Defense of "Large Wall Street Bonuses"

Damn it's really that simple? You should be Wall Streets public relations officer.

Companies/corporations/firms exist to make money. The employees of these organizations (the ones who derive the profits) deserve to be paid a significant portion of said money. I can see the argument to stop the firms from making so much money, but I really don't see how you can rationalize not paying it out.

Right, but in the public's mind they may be asking themselves.

What does the banker/trader/back office employee do that justifies such a bonus?

No one questions the salary and bonuses of soldiers/marines/airline pilots/astronauts/firefighters and if anything will argue that they are underpaid. Mostly because these are challenging jobs that not anyone can do.

But so far we said it's cus everyone works more than 40 hours a week and are more motivated. But there are several other professions the general public think that description could apply to.

At the lower levels I see absolutely no reason why someone working 2.5 times the average person's work week should deserve a bonus equal to 100% of their starting salary... I can see where u were going with the military argument but also keep in mind that they get compensated differently when in combat than if they were simply on base, they get "hazard" pay if they are staying at an army base and they are air force personnel and visa versa, not to mention that their pay isn't taxed the same way a finance guy's would be... So when you factor all these things in plus the fact that they have no living expenses and don't pay for food, it isn't too terrible of a lifestyle... I know many single guys in the army that get huge bonuses for combat but they come back stateside and blow it on a new truck... The mentality towards money is different but no matter how u slice it, its a choice... We choose to go into a lucrative profession because apart from everything else, we expect to be handsomely compensated, hardly anyone would do this job if it paid median annual salary... Politicians no too little about the sacrifice put into street careers that in turn fuels the avarice and risk taking... If you want to address the issue of compensation all parties need to take a hard look at a plethora of factors... It isn't as cut and dry as the OP (and myself) wish it to be...

are you trying to compare a business with a non profit organization or the army? who are you lol

"At the lower levels I see absolutely no reason why someone working 2.5 times the average person's work week should deserve a bonus equal to 100% of their starting salary."

Why not... if I work 100 hours a week as a banker and I get 120 k And you work 40 hours a week as a biologist and get 60 k

How can you complain? as a matter of fact, I feel like the more hours you work the more you should get compensated per hour because the more valuable an hour of leisure is in comparison

Except there are plenty of professions that work close to 80 hours as well, don't make 120k, and aren't complaining that they're not making that kind of money.

So the question comes down to... what do analysts/associates in publicly owned investment banks do that warrants getting paid more than everyone else aside from working a lot and giving up leisure time?

the outrage over bonuses is not a matter of semantics. simply reclassifying a 'bonus' as something else will not quell anger.

the problem is that taxpayers heaped a huge amount of cash into the bank's coiffers, which was subsequently paid to the same bankers who made the bad bets. i certainly understand the outrage here, although i do disagree with it.

i am a banker, and fully support the bonus structure. i think bankers & investment banks have an equitable pay arrangement, for the most part. in what other industry does the employee have the power to command such bonuses? you think exxon, with its huge profits, is going to share them to this extent with its employees? not even in technology, where employees are often laden with stock options.

saying that, i think your analysis and diagnosis of the 'issue' here is somewhat lacking. this has nothing to do with hours worked, or what you feel 'entitled' towards. it is about taxpayer money being used to pay compensation expenses. obviously the banks believe they would suffer a huge competitive disadvantage if they slashed bonuses (and i agree with them).

the taxpayer bailout is now estimated to cost 25 billion dollars... and that estimate is continuing to go down So the taxpayers lent the banks money when they were in trouble and now are getting it back with interest(great investment no?) I feel like what many taxpayers are forgetting is that sure the TARP package was almost a trillion dollars. That doesn't mean we are just giving it to the banks. We are lending it to them and they will pay us back with interest. Now let's look at something more ridiculous like some of our defense program projects that have run into the 10s of billions with no real results.

Comparisons between the military and banks become a little murky when you consider the differences in expenses.

My friend from school has an older brother (30) in the Army, stationed in Germany, married with two kids. He nor any in his unit have to pay for housing, food, childcare, health care, schooling, etc. He also just bought a Carrera GT. For those not up on Porsche pricing, that's a $400k+ car. Not bad for "underpaid". Lifestyle isn't too terrible either if you ask me.

Bankers, on the other hand, (disclaimer: I don't work in banking, friends and family do) work 80+ hour weeks, are subjected to abuse by anyone more senior than them, and have to pay for life in a major city (even outside of NYC, prices aren't so hot).

I think we should also consider the satisfaction an employee gets from their job. While a pilot probably always wanted to be a pilot and would have become one regardless of compensation, does anybody really like the lifestyle / job functions of an IBD analyst? Who feels better at the end of they day, the scientist working on a malaria vaccine, or an analyst? While banks do provide an essential service, the satisfaction from building a model is not as "real" as the satisfaction from serving your country or saving somebody from a fire.

As for arguments regarding performance pay, I am relatively sure that the models and pitchbooks created by the analysts on 06-07 were of a similar quality to the ones made in the 90's (maybe even better). I would therefore argue that their pay should be relatively unaffected. The guys at the very top of these organizations messed up, and they have seen a significant drop in pay.

Even so, the causes of the crisis were complex enough that it doesn't make sense to blame one group. Everybody acted in a rational way; the data they were acting on was wrong.

Furthermore, calling analyst bonuses "bonuses" is inaccurate. A bonus within a certain range is assumed when you take the job. Variable compensation would be a better description.

Finally, as long as other banks would be willing to hire the rainmakers from TARP banks, you can't pay them too little or they will leave. As naive as it sounds, banks are corporations and exist to make money, so I doubt they pay their employees any more than is necessary for retention purposes.

If the banks are paying these "outrageous" salaries and can still stay in business... why should the government care? I understand that the government bailed out these banks and helped them when they needed but still that doesn't give them the right to regulate the industry in terms of profitability or bonus pools. If everyone that made more than 200k was subject to scrutiny and regulation, then why would anyone work to strive for success. The NBA and NFL pays ridiculous salaries as well, why doesn't the government go stomp on that parade? The government does provide subsidies and tax benefits for stadium construction

Sorry are people genuinely believing the bankers being paid bonuses havent made profits for their company?

If you performed well at your company, and another department screwed up, would you feel a bit unfairly treated if you didn't get your performance pay?

Bankers are paid what they are because their "contribution" is easy to quantify.

Try quantifying management.

T

If the banks are paying these "outrageous" salaries and can still stay in business... why should the government care?

Could it be because the banks can't stay in business without government support?

Its all supply and demand for labor, individuals choose to work for wherever they maximize their utility. Part of that utility is the wage paid. The banker is paid wage X because that's what the firm believes is the salary that will guarantee the continuance of their performance as well as a guarantee that they will stay at the firm.(not a literal guarantee but incentive) If someone could do the same job for less and was indeed willing to do it for less, wouldn't an investment bank clearly pursue that option, even if to simply maximize their personal bonuses as their will be more money to go around? The fact is there isn't a large pool of people that can do the work, and there is still a smaller pool that will do the work for low compensation. However, with things like the peace corps etc, there is definitely a correlation between a lack of desire for a high wage and a desire to serve in such a sector. As wage negotiations ensue, those individuals will clearly be willing to work for less money, not to mention the fact that unless your a doctor the skill set and supply of labor is much smaller if we need quality of work X to be accomplished. It really comes down to this, if someone wants bonuses to be lower, than they should apply for the positions they are screaming about and offer to do it for less. If they don't get the job, no complaining.

Just thought a back to back comparison of this article would be interesting:

Army Officer in Afghanistan http://www.nytimes.com/2010/12/21/world/asia/21captain.html?pagewanted=…

And so the question is, based on a head to head comparison like this how can investment banking bonuses be justified? In the eyes of the public and lawmakers what are bankers and traders tangibly producing in the world (if they're not destroying that wealth) that allows them to make 3-4x people who put their lives at risk everyday?

I completely agree with both your statements onebuck,

But I don't think they are errors in the labor market analysis. First, i completely agree that higher wages in the peace corps will attract other people who currently engage in other jobs. That just shows the importance of wages in job selection as oppose to "finding oneself" or "ideology". Since finance sector people usually want higher wages they will go where the money is.

I will also say that traits such as the ability and desire to work hard are not as readily available as one might think. They are a perfectly legitimate measurement of ability to perform work at a specified performance level. Basically, it takes a certain attitude and work ethic to become successful in the finance industry. I will be frank and say that's a short coming I have. Although I have the academic successes I am constantly and actively trying to become more personable and more work oriented as it pertains to finance. But I think a vast majority of people cannot stomach any of it. The pressure, the constant need to want to be successful, and the need to really never procrastinate or be lazy are just too much. I think the guys (and gals) who really have that type of spunk find ways to squirrel their way in even if their not from a top 30.

I will admit though the choking of the labor market for finance that results from having firms that are overly interested in top 30 schools. But I don't think there is this torrent of possible laborers that would be willing to work for 50% of the money that just cannot be represented in the market and thus the incomes are skewed. If anything, it just points to the low risk tolerance of finance firms as it pertains to paying higher wages for top 30 school employees rather than taking a risk of paying lower wages for a relatively unproven student. I don't think we are prepared to deny a correlation between effective employees and whether or not someone went to a good school.

Im against Hollywood and athletes pay. Wall Street keeps the world going round. simple as that.

barboon:

Im against Hollywood and athletes pay. Wall Street keeps the world going round. simple as that.

Actors and athletes create jobs and bring in money too though. They also have talents that can't be easily replaced. I never understood even before business/economics classes why some people think that athletes shouldn't be paid as much. Obviously they CAN be paid that much from whoever's paying them, and if somebody thinks they are worth it, why not? They may not be bringing in as much money as Wall Street is, but they're still bringin some.

Think about all the jobs movies create... filming crews, catering, producers, directors, writers, actors, stuntmen, extras, movie theater employees, blockbuster/netflix employees, etc.

Athletes... general managers, coaches, players, stadium/arena employees, concession employees, product sponsorships, trainers,journalists, people who work for networks that cover these sports, etc.

At wall street firms, relatively few people are responsible for bringing in a butt-load of money. While a total compensation of $130k for some kid out of college seems ridiculous to most of us, it's a marginal sum for a group that brings in hundreds of millions of dollars into their firm. That's why the BBs are riddled with high performers from the nation's elite educational institutions, when any state-school schmuck with a strong work-ethic could do the job just as well. Wall street pays ridiculous premiums for highly overqualified people who will probably do only marginally better than their less-impressive counterparts. Why? Because they can.