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How Banker Pay Is Out of Whack

(Human, 14,329

Points)

on 6/12/12 at 7:30am

We all know that we get paid a lot relative to the average guy on Main Street. We like to think it's because we're something special: that we've attended the right schools, that we have the right combination of hard and soft skills, that we're...well...somehow better than everyone else. But this was not always the case.

In the 1950's, bankers made the same amount of money as everyone else. Now, you might say "Well, Eddie, that was in the '50s. We're so much more sophisticated and our work is so much harder today." And that may be true. But is it 500 times harder? Because that's roughly the amount that bank CEO pay has pulled away from the average worker since just the 1980's.

The problem lies in how bankers are compensated. The shareholders-be-damned approach that has evolved since Merrill Lynch went public in 1971 simply rewards the wrong behavior. The current compensation model unduly rewards those who take excessive risk and empire build (case in point: JPM's Ina Drew - the Whale's boss - earned $1.3 million a month for the last two years).

Obviously this model is retarded and leads to all sorts of moral hazard, most notably the "company put". In other words, a trader can take all the risk he wants to juice his pay knowing full well that if he blows himself up the firm is going to eat the loss. It's the classic heads-I-win-tails-you-lose scenario.

Another bogus metric bank CEOs (and, by extension, lower rung bank employees) are paid on is the size of the bank. Citi is notorious for trying to juice year-over-year growth, when in fact a bloated behemoth of a bank is one of the worst performing business models. I'd direct you to the hilarious graphic in the article showing how the Bank of the Ozarks absolutely kicked JP Morgan Chase's ass from 2005-2008.

Now before you get all pissed off and think that I'm saying you're overpaid, realize that I'm saying that the worst of it is at the upper levels. But can you explain to me why bankers should make several multiples of the average guy on the street? Especially right out of undergrad, when you don't know anything?

I'm not immune to the criticism. If you guys knew what I did to make this kind of money in the late '90s, you'd probably puke (yes, that's one week's pay):

I got rewarded for taking crazy risks that didn't always work out all that well for the client.

I had a conversation with some friends the other night and the topic of our worst job ever came up. I didn't give it much thought, but I said the worst job I ever had was building a parking lot once when I was 20. Coincidentally, that job took about a week as well, for which I was paid $350. $350 to work in the hot sun pouring asphalt, lugging cement blocks around, and pounding rebar through them with a sledgehammer. $350.

As a commodities trader, I made 120 times that to sit on my ass filling out trade tickets and yelling, "Runner!". Kinda makes me shake my head these days (but not enough to give the money back).

What do you guys think? Would indexing compensation to Return on Assets (as the majority of regional banks already do) instead of Return on Equity bring things more in line? Guys like TheKing and I are always calling for a return to Glass-Steagall, and that would certainly take care of the TBTF issue. Would you still work in finance if the compensation were more in line with what your peers make?

Tags:

compensation

Comments

Pretty sure I speak for

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 8:11am

Pretty sure I speak for everyone when I say we would like to know what you did during the week listed on that sheet.

You're born, you take shit. You get out in the world, you take more shit. You climb a little higher, you take less shit. Till one day you're up in the rarefied atmosphere and you've forgotten what shit even looks like. Welcome to the layer cake, son.

I think it is moderately

Ecalw001

(Senior Monkey, 79

Points)

on 6/12/12 at 8:12am

I think it is moderately justified. I cannot speak at the higher levels but with the hours worked I think associate and analyst pay is on par with what it takes a person to get there.

Again, I know your talking about higher levels but on the lower rungs its much easier and takes much less education and very little networking to find a job building a parking lot. The application processes is most likely not even there and your not a waste of life. I only speak because I worked doing roofing and i did nothing but show up and work even in the rain if we were putting gutters up and splash blocks down.

At the higher level's It they may be overpaid but again I am not going to speak on it because I have absolutely no clue.

What the...was this a typical

In The Flesh

(Neanderthal, 2,792

Points)

on 6/12/12 at 8:25am

What the...was this a typical day?

Head of Metal Website: www.headofmetal.com

https://twitter.com/headofmetal2012

Edmundo Braverman: What do

21 Lives

(Orangutan, 266

Points)

on 6/12/12 at 8:36am

Edmundo Braverman:

What do you guys think? Would indexing compensation to Return on Assets (as the majority of regional banks already do) instead of Return on Equity bring things more in line?

I like the concept of using RoA instead of RoE. This gives a greater sense of "real" returns. It also discounts the incentives and tax breaks given to debt financing.

I think a major problem with executive (not just bankers) compensation in general is the focus on quarterly earnings. Why should someone get a bonus for increasing stock price 7 out of 8 quarters when in the 8th quarter the stock falls to pre-rise levels?

On another note, I think the highest compensated (and maybe most powerful) officer at a bank should be the Chief Risk Officer (and the risk officers and employees should have adequate training). What kind of system do we have where a bank executive can override the opinion of the risk officer saying "that's too risky"? The reason for the risk officer is precisely to say, "that's too risky," and to stop bad bets from being made.

The only thing I have to say about starting pay, is that in a large majority of entry-level jobs, the potential for an 80-100 hour week is nonexistent (hell, the potential for a 60 hour work doesn't exist for most recent grads). Work after 6 p.m.? Work on Saturdays? The engineers would riot.

My WSO Blog

"Unbelievably Believable" -- RG3

Did weeks always go Wednesday

Dudemaster

(Senior Chimp, 23

Points)

on 6/12/12 at 8:41am

Did weeks always go Wednesday to Wednesday?

@Nefarious - Kinda hard to

Edmundo Braverman

(Human, 14,329

Points)

on 6/12/12 at 8:48am

@Nefarious - Kinda hard to remember exactly, but based on that sheet I'd say mostly S&P and Treasuries (and not that candy-assed S&P-mini, which was just introduced around this time).

@In The Flesh - No, definitely an outlier week, and I think I kept this sheet because it had my best single-day ever (~$20,000 with the bonus on 5/14)

@Dudemaster - Yeah, our week went from Thursday open to Wednesday close, and we got paid on Fridays. Bonus accumulated throughout the month and was paid out on the 15th of the following month. It was pretty sweet getting paid 5 (and sometimes 6) times a month after working in equities and only getting paid once a month.

Edmundo Braverman: @Nefarious

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 8:50am

Edmundo Braverman:

@Nefarious - Kinda hard to remember exactly, but based on that sheet I'd say mostly S&P and Treasuries (and not that candy-assed S&P-mini, which was just introduced around this time).

I like to think I am doing pretty well in my career; however, I hope one day I can get to a point where I pull in 40k in a week and 13 years down the road not even remember what the fuck I did to earn it.

Nefarious-: Edmundo

Edmundo Braverman

(Human, 14,329

Points)

on 6/12/12 at 8:56am

Nefarious-:

Edmundo Braverman:

@Nefarious - Kinda hard to remember exactly, but based on that sheet I'd say mostly S&P and Treasuries (and not that candy-assed S&P-mini, which was just introduced around this time).

LOL. Now you're making me sound like a dick. I traded a lot of different shit, but I got on a hot streak around this time playing the Treasuries off the S&P and vice versa. Gun to my head, I think there was a little cotton in there too (I seem to recall a drought in '99). That time of year, probably a few unleaded gas as well. What I have no trouble remembering are the massive parties I funded when I was rolling like this.

Edmundo

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 9:11am

Edmundo Braverman:

Nefarious-:

Edmundo Braverman:

@Nefarious - Kinda hard to remember exactly, but based on that sheet I'd say mostly S&P and Treasuries (and not that candy-assed S&P-mini, which was just introduced around this time).

Concentrated OJ was hot during this time as well.

Edmundo Braverman: Now you're

UFOinsider

(Human, 10,302

Points)

on 6/12/12 at 9:18am

Edmundo Braverman:

Now you're making me sound like a dick.

You had no problem making a shit ton of money, now you're advocating closing the door to that same opportunity? WTF?

I came here to figure out how to get filthy stinking rich, not sit on my ass at some lame fucking union job. Let the average asshole's pay be that: average. The people who want more can work for more.

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

I respect you Eddie and I

Nabooru

(Gorilla, 689

Points)

on 6/12/12 at 9:26am

I respect you Eddie and I know you admit you're not immune to to criticism yourself but then you follow that with a 40k stub for a week's worth of work then raise the question of whether people in finance are being paid too much? I'm asking an honest, non-sarcastic question here: isn't it easier to come up with this point of view AFTER you've ridden the wave and gotten out of the business? Would you have still worked if you got 1/20th the commission?

Who are you going to believe, me or your lying eyes?

Nabooru: I'm asking an

Edmundo Braverman

(Human, 14,329

Points)

on 6/12/12 at 9:29am

Nabooru:

I'm asking an honest, non-sarcastic question here: isn't it easier to come up with this point of view AFTER you've ridden the wave and gotten out of the business? Would you have still worked if you got 1/20th the commission?

Of course it's easier. Would I have still done that for $2,000 a week? Assuming that you mean the ceiling on that kind of work was $2,000 a week, then no. There are plenty of less stressful jobs out there that pay at or near that much. If the upside was still there, however, then yes. In fact, there were plenty of weeks where I only made $2,000.

Nefarious-: Concentrated OJ

Edmundo Braverman

(Human, 14,329

Points)

on 6/12/12 at 9:32am

Nefarious-:

Concentrated OJ was hot during this time as well.

Juice was then, is now, and forever shall be the consummate sucker's bet.

Movie stars that make $15

lionwater

(Baboon, 102

Points)

on 6/12/12 at 9:46am

Movie stars that make $15 million a flick.. or Athletes that make $15 million a season..

Are they working 500 times harder than the average joe? Especially when they are 18 year olds out of high school (even younger than Analysts)?

Remember, professional atheletes (in particular) were also paid the same or less than the average joe in the 1950's too. And I am not sure the exact multiple, but average pay for actors/actresses in the 1980's does not even compare to what they are paid today.

While I agree there are many people "overpaid" on the basis of how "hard" they work (physically or intellectually).. we are lucky to have the right to be paid what somebody else is willing to pay us.

It is not fair, but I am glad that the US has the best sports and movies in the world.. even though I hate the fact that some kid that happened to be on a popular Sitcom is now set for life.

..of course, the public perception of what value entertainment brings to the world vs. finance is another topic for debate.

So.. to sum it up, yeah.. give me some of that commission!

I hate the comparisons to

ThunderRoad

(Baboon, 154

Points)

on 6/12/12 at 9:47am

I hate the comparisons to manual labor. Pouring asphalt in the hot sun sounds unpleasant, but it is not more difficult than front office finance. If it were, fewer people would be able to do it and the price of their labor would be higher. The fact that you were able to pour asphalt is actually pretty strong evidence of this point.

I cooked hamburgers and french fries in high school. It was much more unpleasant than private equity, but it required no skill whatsoever, no investment in human capital, and that's why I made $5.15/hour for the pleasure- even less than you were paid for your strongman abilities in the parking lot (and since I'm probably 10-15 years younger than you, that's much less in real terms). There are probably crab fishermen and mercenaries who make more than a lot of finance professionals for doing dangerous, highly skilled manual work.

Maybe you could make the argument that you have to have financial capital first to create human capital, which puts some equally capable people at a disadvantage. That's somewhat true. But that's a separate problem entirely from differential wages.

Your main point is that incentives are poor. That's definitely true, but that is also a separate issue from overall level of pay, though maybe you can argue that incentives change when you start earning millions of dollars.

I am wise because I know that I know nothing -Socrates

lionwater: Movie stars that

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 9:59am

CEO pay (not just at banks)

West Coast rainmaker

(Neanderthal, 2,071

Points)

on 6/12/12 at 10:22am

Guys who milked the cow for

Zafrynex

(Baboon, 139

Points)

on 6/12/12 at 10:27am

Nefarious-: lionwater: Movi

lionwater

(Baboon, 102

Points)

on 6/12/12 at 11:05am

Zafrynex: Guys who milked the

happypantsmcgee

(Almost Human, 9,621

Points)

on 6/12/12 at 11:01am

If I had asked people what they wanted, they would have said faster horses - Henry Ford

In my opinion there is no way

ke18sb

(King Kong, 1,091

Points)

on 6/12/12 at 11:18am

happypantsmcgee: Zafrynex:

Edmundo Braverman

(Human, 14,329

Points)

on 6/12/12 at 11:20am

lionwater: Nefarious-: li

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 11:35am

Edmundo Braverman: Allow me

illiniPride

(King Kong, 1,099

Points)

on 6/12/12 at 12:23pm

Leadership can be defined in two words: "Follow Me"

Your point is moot and

lionwater

(Baboon, 102

Points)

on 6/12/12 at 12:02pm

Of course you are glad that

ke18sb

(King Kong, 1,091

Points)

on 6/12/12 at 12:06pm

double post

lionwater

(Baboon, 102

Points)

on 6/12/12 at 12:11pm

ke18sb: Of course you are

lionwater

(Baboon, 102

Points)

on 6/12/12 at 12:17pm

Nefarious-: Unfortunately,

UFOinsider

(Human, 10,302

Points)

on 6/12/12 at 12:24pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider: Nefarious-: Unf

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 12:28pm

UFOinsider: Nefarious-: Unf

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 12:33pm

Nefarious-: UFOinsider: N

UFOinsider

(Human, 10,302

Points)

on 6/12/12 at 12:42pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider: Nefarious-: U

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 12:50pm

I actually do think the comp

TechBanking

(King Kong, 1,101

Points)

on 6/12/12 at 12:50pm

Nefarious-: http://www.hangt

UFOinsider

(Human, 10,302

Points)

on 6/12/12 at 12:58pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider: Nefarious-: ht

Nefarious-

(Neanderthal, 2,208

Points)

on 6/12/12 at 1:04pm

Nefarious-: UFOinsider: N

UFOinsider

(Human, 10,302

Points)

on 6/12/12 at 1:08pm

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider: Nefarious-: Unf

labanker

(Orangutan, 328

Points)

on 6/12/12 at 1:15pm

Edmundo

Relinquis

(Neanderthal, 2,186

Points)

on 6/12/12 at 2:10pm

relinquis... Killing the GMAT this December; Over/Under set at: 725 GMATs.

illiniPride: Edmundo

West Coast rainmaker

(Neanderthal, 2,071

Points)

on 6/12/12 at 2:41pm

I deserve my comp. Fuck you,

mxc

(Senior Gorilla, 811

Points)

on 6/12/12 at 5:20pm

Do any of you guys know if

jbanks718

(Chimp, 8

Points)

on 6/12/12 at 5:29pm

Disclaimer I have never been

junky_munky

(Baboon, 156

Points)

on 6/13/12 at 4:02am

I hate when people bring the

happypantsmcgee

(Almost Human, 9,621

Points)

on 6/13/12 at 8:37am

If I had asked people what they wanted, they would have said faster horses - Henry Ford

happypantsmcgee: I hate when

UFOinsider

(Human, 10,302

Points)

on 6/13/12 at 8:41am

YOU JUST GOT TROLLED
http://www.troll.me/images/red-foreman322/dont-you...

UFOinsider: happypantsmcgee

happypantsmcgee

(Almost Human, 9,621

Points)

on 6/13/12 at 8:46am

If I had asked people what they wanted, they would have said faster horses - Henry Ford

Nefarious-: Well, aside from

IlliniProgrammer

(Almost Human, 9,182

Points)

on 6/13/12 at 9:28am

Work hard, play hard.

IlliniProgrammer: Nefarious

Nefarious-

(Neanderthal, 2,208

Points)

on 6/13/12 at 10:52am

TechBanking: I actually do

cphbravo96

(Senior Neanderthal, 4,992

Points)

on 6/14/12 at 12:31pm

"The trouble with our liberal friends is not that they're ignorant, it's just that they know so much that isn't so."
- Ronald Reagan

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The Company reserves the right, at its sole discretion, to pursue all of its legal remedies, including but not limited to immediate termination of your registration with or ability to access the Web Site and/or any other service provided to you by the Company, upon any breach by you of these Terms and Conditions or if the Company is unable to verify or authenticate any information you submit to the Web Site registration with or ability to access the Web Site.

Indemnity.

You agree to defend, indemnify, and hold harmless the Company, its officers, directors, employees and agents, from and against any claims, actions or demands, including without limitation reasonable legal and accounting fees, alleging or resulting from your use of the Material or your breach of the terms of these Terms and Conditions. The Company shall provide notice to you promptly of any such claim, suit, or proceeding and shall assist you, at your expense, in defending any such claim, suit or proceeding.

General.

The Company makes no claims that the Materials may be lawfully viewed or downloaded outside of the United States. Access to the Materials may not be legal by certain persons or in certain countries. If you access the Web Site from outside of the United States, you do so at your own risk and are responsible for compliance with the laws of your jurisdiction. These Terms and conditions are governed by the internal substantive laws of the State of New York, without respect to its conflict of laws principles. Jurisdiction for any claims arising under this agreement shall lie exclusively with the state or federal courts within New York, New York. If any provision of these Terms and Conditions are found to be invalid by any court having competent jurisdiction, the invalidity of such provision shall not affect the validity of the remaining provisions of these Terms and Conditions, which shall remain in full force and effect. No waiver of any term of these Terms and Conditions shall be deemed a further or continuing waiver of such term or any other term. Except as expressly provided in additional terms of use for areas of the Web Site a particular "Legal Notice," or Software License or Material on particular Web pages, these Terms and Conditions constitute the entire agreement between you and the Company with respect to the use of Web Site. No changes to these Terms and Conditions shall be made except by a revised posting on this page.

PRIVACY POLICY

The Company recognizes that you are concerned about privacy. We are committed to preserving your privacy and safeguarding your sensitive information. The following statement describes the general information-gathering and usage practices of our sites.

Our staff, contractors, Internet service providers and others involved in this site follow this policy or similarly strict policies regarding your Information.

Disclosure

The Company is committed to fully disclosing our policies regarding the collection, use, maintenance, disclosure and security of personal information obtained from users of our site. The term "personal information" includes a name, address, email address, or any other information which could be used to contact you directly or to identify you personally.

Use and Disclosure Limitations

The Company only uses personal information about its Web site users for specific purposes. We do not share user information with third parties except when we have told users about the disclosures, when we have prior consent, or when required by law.

Use Policy: When the Company gathers personal information from users, we ask for permission first. We also disclose, at the time of collection, how the information will be used by us. Personal information is used for activities such as auto-completion of commonly-used forms and helping us contact you when you solicit information from us.

Disclosure Policy: We do not normally disclose personal information to anyone outside of the Company unless we have previously informed users about the disclosures. However, some data may be used from time to time by outside contractors, including auditors or consultants, to assist us in carrying out necessary financial or operational activities. These uses will be consistent with this privacy policy and all contractors using this potential personal information must agree to safeguard it, to use it only for the authorized purpose, and to return it or destroy it upon completion of the activity.

The Company might be required to disclose personal information in response to a valid legal process such as a subpoena, search warrant or court order.

Although unlikely, it is possible that we may have to make certain disclosures to ensure the security of our Web site, to protect its integrity, or to take precautions against potential liability. In any of these situations, we will take any reasonable steps to limit the scope of the data disclosed.

Web Logs: The Company maintains standard Web logs that record basic information about visitors to our Web site. These logs contain: * The Internet domain from which you came to our Web site. * Your IP address. An IP address is a series of numbers which uniquely identifies your connection to the Internet. Although it is possible in some instances, certain types of IP addresses may be used by interested persons to identify users but we do not attempt to identify users in this way. * The type of browser (e.g., Internet Explorer or Netscape) and operating system (e.g., Windows 98) you use. * The date and time you visited the site, and the pages you saw.

We use Web log information to design our Web site, identify popular features, and in similar ways. We do not try to identify individuals from Web logs or to link Web logs to other user information. However, if someone tries to damage our Web site or use it in an unauthorized or illegal way, we may share Web log information with law enforcement agencies. The Company may provide aggregate information such as the number of users who visit particular pages of the site, or the number of people who link to certain external sites from our site, to other parties.

Changes to Privacy Policy

The Company's features and services will change over time and our information-gathering practices and policies may also change.

While our philosophy of protecting user information from inappropriate uses and disclosures will not change, this policy will be updated occasionally to include any change that materially affects the collection, maintenance, use, or disclosure of personal information.

Accept Terms & Conditions of Use *

User	Silver Bananas
Edmundo Braverman	1114
TNA	1094
CompBanker	873
happypantsmcgee	742
IlliniProgrammer	715
UFOinsider	628
TheKing	620
BlackHat	565
Nouveau Richie	420
cphbravo96	404

User	Banana Points
Edmundo Braverman	14329
TNA	13474
WallStreetOasis.com	12048
UFOinsider	10302
happypantsmcgee	9621
IlliniProgrammer	9182
CompBanker	8504
Siberian Husky	5862
AndyLouis	5784
monty09	5398

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I used to work with a guy that had everything on the surface, but absolutely nothing inside. The guy was 6 feet tall, good-looking, charismatic, multi-lingual, graduated from a top business school, and had made MD at a bulge bracket investment bank. Yet he couldn’t remember the last time he... How to Develop a Personality
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Inspired by comments from this: http://www.wallstreetoasis.com/forums/basic-guide-ramping-up-on-a-company-with-public-information-part-1-of-3 Lets just jump in. <strong>Technology:</strong> In this space there are really two metrics that matter the most, sales growth and EPS... Beginners Guide to Valuation and Metrics By Sector
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Assuming that you have access to no financial products such as FactSet, Bloomberg, CapitalIQ, Thomson or otherwise, thought it would be helpful to give a step by step guide on how to ramp up on a new company from your home computer. Using FaceBook as an example. Lets go ahead and start with the... Basic Guide Ramping Up On A Company With Public Information (Part 1 of 3)
Fellow Primates, We are looking for 1-2 students on each campus to help WSO in its sales efforts to student clubs/career centers, and overall promotion at your school both online and on the ground. Below is a description of the position and benefits...thanks in advance for your help! <a... WSO is Looking for Campus Reps For Summer/Fall 2013 (and beyond)
<em>“You know, In The Flesh,”</em> a WSO monkey told me at a recent Happy Hour, <em>“that gentleman’s book is the real deal. I ordered that shit on Amazon as soon as I read your review. It’s so right, man. I want to be like that: keep my word, honor my commitments, be... Being A Gentleman, Revisited
<em>Mod Note: This is a syndication from Jared's Daily Dirtnap daily market newsletter. WSO readers qualify for a $100 discount...just email [email protected] and mention "WSO Monkey Discount" You can follow Jared on twitter at @dailydirtnap</em> There I go... In Praise Of High Interest Rates

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