Sunday, February 01, 2009

Having a bonus to pick over your compensation

The Washington Post's Frank Ahrens seems somewhat sympathetic to those who toil under the back straining demands of Wall Street. He calls them "heroes" and "idols":
In times of prosperity, Wall Street executives are highly paid heroes to be emulated.

In bad times, like now, the Wall Street Gotbucks find themselves fallen idols....

Unlike working stiffs who toil for a regular paycheck -- and that's it -- top-ranking executives at big companies get the bulk of their compensation from a complex suite of bonuses. For instance, in 2007, Exxon Mobil chief executive Rex W. Tillerson received $16.7 million in total compensation. But Tillerson's salary was only $1.8 million; most of the rest came from bonuses and awards.
ONLY??!! The guy was guaranteed a salary of $150,000.00 a MONTH. On top of that he gets rewards and bonuses (and expense accounts and perks), most of which is simply the effect of ebbing and flowing market forces only some of which he can directly affect but can amplify or modulate with fancy accounting. Suite deal, indeed.

Eric Dash and Louise Story seem less idol worshiping in the NYT:
There was none of the old swagger at Citigroup headquarters on Friday. The bonus checks had landed — and some of the bankers were grumbling.

The giant bank, the recipient of two multibillion-dollar rescues from Washington, had paid out only about $4 billion in bonuses.

Only?

If you’ve never worked on Wall Street, it is hard to wrap your head around the idea that a company that lost nearly $19 billion in a single year, as Citigroup did in 2008, could still pay its employees billions in bonuses. It is probably even harder to believe that some of those employees grumble about it.

“I feel like I got a doorman’s tip, compared to what I got in previous years,” said a 30-something investment banking associate at Citigroup’s offices in Lower Manhattan.

Wall Streeters who make a lot of money for their employers expect to reap the rewards. In the parlance of the industry, they expect to eat what they kill.

Wall Street compensation in general — and bonuses in particular — are coming under intense scrutiny from lawmakers. Possible reforms include caps on pay, greater use of stock compensation and mandates to return more money to shareholders, rather than workers.
Sounds to Guambat like they need to form a union if they expect to get a helping hand from the new administration. But he digresses. Back to the story:
Traditionally, banks set aside about half of their annual revenue for employees’ compensation. But since the 1970s, and particularly over the past decade or so, the financial industry boomed, and so did pay. In recent years, the explosive growth of lucrative areas like hedge funds and private equity unleashed a war for talent, inflating pay and employees’ expectations even more.

But for many banks and their employees, the old calculus of risk and reward also changed.

For most of their histories, traditional Wall Street banks like Goldman Sachs and Lehman Brothers were private partnerships. Partners staked their own money in the markets. When firms went public, Wall Street used shareholders’ money. Banks also were able to reward employees with both cash and stock, and bonuses assumed a larger role in total compensation.

By 2007, just before the financial crisis hit, the average worker in the financial industry was earning 70 percent more than counterparts in other fields.

The bonus culture runs deep. Executives and rank-and-file workers argue that lawmakers and others who complain about bonuses do not understand how this industry works. Bonuses, Wall Streeters say, are a crucial part of total compensation, and are often treated as deferred salaries. And generally bosses weigh individual performance more heavily than the company’s overall results.

In other words, people who made the company a fortune in, say, foreign exchange trading, deserve bonuses even if their colleagues in mortgage bonds ran up losses that crippled the bank.
Guambat just loves the team spirit of those guys. Perhaps the only way to solve their problems is to break up the banks into separate businesses where, e.g., the ForEx guys can sink or swim on their own, as is their apparent desire.

But there he goes digressing again. Back to the chase ...
Of course, many Wall Street employees never expected the good times to end. They lived large, believing bonuses would always arrive, so they are ill prepared, both emotionally and financially, to cope with a sudden drop in income.

“Without a doubt, $18 billion is a lot of money, but it’s a drop in the bucket on Wall Street,” said Gustavo Dolfino, president of the WhiteRock Group, a headhunter for the banks. “These bonuses are down, and the salaries are not enough for these people. They can’t live on $150 to $180,000, so they haven’t saved any money. They put it on credit lines and at bonus time, they thought they’d pay it off.”

This divide will ever be with us, in one form or other. It is the dimension of the gap that is most provoking, not the structure.

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