Shots Fired - Deutsche Bank Co-CEO Cryan Says Bankers Still Paid Too Much

From Bloomberg:

“Many people in the sector still believe they should be paid entrepreneurial wages for turning up to work with a regular salary, a pension and probably a health-care scheme and playing with other people’s money,” Cryan said at a conference in Frankfurt on Monday. “There doesn’t seem to be anything entrepreneurial about that except the compensation structures.”

http://www.bloomberg.com/news/articles/2015-11-23/deutsche-bank-co-ceo-…

 

Just because the deal size is large, doesn't necessarily mean the individual employee should make more money on it. Banking is probably the only industry where this logic applies.

I'm not saying that no banking jobs deserve a high salary, some surely do. But I agree with his statement that the average employee on his payroll is probably overpaid compared to what he is doing and what he would earn in any other industry with a more "normal" compensation structure.

EDIT: I seem to have touched a nerve judging by the replies I have received.

To the first question, why anybody would try to do well if his compensation was not fully linked to the deal size. Well just maybe because it's your fucking job and you try to do it the best you can? Maybe because you actually like doing it? Maybe because large deals are more exiting than small ones? Maybe because it is more interesting to bring in a big industry changing deal than working on some shitty small project? Don't you think it is a problem of the banking profession, if the only motivation you can see for doing well is purely monetary?

The sense of entitlement to a large salary just because you work in a certain industry is pretty strong in some of your replies. I get it, you worked hard to get in, finally made it and now somebody is trying to take the only reason away why you went through all that effort in the first place. I would be pissed too. But let's be honest, most of the people working in banking professions are not worth the money they receive. And I repeat myself, some people definitely are and those deserve to be paid whatever it takes to keep them in the firm. But most people just aren't...

 
undefined:

Just because the deal size is large, doesn't necessarily mean the individual employee should make more money on it. Banking is probably the only industry where this logic applies.

I'm not saying that no banking jobs deserve a high salary, some surely do. But I agree with his statement that the average employee on his payroll is probably overpaid compared to what he is doing and what he would earn in any other industry with a more "normal" compensation structure.

Sales-people in any industry eat a large portion of what they kill. From VP onwards, bankers are essentially sales-people, so their compensation seems logical to me.

 

If there is no incentive to bring in bigger deals (higher pay), why would anyone try to bring in more deals (that are sizable) and make more for their bank. Pay should be directly correlated to earnings brought in to the bank, it's the only method of compensation that makes sense.

Just because execution of a large deal takes no more work than execution of a small deal, that doesn't mean that the prospecting and client relationship making is not much harder than that of a small deal. There are huge barriers to entry for making large deals (from a relationships perspective), and for that reason, the person who brings it in deserves a payment. Otherwise, that person will bring his skills elsewhere.

While Deutsche Bank's CEO may be appealing to the masses, he's killing the incentive for potential revenue generators to join his team. This business is 100% about 1) money and 2) people. If the CEO doesn't show commitment to pay, the people won't join.

I am a blogging intern at Wall Street Oasis. Feel free to follow me to see my weekly posts.
 

This is an incredibly naive and stupid statement. The size of the deal 100% matters for comp. The bank generates revenue as % of the deal size --> bigger deal --> higher revenues. These deal teams are also incredibly small relative to the revenue brought in. Also huge deals are great marketing deals for... you guessed it, more deals.

If you want total equality, just vote for Bernie dude. He'll hook you up.

 
undefined:

Just because the deal size is large, doesn't necessarily mean the individual employee should make more money on it. Banking is probably the only industry where this logic applies.

I'm not saying that no banking jobs deserve a high salary, some surely do. But I agree with his statement that the average employee on his payroll is probably overpaid compared to what he is doing and what he would earn in any other industry with a more "normal" compensation structure.

You're right. But I don't think consultants deserve to be paid more if they work for McKinsey than if they work for a two man shop that just hung their shingle. It doesn't matter that McK essentially charges hundreds (to low thousand for a partner) per hour for their services, I think the employees make too much money. And the CEO of a F10 company deserves to make the same amount as the CEO of a private 50 employee company. They do the same thing right? Google, Apple and FB probably shouldn't pay their engineers more than other firms. Same with pro-athletes. They absolutely do not deserve to make the money they make so some team should follow DB's lead and start paying them much less and see how that works out attracting talent.

 

I don't think anyone would deny that bankers are paid too much. The intermediary industries of law, finance, and consulting are the industries with the most lucrative pay for little risk. They are sales and network oriented and this kind of power in a world with people can cause the elites to be entrenched with little ability to change the status quo.

Also, what is this "the market will bear". If someone decided to pay a banker 2% of a deal 100 years ago just because it was a friend and then this was used as the "market rate" to keep justifying higher pay then it just escalates high paying jobs for no real reason other than saying "the market" without any critical thinking.

 
undefined:

I don't think anyone would deny that bankers are paid too much.

I would deny that, as would, it seems, everyone above you who disagrees with you above. 'What the market will support' is an easy concept to understand. If I hire a banker who will bring in $50 million in fees per year and I only have to pay him and his team $25MM in compensation, why would I not do that? Someone else might be willing to pay more than that.
 

Yes, but there is a long chain that goes into it. First, why is the client willing to pay so much for a few people to do the task that is not even that complex. The money spent then eventually trickles down to labor. Second, even if take that ability to earn those fees as given, most of the work is commoditized - case in point is the fact that analysts can be paid less and will still have people good enough to not make any marginal difference to the firm. The higher level relationships you are discussing above don't apply as well though. Third, since every industry outside of finance pays so much less, the peer group should not be the firm down the street but the real competition, all labor, which as a group Wall St already pays above rate to attract talent. I say this because it was a shock to a few of my friends who were considering law school and med school how drastic the difference is when a kid who did less work than them up until that point lands on Wall St and has not only a higher starting salary, but a trajectory that none of them can probably make up.

With all of this said, I know I am being naïve, abstract, and idealistic. What you are stating is true and is the reasoning behind the decisions, I am just sharing a more critical lens.

 
Best Response

I'm going to take a stab at this because I believe you're seriously misguided

1. First, why is the client willing to pay so much for a few people to do the task that is not even that complex. The money spent then eventually trickles down to labor.

you'd be shocked at how shitty owners are at valuing their own businesses. it also may surprise you that playing matchmaker (matching buyers and sellers or businesses with investors) is extremely valuable, and most businesses would be better served putting their time back into their business, rather than being their own investment banker. sure they "could," but their time is better spent elsewhere. look up "opportunity cost." it's the reason people pay for their own attorneys, accountants, financial advice, contractors, real estate agents, etc., all are within the realm of intelligence of most entrepreneurs, but they choose not to be DIY. could you learn how to fix your own car? sure! do you? most likely not. now imagine you're an owner: could you network with other businesses to find a buyer or more capital? sure! is it a good use of your time? probably not, and this is where bankers come in. this is what capitalism and the service economy are all about. marketing a service that people believe is valuable and making a career out of it.

2. Second, even if take that ability to earn those fees as given, most of the work is commoditized - case in point is the fact that analysts can be paid less and will still have people good enough to not make any marginal difference to the firm. The higher level relationships you are discussing above don't apply as well though.

your point is well taken, analysts may not make as much as they did comparatively in the 80s, 90s, and 2000s pre crisis, but I don't see how that proves your point. I think that it's not as simple as saying "see! they still work here which means we were overpaying them!" as much as it was a combination of high bonuses due to great profitability going away during a global recession (recessions tend to depress salaries).

I'll also reiterate something that's been said before, people that bring in business are the lifeblood of any company. without sales, no one gets paid, so to say that those people get paid too much is asinine.

3. Third, since every industry outside of finance pays so much less, the peer group should not be the firm down the street but the real competition, all labor, which as a group Wall St already pays above rate to attract talent. I say this because it was a shock to a few of my friends who were considering law school and med school how drastic the difference is when a kid who did less work than them up until that point lands on Wall St and has not only a higher starting salary, but a trajectory that none of them can probably make up.

"every industry outside finance pays so much less" this is false, sorry mary bro white. plenty of engineers, programmers, developers, pharma people, physicists, statisticians, actuaries, and so on make as much, close to, if not more than first year analysts. so your blanket statement is just wrong. what you will notice is that careers that are hard to break into, require some degree of intelligence, work ethic, and career planning all tend to pay pretty well, finance falls into that camp, as do the aforementioned jobs. in addition, the peer group should be other firms that recruit similar types of people, not "all labor." you can't compare petrol engineering pay with art teacher pay, just like you can't compare banker pay with janitor pay.

the difference between law school & med school is it's likely not an apples to apples comparison. if you're comparing a 28 year old doc to someone who's done 2y & out to PE, of course you're going to be misguided, the PE guy makes a ton more money because they've been working for longer. doctors have a pledge period essentially even postgrad, where they make dogshit salaries. if they decide to work in private practice, they have to drum up business, if they work for a hospital network, their earnings are capped because they give back part of their earning potential to the hospital. also, "doctors" is way too broad. the difference between an internist and a thoracic surgeon is like comparing the worst MD at a no name bank to a top rainmaker at a top firm, it's just not the same. there are top docs in the world that make more than finance guys hand over fist, it just depends on if they specialize. also, finance careers typically get started earlier which is why people of the same age may have different earnings, but that's a choice all doctors make, so you can't blame the finance guys just because they got to work quicker.

law school is a completely different animal, this country has too many attorneys, something like 1 for every 300 people, and it's unnecessary. their trajectory is crap, they come out of school with the equivalent of a mortgage and the starting salary close to a first year analyst, and while there are big time attorneys that make way more than some bankers, the field is just too saturated. I'm not exactly sure why, maybe it's because there are more for profit law schools, maybe it's a generational thing where millenials don't know what they want, who knows, but the point is, where there's more qualified people clamoring for jobs, the lower employers can pay. so basically I have no sympathy for your friends entering law school, they have the internet, they can look at what starting salaries are, how many people are graduating with law degrees and do the math. it shouldn't be a surprise to them.

also, to your point about kids "doing less work" than them, I don't dispute that undergrad is less time in school than undergrad+med school+internshipts+rotations or undergrad+law school+internships, but more time in school does not equate to more "work." this attitude is what is wrong with society. your friends think that simply because they go to school for longer and have more all nighters that they deserve more in income? tell them to take advantage of the capitalistic system.

you know what's fair? kids seeing a highly compensated career, putting in the work to get hired, and getting a paycheck while people like you tweet things like #feelthebern and complain because your all nighters studying geriatric gynecology will get you $50k a year until you're 28 years old (not you specifically, the figurative "you"). complain less, contribute more.

short version: you're not comparing apples to apples, there will always be somebody who makes more money than you, and life isn't fair.

 

Yes, you are naive, that is obvious. You can sit on your high horse or learn how the world works.

More importantly than your naïveté, you are completely ignorant of soft skills. Soft skills are the difference between Jobs and Wozniak. Soft skills are what bring in money in most professions. Bankers who sell bring in money and get paid. Those who don't top out at VP or leave the industry.

You studied hard......Who gives a shit? Where's my money?

Fuck you, pay me. That's how the world works. If you don't like it, you're on the wrong planet.

 
undefined:

Just because the deal size is large, doesn't necessarily mean the individual employee should make more money on it. Banking is probably the only industry where this logic applies.

I'm not saying that no banking jobs deserve a high salary, some surely do. But I agree with his statement that the average employee on his payroll is probably overpaid compared to what he is doing and what he would earn in any other industry with a more "normal" compensation structure.

EDIT:
I seem to have touched a nerve judging by the replies I have received.

To the first question, why anybody would try to do well if his compensation was not fully linked to the deal size. Well just maybe because it's your fucking job and you try to do it the best you can? Maybe because you actually like doing it? Maybe because large deals are more exiting than small ones? Maybe because it is more interesting to bring in a big industry changing deal than working on some shitty small project?
Don't you think it is a problem of the banking profession, if the only motivation you can see for doing well is purely monetary?

The sense of entitlement to a large salary just because you work in a certain industry is pretty strong in some of your replies. I get it, you worked hard to get in, finally made it and now somebody is trying to take the only reason away why you went through all that effort in the first place. I would be pissed too. But let's be honest, most of the people working in banking professions are not worth the money they receive. And I repeat myself, some people definitely are and those deserve to be paid whatever it takes to keep them in the firm. But most people just aren't...

What planet are you on? Your edit is worse than the original comment.

Are you referring to junior employees or those bringing in the deals?

 
undefined:

Just because the deal size is large, doesn't necessarily mean the individual employee should make more money on it. Banking is probably the only industry where this logic applies.

I'm not saying that no banking jobs deserve a high salary, some surely do. But I agree with his statement that the average employee on his payroll is probably overpaid compared to what he is doing and what he would earn in any other industry with a more "normal" compensation structure.

EDIT:
I seem to have touched a nerve judging by the replies I have received.

To the first question, why anybody would try to do well if his compensation was not fully linked to the deal size. Well just maybe because it's your fucking job and you try to do it the best you can? Maybe because you actually like doing it? Maybe because large deals are more exiting than small ones? Maybe because it is more interesting to bring in a big industry changing deal than working on some shitty small project?
Don't you think it is a problem of the banking profession, if the only motivation you can see for doing well is purely monetary?

The sense of entitlement to a large salary just because you work in a certain industry is pretty strong in some of your replies. I get it, you worked hard to get in, finally made it and now somebody is trying to take the only reason away why you went through all that effort in the first place. I would be pissed too. But let's be honest, most of the people working in banking professions are not worth the money they receive. And I repeat myself, some people definitely are and those deserve to be paid whatever it takes to keep them in the firm. But most people just aren't...

Maybe you want to get paid more when you do big deals because the fees are bigger? Maybe you want to do your job well because it's your fucking job but when you see gigantic dollar amounts in the fucking fees you're damn right you're going to want to get fucking paid for it. Apologies for the overuse of colorful expletives.

I don't know anyone who became involved in finance or corporate law or consulting purely out of the goodness of their heart. We're not feeding the poor or healing the sick. As someone who's been in various areas of finance for almost 20 years I can tell you that while you have to like what you do if one of your primary goals isn't making money I don't know why anyone would really stick around long term in the profession. I have a question for you as a consultant: why don't you guys work for less money so that you can help the behemoth F500 companies you consult on keep more money and distribute it to shareholders or help to hire more people and give them gainful employment? Why charge $1MM for 5 consultants to work for a couple of months? I know some consultants who think their shit smells better than banker's because in their eyes they chose a more intellectual route than finance but you don't exactly get paid peanuts.

As someone in PE I hire bankers, lawyers and consultants constantly. If I thought that I could pay my bankers less in terms of fees and get the same level of service I absolutely would. But they add value to the process of an acquisition or a financing because that's what they do for a living and there are some damn good ones out there. And those banks, like every for profit business, would like to lessen their employee costs but they're not going to attract the same level of talent and won't compete as effectively for my business or develop the next generation of talent. Most banks are increasing salaries because they have to compete with tech for talent. DB's just going down the tubes. Too bad because I used to like Alex Brown.

And I'd much rather pay a banking fee that's contingent on a deal closing than legal or consulting fees that are paid regardless.

 

He also said that he doenst understand why BackOffice (I think he referenced IT) employees are paid more than in other industries while they are basically doing the same job. While I think this might be true for some Jobs, especially banks definitely Need IT specialists and it pays off to pay them more in order to attract more capable IT guys. He then added that he understands why front Office employees deserve a premium over other Jobs.

What I also thought was funny is that Cryan said that he doesnt understand why People would work harder if they are paid more. I believe that eventually he will recognize that many People are in fact motivated by Money especially in banks and that it is necessary to pay a certain salary in order to still attract good People

 

It's kind of dumb to speculate on the morality or appropriateness of banker pay. They are paid what the market will bear. Do I think that the pay could be lower and it would still attract a lot of people to the job? Yes. I think we've seen that over the past few years where bonuses have been cut and deferred and yet there's been no mass exodus from banking. I think the balance has shifted more towards shareholders whereas before the banks were run very much in the interests of management.

 

What a dick. The difference between an average banker and a rainmaker is enormous, in terms of the fees that they bring in. I would argue that the most underpaid people are usually the ones making the most money. You have to understand that there is some value to the seat at big firms and some people add no value to the seat and some go way above and beyond. Those are often the people starting boutique firms where they can capitalize on that value they are bringing.

 

Two more thoughts:

(1) Often times the high pay is justified by saying it is competitive, but it is only competitive because of the high pay so it is a catch-22

(2) Something compensation committees have to take into account is that financial services professionals are paid based on wealth of society (~70 trillion or more I forget) as opposed to the productivity/GDP that most workers are, so it is inherently too high. The firm only has to pay opportunity cost and it is much lower than everywhere else so they do not need to be paid that much by the firm or their clients. My guess is the industry self deals so they do not even consider these points.

 

This is absolutely ridiculous.

1) For analysts and associates you are essentially paying a relatively intelligent/talented person to sacrifice a large portion of their youth for the job. I'm sorry, but that is expensive and also parallel's entrepreneurs. Albeit the entrepreneur takes on more risk, but that is his own decision and should he be one of the lucky ones will far out earn the banker.

2) At the VP level and above your employment is almost entirely dependent on the business you bring in. Your job, by definition, is to build a practice. You may have one or two years to gather momentum but in that interim you are probably making the same, if not less than, an associate. The case may be different at a BB, but I cannot speak to that.

Cryan should worry less about appealing to the masses and currying favor with the general public, instead focusing on how much talent he's hemorrhaging and finding someway to salvage his shitty bank. If anyone were to disagree with me at a conceptual level I would say you probably have no fucking clue what this is actually like and should probably look elsewhere for employment.

 

I am in the "Real World" and from what I have come to know about people is that they are motivated by status not money (at least not directly). People would still work hard, in fact the difference would be marginal. Most real great work and innovation comes from those who are not concentrating on money (read: all of history). The people who skim the money disincentive this and cause people to have no choice but to be paranoid about money and make sure the system does not screw them over. Lower income handouts are an overstated problem that can provide a necessary social safety net anyways.

 
undefined:

I am in the "Real World" and from what I have come to know about people is that they are motivated by status not money (at least not directly). People would still work hard, in fact the difference would be marginal. Most real great work and innovation comes from those who are not concentrating on money (read: all of history). The people who skim the money disincentive this and cause people to have no choice but to be paranoid about money and make sure the system does not screw them over. Lower income handouts are an overstated problem that can provide a necessary social safety net anyways.

"WTF are you talking about?" could be used for everything you've posted thus far. Real World?!? Pluto isn't a planet, kid. Your characterization of how the "real world" works and bankers is so irrational. I award you no points and may God have mercy on your soul.

So if you come from nothing and aren't a born Nigerian prince, how do you just get status without money? I'm pretty sure I can't go to Bouley or Marea without being able to pay for it.

 

This is such an asinine statement.

Of his (Cyran's) own pay, he said: “I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less.”

Well of course when someone is already paying you in excess of $5MM euro a year it doesn't matter as much. What an asshole.

 

Way too much in this thread to read, but i would say one thing. People in finance tend to really overestimate how much value they bring in and how much is brought in by their seat. If a sales guy brings in X amount of comission, a large portion of that is likely due to just him being the sales guy for that product at that bank. Theres a couple guys I know of that truly have great contacts, and they actually drag business with them, but they are fairly few of them. Same goes for trading, how much of the PNL is simply because of that seat, its an impossible number to tell, but overall im fairly confident in saying most people in the industry underestimate it.

Yes you need an incentive structure, which is why people get paid a salary and bonuses, but it does not mean people should be paid some X% of revenue blindly given the above. Cryan has a point, a lot of banking jobs get paid equity like returns for not having any equity at stake...

 

In both private and commercial banking, we eat what we kill. If we're not paid on what we bring in, what exactly is the incentive to bring in more business? Even if there were a quota set, placing a minimum for what we need to bring in to keep our jobs, there would be no one that excels. If you're not in a finance role with monetary rewards being a big factor (or the opportunity to make a lot), then you may be in the wrong field.

 

Aren't CEOs overpaid too? I don't mind truck drivers and accountants telling me I'm overpaid, but CEOs shouldn't throw stones at Plexiglass houses from their Tiffany home.

This is like a management consultant saying that Americans travel too much. Or Al Gore telling everyone to consume less energy. Ok, that's a great idea, but lead by example. Don't tell me I make too much money until your total comp is the comparable to mine.

 

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"It is better to have a friendship based on business, than a business based on friendship." - Rockefeller. "Live fast, die hard. Leave a good looking body." - Navy SEAL
 

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