An Investment Banker Defends His Salary & Wall Street Bonus

by Silicon Valley Blogger on 2009-02-0233

Wall Street’s investment bankers are out to defend their jobs, salaries and their stratospheric bonuses. This would be fine if they didn’t have to require us to bail them out!

I found this to be pretty obnoxious: Wall Street guys defending their bonuses during a time when the economy and the nation are hurting! At least, President Obama has acknowledged and has criticized the $20 billion in bonuses given out during the economic crisis as highly irresponsible.

But the Wall Streeters aren’t backing down — some are saying that their bonus is part of their pay, and without a bonus, it’s like getting a pay cut. Well duh! I guess I’ll state the obvious here and say that in case these people haven’t realized, we’re in the midst of a serious recession that can really cripple the entire country. While the rest of us languish by getting laid off and going into foreclosure, certain individuals can only think of protecting their status quo and comfortable lifestyles.

I believe that at a time like this, we all need to give a little and sacrifice a little to get this economy back on track. You know…. take one for the team?

Wall Street Jobs With Big Bonuses: How The Taxpayer Will Pay Out

Rumor has it that changes will need to happen in Wall Street or we’ll be facing the possibility of having the government step in to put a damper on the financial industry’s compensation structure.

5 Arguments For Preserving The Investment Banker’s Salary

Allow me to summarize their defense points from the video:

1. Taking away bonuses is like cutting your salary in half. So you mean going down from $400K a year to $200K constitutes hardship?

2. Slashing bonuses will slow down the economy further. Why? Because the elite will stop buying yachts, expensive jewelry and luxury cars. There are already less of them frequenting high-end restaurants. The horror!

3. Companies need to pay for talent. AIG defends giving out $450,000,000 for 400 of its top employees. That’s about $1 million per person — the bounty needed to keep the “Michael Jordans” of the insurance industry on the AIG team.

4. It’s not entirely Wall Street’s fault; they’re being scapegoated! So we’re pointing fingers now — there’s lots of blame to go around and some of the accountability should land squarely on the American public because of our pathetic long-term 0% savings rate.

5. Bonuses have already been slashed, in case you haven’t noticed. Apparently Wall Street bonuses were down 44% in 2008; yet even without a bonus, a typical employee in the financial industry continues to rake in 3x to 4x an average American’s salary.

Why One Senator Called Them Idiots

Well here’s what we’re not happy about: if we’re living in a capitalistic society then we should all be riding the markets down in the same way we rode it up. If your company collapses, you’re out of a job, so demanding a bonus should be farthest from your imagination at this point. Here’s what truly bothers me — it’s the financial industry’s sense of entitlement and arrogance that grates on me to no end (I say this even as someone who has worked in the industry before). Problem banks are not the only ones in this predicament of course, as there are many other troubled and mismanaged companies out there requesting bailouts, to which we should apply the same treatment.

Is Wall Street really so far removed from the average reality that the idea of belt-tightening and cutting costs has become pure sacrilege? But maybe it’s more basic than that: you see, it’s a dog-eat-dog world out there and lots of people are simply thinking it’s “every person for themselves”. It just so happens that this time, it’s become the latest group think, the collective mentality of a few industries accustomed to largesse and the good life.

Copyright © 2009 The Digerati Life. All Rights Reserved.

{ 30 comments… read them below or add one }

Aya @ Thrive February 2, 2009 at 3:07 pm

Such ridiculousity, really. Their arguments are barely arguments and I’m sure they know it. I feel bad though because now everyone is against people on wall street, including those that were laid off because they’re being blamed for the bonuses they used to receive. However, I suppose I’m too soft in feeling bad. Then again, I can’t say I’m not spiteful of their salaries that could swallow me whole.

the weakonomist February 2, 2009 at 3:47 pm

I wrote about this last week. The argument about keeping talent is valid for the company, but not for the broker. The broker can go anywhere and take his clients with him. There are firms out there that can afford to pay $1 million without using taxpayer money. Since the company must use taxpayer money, then all parties involved must lose their bonuses or leave.

This pisses me off to no end, because I work at a bank and see this all the damn time!

Jeff - StretchyDollar February 2, 2009 at 5:51 pm

arrrrgggggh…. this is so annoying. These people have just lost any sense of reality. The whole thing is completely out of control, and they know how to use and abuse the system, so it probably won’t stop soon.

YAI February 2, 2009 at 7:28 pm

You’re all idiots.

Company X hires you to do a job for them. In your contract, if you complete the job by date Y you get a 100,000 bonus. Since starting that job, Part of company X is not doing well. They get $ by getting a LOAN from the government. You complete your job on time and before date Y. Should you get your bonus per your contract? If you say no, you are a MORON.

It’s what you negotiated for and what you are legally entitled to.

Now. Going forward, employment contracts can be renegotiated and bonus modified or removed, but past agreements MUST be honored. Now you don’t like what is going on? Stop voting the IDIOTS into Washington and stop doing business with companies that pay bonuses.
Simple. Now whine away and tell me how wrong I am.

Silicon Valley Blogger February 2, 2009 at 7:41 pm

YAI,

Yes there are legalities, so I guess that’s why the government is threatening to make policy changes yes? I also believe we should STOP loaning to companies. How do we know we’ll get repaid? As far as I know, these bailouts are giveaways until we see pay back. I don’t want to make this thread degenerate into asinine name-calling, but you have a point — I do agree with you that Washington should stop dealing with companies that do dole outs and payouts like what we’ve seen. I think we’ve done something about it by throwing out the Republicans from power (I say this as a conservative).

Jeff February 2, 2009 at 7:42 pm

The bailout was given to banks so they could continue to do business as usual, not change their model.

Miss M February 2, 2009 at 8:20 pm

Their bonuses may have been cut, but still amounted to an average of $112,000 per worker! That’s twice the median household income in this country. It’s hard to feel bad for them. I do know many people who were in home lending, none are still working. They made a lot of money during the housing boom and I don’t feel that badly for them.

Kristy @ Master Your Card February 2, 2009 at 11:01 pm

Excuse me, coming through…lady with a soap box coming through.

Ok, let me start by saying I totally agree with you, SVB. The arguments these bankers have made are flimsy at best. They do not address the issue of poor performance or failure to meet goals – which are the two cornerstones of receiving bonuses.

Now, that aside, let’s look at it this way. If one of us Main Streeters were to pull the antics these greedy Wall Streeters have pulled, we’d be out on our ears, pounding the pavement and looking for a new job. In the REAL world, you don’t get to keep your job – much less any bonuses – when you’ve run the company to the ground. I work for a credit union…cost them any more than $300 and you’re out; do not pass go, do not collect $2 billion. But, these bankers trying to defend themselves should be focusing on why they should keep their jobs, not whether or not they get bonuses. Frankly, it’s astounding that they didn’t expect this. I mean, with the rest of the economy going down the drain and them being a primary cause for it, you’d think they’d eat their humble pie and keep their mouths shut…but no! Oh, no. They’re complaining about their bonuses and how not getting them is a pay-cut. Well, pardon me, but no $*it Sherlock! Did you think you could help cripple the nation and keep that lavish lifestyle you so desperately cling to? Nope, sorry.

And frankly, despite working in the industry, I say let the troubled ones fall. Why should we reward their bad choices? Why should Americans and the next 5 generations following ours have to pay for this mess…and make no mistake, we’re going to pay. Have you seen the pork laden bill fairly oozing out of D.C.? It’s disgusting. While there are some good parts, I’m not impressed with it overall. Anyway, I digress. I think we should let the troubled banks fall. I think we should confiscate the TARP funds from those who didn’t need them and put them back towards the budget. I think we need to stop offering these greedy corporate moguls the hand-outs and clean house. Cap their salaries, cut the bonuses, and tell them to make do.

Ok, coming off the soap box.

Ken February 3, 2009 at 3:58 am

Yeah..it’s time for new accountability and new rules to govern such accountability. The lack of regulation has allowed this industry to get large and out of control. No more big bonuses unless you provide results..bottom line. Greed has ruled Wall Street for too long. Change should start at the top.

International Relocation February 3, 2009 at 4:04 am

I really think these Wall Street execs have a cheek crying about their cut bonuses. My whole company was put on a mandatory 20% pay cut and we are still faced with layoffs. Nobodys future is secure.

As far as I know salaries and bonuses can be cut by companies as they are only mandated to pay the minimium wage so as long as they at least pay that they can cut what they like.

Manshu February 3, 2009 at 4:21 am

YAI,

The guys at Ford or GM who fix number plates or seat covers are not at fault for someone else’s decisions to support retirees till eternity. But if the company goes down – they will go down.

The employees at Enron had nothing to do with the fraud, but when the company went down – they lost their shirt.

When Wall Street Firms collapse – execs take refuge in their own “departments”. This is ridiculous. If the departments are so good – then they should be hived off into separate companies, and have separate balance sheets. But will that work? It won’t, since you need the assets of the rest of the firm to work with.

If individuals working in these departments who “deserve the bonuses”, could have earned this bonus without being the employees of the company – would they ever be employees of the company?
Wouldn’t they start off on their own instead?

The very fact that they are employed with the company, shows that they depend on the company. If they depend on the company – they should share its fortune, when the times are good and bad.

Unfortunately a banking crisis leads to an economic crisis and that is the reason Wall Street behaves the way it is. I am sure this has nothing to do with contracts, let Smith Barney pay out no bonuses to its people on account of Citi, and let’s see how many of its brokers sue it.

Frank February 3, 2009 at 7:24 am

This is all very frightening to me.

Why the bonuses needed to be paid is pretty straight-forward. The vast majority of Wall Street employees had nothing at all to do with the disaster in mortgage bonds. They made money for their employers last year and expect their usual cut. Whether or not a bank is legally obligated to pay is beside the point. Even if they could screw the employees out of their compensation, it is something they could only do once. Not only would those employees leave, nobody else would agree to work there again. It would be like a troubled car dealer deciding not to pay commissions owed to its salesmen. In other words, unless you plan on liquidating the firm, this is not an available option. And, last I checked, there is a wide consensus that the big Wall Street banks must not be dissolved.

What has me losing sleep is that our leaders in Washington, who ought to understand this, cannot pass up any opportunity to score points with an ignorant electorate by denouncing Wall Street Greed. The optimistic scenario on the President is that he is grandstanding to curry populist favor. The pessimistic one, which I believe, is that neither he nor anybody close to him understands even the basics of how Wall Street works. And that really scares me.

Geary the Debt Counsellor February 3, 2009 at 9:32 am

Of course wall street is not backing down, all they want is their money! It has been exposed enough with the bank and car bail outs!!!! the VP’s drive up in there expensive cars and plead for the government to bail them out! We are living in a financial crisis where there is no room for greed or we are headed for the worst Depression Era yet!

Silicon Valley Blogger February 3, 2009 at 10:09 am

@Frank,

I say this with all due respect. Just airing my position in this debate:

I’m puzzled by your statement that if any of these Wall Street employees were “screwed out of their compensation” that nobody would ever work at their company again. Somehow I doubt that. It would just mean restructuring the way compensation is done in these companies.

Are you implying that there’s such a shortage of financiers, bankers, stock brokers, analysts and other financial industry employees that you seriously believe that these institutions wouldn’t be able to find anyone who’ll ever work at their companies again? Are the jobs here so tough and challenging that it’ll be hard to find other qualified individuals to step to the plate and replace lost employees? (Having been an erstwhile insider with family members and friends who currently work in this field, I don’t buy this argument.)

Where I come from, there’s no such thing as job security and nobody is indispensable.

Does Wall Street want the government’s money (or the taxpayer’s money) in the form of loans but doesn’t want to be accountable for what they do with it?

It has also been suggested that the financial industry cannot and should not be dissolved because they are above all other industries and are governed by their own (special) rules. And yet the general population needs to stand by helplessly as we fork out our money and our children’s money to try to “save” this industry from collapse. And we face this without guarantees that it’ll work….

That to me, is what is truly frightening and what has me losing sleep.

A lot of things need to be changed for us to get out of this mess, even if it means shaking up the status quo. Most of America has shed their nest eggs and their futures (in the form of devastated 401ks, retirement funds and lost jobs) and I don’t think anyone should be immune to similar adjustments nor to the same fate.

Jules @ Money Feuds February 3, 2009 at 1:54 pm

Very sad. Everyone is being affected by this crisis. People are losing money from many arenas and many are losing jobs. So it is understandable that these troubles would hit Wall Street as well, but I guess they feel “untouchable” and more deserving than the rest of world.

It is also odd that America’s “zero” savings rate is being targeted as a possible culprit of the problem. It was banks/lenders giving loans to people without savings or giving them too great of a loan compared to their income. Savings should be greater for everyone, but it is moreso debt that has resulted in these problems, not necessarily savings rate. Plus, what is the saving rate for those on Wall Street? Sure, they are making tons of dough per year, but it looks like they are also purchasing many yachts and other spendy pleasures, so I don’t know that they are the ideal financial gurus or examples of responsible savers/spenders.

Evan February 3, 2009 at 5:26 pm

Narcissism all around– a culture wide epidemic.

To Manshu February 3, 2009 at 7:55 pm

How could they earn the bonus if they where not employed? You might work for minimum wage and not have a clue how a real job works. But when you are hired you and the employer enter into a legal agreement of what you do for them and what they will pay you for it. Part on the compensation may be in the form of a bonus. If it is it will be spelled out what must occur for you to have the right to get that bonus. If you meet the terms, you get the bonus. If you don’t meet the terms you don’t get the bonus. So again. If it is apart of there compensation package and they have met the requirements to get the bonus so they should get it.

You need to stop looking at a company as a singular item. Companies have many departments, divisions on one balance sheet and the ones that do well help prop up the ones doing bad so the company as a whole does decent. One department (mortgages) doing bad does not mean other departments that have to suffer for the poor performance of the other department. Again its up to the terms of the Bonus agreement. Most will reduce the amount one can get when the company as a whole does bad.

Now as for bail outs good or bad. More regulation etc.

The GOVERNMENT caused these problems and is not who we want to get us out of it. Voting robin hood into office was not the right answer and neither was the old man. Unfortunately our stupid two party system gave us two losers to vote on. So we got robin hood. We need LESS government not more. They can not handle what’s going on today. They will never be able to handle it.

Goran Web Design February 4, 2009 at 3:02 am

This is ridiculous! how the hell can some people be so selfish. They are the ones who are mostly responsible for this crap the economy is in, and they still have the audacity to demand a bonus? Isn’t the main point behind a bonus based on performance. If the you perform well you get a bonus, if you don’t then tough!

jim February 5, 2009 at 7:36 am

I think it’s hard to judge people when you don’t walk a mile in their shoes… I don’t think they need $400k or $200k, but if that’s what the world values them at, then that’s what they’re valued at.

kitty February 7, 2009 at 9:16 am

@Goran Web Design: if you worked in sales and your job depended on the commissions, would you not want the commissions that you earned by completing a successful deal – a commissions you were entitled to as part of you salary – because somebody else lost company a lot of money. It may surprise you, but a company is not a single person. There are people in the company that made bad decisions and then there are people who did a good job. Just because a company as a whole has net loss, doesn’t mean there aren’t some departments that made money. This is what Wall Street bonuses are – they are part of agreed-upon salary. So what you want to do is to penalize people who actually made money for their company; make them go and work elsewhere so that they only employees that are left are those who lost money?

It really annoys me when people view a company as a single person.

As to who is responsible for this mess – there are lot of people responsible, including the government. But it is not a majority of each firm employees.

Silicon Valley Blogger February 7, 2009 at 9:43 am

@Kitty,

Very well said, I agree with you on your points. As someone who’s worked in the financial industry for a good handful of years, I can also sympathize with all other employees — the rank and file, especially — who are responsible for making the company run. I believe that a lot of the ire that people have may be misguided — they blame an entire company when it may be a particular department or the general management that has caused a company to suffer.

At any rate, if I wear my taxpayer’s hat though, a part of me prefers to see how this whole thing shakes out without involving my money. In other words, should we or shouldn’t we let the cards fall where they may (even if it means massive layoffs for these financial institutions)? In general, taxpayers would much prefer to keep out of this debate, and hence, a lot of them would much rather not extend any help to ailing companies. Let the ailing companies who want to keep bonuses for their employees worry about how to pay them then? I don’t think most of us are asking for pay cuts for people who have done their jobs — what we’re unhappy with is to have to fork out the money to pay others their “deserved” salaries and bonuses.

More power to those companies who can afford to pay their employees hefty salaries and bonuses — let them thrive on their own steam.

Here’s a question: if you need to borrow money, shouldn’t there be terms surrounding how you use and deploy this borrowed money? And another question: if you’re a Wall Streeter — wouldn’t you prefer to get a pay cut than be laid off if your firm goes under? If we didn’t have government intervention, then Wall Street would be seeing massive layoffs of an unprecedented scale, and bonuses would be farthest from the minds of these employees who’d be so thankful if they could find a halfway decent job to replace their former one (in this day and age). If I were still an employee working in the financial industry, I’d very gladly take my pay cut and be happy I still had a job. Besides, we have a free market — if I didn’t like the pay cut, I can always look for another job, right?

Manshu February 8, 2009 at 3:09 pm

This is a brilliant idea about compensation – Why not pay out bonuses in Toxic Assets?

http://baselinescenario.com/2009/02/08/heres-an-idea/

Another quote that is relevant to this debate:

“The graveyards are full of indispensable men.”
General Charles De Gaulle

Randy July 28, 2009 at 7:40 am

To Manshu,
When company divisions are listed seperately on the stock exchange, then they can be held to different standards. Until then they all work for the same company and enjoy the same benefits/problems. Your argument that government should get out of regulating is really, really off the mark. If your thinking is “screw everyone else–I’ve got mine” then you really don’t understand. Our country can’t exist with that kind of attitude. You must be a 20-30 year old that has no kids to be this selfish. Narcissism is not a good attribute.

i get his August 12, 2009 at 9:42 am

I see you guys seem to get angry about investment bankers’ stellar pay scales, my sole question
is how many of you work 15-20 hours a day and skip weekends? Because using those hours
alone if you hopped up from your 40-50 hour work week to 100 – 140 hour week your salary
would immediately go 2 – 3 x higher, so work harder and shut up.

Financial Samurai October 13, 2009 at 8:07 pm

Ahhh, I LOVE this debate! Too bad it is so old, and nobody will probably respond to my commentary.

Anybody upset Andrew Hall from 34% Government owned Citibank got paid $100 million? I’ve written open letters to Vikram Pandit, and Ken Lewis on FS.

Manshu good idea about toxic assets. That’s what senior people at Credit Suisse got paid in February, and those toxic assets are up about 25% this year.

Silicon Valley Blogger October 13, 2009 at 8:42 pm

@Financial Samurai,
Thanks for reviving the commentary here. I do read comments even for older posts, so you can count on that at least! 😉 You know where I stand on this one though. What I don’t want to see is that as soon as the economy recovers, the payouts, bonuses and salaries get even more ridiculous (which it no doubt will). I don’t think we saw any pull back during the financial crisis anyway, so you can imagine the reentry into excess that we’ll be experiencing as soon as this economic period becomes a distant memory.

Look at us today: 1 year after the onset of the crisis, and the stock market has almost retraced its steps. I still think there’ll be a double dip recession, but we never know.

Financial Samurai October 14, 2009 at 6:48 pm

Hey SVB! Thanks for responding 🙂 Good to see you read comments on your old posts as well. In fact, I’ll be highlighting this old in my new post tomorrow, Oct 15th!

Did you read the WSJ article about bonuses breaching record highs for 2009, today? Unbelievable! I’ll be mentioning some if it tomorrow as well.

The good thing is, everybody is making money now, whether they know it or not. A bull market is generally good for all.

Chuck January 23, 2010 at 1:02 am

If i screw up with my investments or at the track for that matter there is no one to bail me out much less at 0 % interest. Its a rigged game. GS traders ran the price of oil up to $150 a barrel 2 years ago. They produce nothing. They are just shuffling money around. There should be a transaction tax on trading to put a damper on it.

Silicon Valley Blogger February 29, 2012 at 11:11 am

Alright, let’s all please break out our violins. Better yet, where’s the tiniest violin you can find? Wait, uh, there’s some dust in my eye — let me just wipe this tear off. Reference: More bankers complain about their hardship.

Stefan February 29, 2012 at 5:04 pm

Hah, cry me a river alright!

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