot be replicated by other industries. Do you think that executives at Pepsi would have the time or ability to actively market themselves, assign a value for their company, negotiate terms of a sale, and run the company at the same time? And if you were a shareholder, would you want them to be spending all of that time doing that instead of running the company to the best of their ability?
Uh... You did read the article, right? The one titled "On Wall Street, Bonuses, Not Profits, Were Real"? What does a Wachovia bank teller have to do with that, if you don't mind telling me? I mean, besides the fact that she lost her job because traders' machinations left her company in the lurch and forced the company to downsize. OMFG!!!! They're treated just the mere mortals with real jobs who sometimes get laid off!!! How dare they!!! If these guys deserve megabonuses in up years when everybody is doing well, they should also have no problem with 'reverse bonuses' back to their company in years when everybody is down, right?
A lot of us get paid on small base salaries and then a percentage of our book. However the percentage is not locked and loaded. So imagine making your firm 20 million in 2007 and getting paid x...and then making 40 million in 2008 and getting paid x*.2......its a kick in the nuts. But you know what, those are the joys of having a commission-type comp structure. Risk and reward, it is what it is. If you have a job right now, you shouldnt be crying. There's always next year.
Everybody is doing poorly. That's a cop out. Some companies profit from the mayhem, other companies fail. Bad companies sacrifice survival and longevity for short term gain. Good companies plan to clean up and profit, when the other companies fail. Berkshire Hathaway is making fantastic deals. Buffett has a long term interest in his company and is a stakeholder. He wasn't one of those greedy senior executives looking to get his $50 million bonus and leave.
If she's losing here job, obviously she ain't gettin' a bonus. Megabonuses? Megabonuses for GTS? You'll excuse me if I think that is hilarious. GTS, Forex transactions, treasury operations, etc, they're all back office operation. These people don't earn megabonuses. As a matter of fact, they earn **** pay on top of sh1tty bonuses. And like I said, these people got laid off in a record profit year, at no fault of their own. So your tongue in cheek remark missed the spot by about a mile.
So then why the %#$! is she germane to the conversation? The thread is titled, "Did Wall Street bonuses bone us?", not "Did bank tellers in Anytown, USA making $11/hr bone us". And you still don't seem to realize that the reason they are being laid off is because their shifty friends were setting up deals which would reap immense apparent profits in the short term (and thus immense bonuses) while boning their friend in the 'back office' along with the rest of the office (and indirectly the rest of the country) in the long term. You have yet to write one single word that in any way contradicts or excuses anything written in the article. Honest question, did you even read it? You do realize that it is what we are basing this discussion on, right? You do realize that those people are who I'm talking about, right?
Actually yeah I did read the article. And you know the first thing that jumped out for me? Total comp. Whenever the media would like to quote how "outrageous" Wall Streeters are paid, they invariably use total comp. Of course, they conveniently ignore the fact that total comp include far more than salary and bonus. It includes pension (if you're still lucky enough to get one), health benefits, social securities, blah blah, which adds up to up to 40% of a guy's pay. Well in that case, the average American isn't getting paid $46K. He/she is getting paid $65K. Grossly overpaid if you ask me. Secondly, OMG, Wall Street is built upon the ideal of maximizing wealth. And here I thought that was the idea. Nobody makes a lot of money in a short span of time without taking risk. Finally, like I said, the top trader in 2007 made $750 million for Goldman. He worked very hard, harder than most Americans can even dream of. What did he get paid? A fraction of that. Some $20 million, but still chump change compared to what he made. So if you're that guy, you'd be thinking if you can do better on your own. And you probably can, which is why so many of them end up running their own hedge funds. There is only one thing that prevents him from doing exactly that. Risk. Even if you are the smartest guy who works really really hard, you don't win all the time. Which is why instead of running a hedge fund, you stick around and eventually make management levels. Take away his bonuses and that hedge fund option would start to look a lot more attractive. Goldman, Merrill, Morgan, etc would experience an outflow of talent like you wouldn't believe. But I'm sure that's a valid business model for you.
You are so right; the Merrill Lynch business model was so clearly a great success. How could I doubt a system that required a $700 billion taxpayer bailout to prevent total failure and dissolution? It is clearly so successful that it should be above reproach. You talk about the great risks being taken. Take risks with your own damn money. Don't privatize the gains and socialize the losses. If any of these great 'risk taking' traders actually lost money from their pocket, you might be spouting something other than empty platitudes or complete and total foppery. If these people had any shame or were taking any real personal risk, they'd all end up doing a Jesse Livermore. As it is, these @ssholes walk home with 8 years of absurd bonuses lining their pockets (the 'great risk' they took being that they will have to go a year without their annual absurd bonus), and walk away and leave me with the bill for their smoking path of destruction across the American financial landscape. Then, on top of it, people like you come to around boo-hooing about how tough it is for them, and how they are really the victims here. Right.
She is germane to the convo because it's not only the big dogs at the top getting bonuses. Yeah, those dudes get the super huge bonuses, but when you read on banks fighting for the ability to give out bonuses...it's the bonuses of everyone else that they are fighting for, not the big wigs. Again, if all of the little guys don't get their bonuses then some will leave because they have lower base salaries. The teller was just an example of a normal employee who has a pay structure of a lower base with a bonus added. Hey, you are right. And that happens in many an industry. There were a few shady folks at Enron. That doesn't mean everyone who worked there was shady. There were a few shady people at AA. That doesn't mean everyone who worked there was shady. Yeah, there are some folks making shady deals, but the majority of the people are going about normal business in the best way that they know how. They don't even have the access to do anything shady like that.... Yes, I read the article. It focuses on the guys making the huge bonuses. Again, firms are fighting to keep bonuses for everyone. The article basically implies that most folks are shady and boosting profits in order to get paid a higher bonus. That's bs. The majority of folks working there have no kinda control to even do something like that. And again, the whole fuss about firms paying out bonuses in the middle of the bailout revolves around them not wanting to lose any of their employees....who have lower base pay. Yes, those employees took on that risk of getting less when things went south....but that doesn't mean the firm is wrong or shady to want to give folks bonuses when they know folks will leave when they don't.
See now, that was precisely the type of response I expected from you. Absurd bonuses? Like most things that is relative. Do you want to make it a fair comparison? Do you really really want to? Let's do it then. If you want to make a fair comparison you would mention that these guys work so hard at more than twice then national average that they'd be lucky not to have marital/family problems, assuming they're lucky enough to have a family. You'd mention that those guys are way more educated and went to much better schools, put up Ivy League tuition up front to have a shot to do what they do. You would mention that most of them work out of New York City, the place with the highest cost of living in the country at 285% the national average that their pay have to take into account of that. So if I wasn't working out of NYC, I'd expect under 36% of my pay I'd get here. You would also note that even if you include this abysmal year, those guys generate many many many times more tangible measurable wealth than the average American. You would say that at its core, finance is about the raising and deployment of capital, Wall Street is doing exactly that. Like I said already, if you have a crystal ball and can always do so efficiently and without loss, you don't need to trade in the market. You could just keep buying lotteries. Furthermore, if those pension funds, school boards, municipal governments, namely, people like you, don't keep buying those MBS, chances are the likes of Lehman wouldn't be underwriting them. Socialize the costs? How so? An MBS, sub-prime or not, is backed by a cash stream generated by tangible property. So if not so many Joe Six-pack (note, not a Wall Streeter) didn't default on that mortgage and otherwise live way way above his means, guess what, that bond wouldn't have defaulted. So Wall Street profits are only a "mirage" like the article groaned if you assumed the entire US economy is a mirage. Privatize the gains? Again, how so? They are paid a fraction of the wealth the generated in a wholly new concept concocted by Wall Street called compensation. The gains went to the shareholders through dividends or capital gains when they sold. They lost money this year, but they knew that could happen going in. Those that didn't are idiots. But you didn't mention those things did you? Nope, because you don't want to make it a fair comparison. In fact, you'd be hard pressed to find an American who doesn't hate Wall Street or other "fat cats." Hate them and jealous of them for their wealth, lifestyle, etc and that this year is merely the ammo. And because Americans love to have somebody to hate. Because if they wanted to be fair, they would have mentioned the risks on a good year like say... 2004 to 2006. Some economists did and hats off to them. But it wasn't you.
Good post. I also forgot to mention that if you read the media, you'd think everybody working for a financial services firm is making hundreds of K in dough.
You really believe that hourly bank tellers get incentive laden bonus packages? If so, you are more out of touch than I thought possible.
I guess you aren't paying close attention. There is a little thing called TARP? Maybe you've heard of it?
oh my god (I had to actually type that out), you just summed up the attitude that pisses off most americans, and the reason the pay structure is so jacked up, and the reason these guys take so much risk, etc, etc they put up an ivy league tuition (unlikely, their parents however) and now they get to screw us all over because they went to an ivy league school unfreakinbelievable
And that's different from welfare, food stamps and other social securities how? Apparently when poor hard working blue collar get in trouble for whatever reason, it's the right thing to do. But when it's Wall Street, it's a bail out. No attitude problem at all. You just aren't giving them their fair shake.
LOL. This is absolutely comedy gold. Thanks for making my day. I didn't think that people like you really existed. I don't think I could really say anything that would make you look more foolish than you have made yourself look.
Again, he only mentioned the banker to highlight that all the folks getting bonuses aren't the bigwhigs that the article is talking about. Bad example for sure...to use a teller...but most seemed to grasp his point.
Good save, coming back with a reply right after than MFW disaster, maybe you can burry it deep enough that people won't see it. BTW, which people? Who responded that they understood? I see exactly 0 responses of support beside yours. I find it far more likely that people rolled their eyes and just moved on. I, on the other hand, have the unfortunate habit of trying to take on people who are not worth wasting time on. Anyway, your point seems to be that people that make little money get Wall St. bonuses, but I still haven't seen a single example of someone who qualifies.... So.... I guess I grasp his point. I just have yet to see any evidence that it isn't obfuscation. Who exactly are these 'little people' getting the benefits of Wall St. largesse?
