Why Capping Pay Is Likely to Work 108 comments
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The NYT wheels out an executive-compensation expert today, to predictably pour cold water on the Obama administration's plans to cap top executives' pay at half a million bucks a year:
"That is pretty draconian -- $500,000 is not a lot of money, particularly if there is no bonus," said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. "And you know these companies that are in trouble are not going to pay much of an annual dividend."
Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.
"It would be really tough to get people to staff" companies that are forced to impose these limits, he said. "I don't think this will work."
I can't wait for Reda's assertion to be empirically tested; my guess is that there is no shortage of people willing to run massive, multi-billion-dollar companies no matter what the pay.
There might be problems in hiring top talent, over the long term, if no one in the company is going to make more than $500,000. But that's not what's going on: For one thing, these salary restrictions are explicitly temporary, and for another, they don't apply to more junior employees.
It's also astonishingly tone-deaf for anybody, in this climate, to say that "$500,000 is not a lot of money". I'm sorry, but it is a lot of money. (And it's 25% more than the president makes.) What's more, all of these executives are dynastically wealthy already: They don't need an annual salary to live in splendor. Their paycheck is basically just a way to compete.
Could the likes of Vikram Pandit and Ken Lewis "earn more money at other firms"? If so, all power to them, no one's going to be particularly sad to see them go. But my guess is that if they do go, it'll be because they're pushed, and not because anybody's waving a massive paycheck at them.
It's conceivable that Reba is right, and that there won't be anybody willing to do these jobs for $500k. But I very much doubt it -- especially given the fact that as soon as the government is paid back, salaries will immediately bounce straight back up again. The net present value of a CEO's job is still enormous, no matter what the annual paycheck.
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This article has 108 comments:
I agree with you on the $500,000 is a lot of money. I disagree with you about the consequences.
I think most people tend to get worried about when congress says that "plan A" will only be "temporary". I think the real fear is that congress opens the floodgates to lasting wage controls. Maybe im just a little paranoid, but I have a lot of history on my side.
Regards
After a few years, we are going to start to realize that the boards were just overpaying CEOs. That they can get the same level of talent for the fraction of the money. Hopefully, the stockholders will realize this, too.
Obama has opened up the gates of hell by feeding populist opinion in order to achieve his policy objectives.
The American people are angry and "rich and fat" bankers look like a great place to blame, right? No realtor, mortgage broker, appraiser, leveraged borrower or home buyer has any responsibility for this mess, right? Let's sock it to those nasty bankers who have the nerve of getting paid part of their comp with bonuses!
Capping comp in the short-term is probably ok but has risks. It has a lot more downside in the medium and long term.
You arm-chair pundits don't have any idea what it takes to run or even be in the top 2 levels of management at a major financial institution. No, they won't be "giving you a call" because you don't even begin to have the skill set to get the job done. I have regular personal contact with the Treasurers, CFOs and CEOs of most of the top 20 banks in the U.S. You have no idea how hard these people work and the pressure that they are under.
If you drain the talent, then these organizations will truly be brain-dead. That is the problem. Removing all employee incentives will produce corresponding behavior. Equity (how Sr. Mgt and even the rank and file has been receiving the majority of its compensation for the past few years) has been gutted.
How will you recruit, manage and motivate talent? "Be glad that you have a job" is a very-short term motivator. If there is no upside offered, there will be a brain drain from the industry.
That will not be good for the institutions or the country.
Try to moderate the emotion and maximize the strategic thinking.
This seems like a reach to me considering... From the NYT article
"Crucial details remained unclear on Tuesday night, including whether the restrictions would apply to all companies that receive money under the so-called Troubled Asset Relief Program, or TARP, or whether they would apply only to the “exceptional” companies that were being rescued from collapse."
They see themselves in some sense as heroic figures, and that may not be such a bad thing given the present circumstance. Imagine the public acclaim that would go to the CEO who "turned around Citi" or "saved B of A." My sense of the zeitgeist here is that this is what people seek.
Exactly, this is what we want. Removal of incentives to push toxic products in order to line their bank accounts.
If these executives can make more money doing something else, then let them. Where are they going to find a financial company willing to pay them more? Almost all financial companies are completely insolvent, and are bringing the rest of the country down. Remember, that these executives were the same ones which, because of bonuses, were able to LOSE money for shareholders over the last 10 years. So tell me, if you think these guys are so talented, what exactly are there talents? Yes, they work 24 hrs per day, yes they have a mastery of financial methods, and the sum of it is that they've destroyed wealth on a net basis in this country.
So, yes, an average person on the street with no financial education could do better than the CEOs right now. At least if you do nothing, you don't lose money.
You serious, Felix? Just like that? Since when does the government act in such reasonable fashion?
History shows clearly that once the government gains control it rarely cedes it back....
This is a horrible idea that is purely reactionary to the populist wave. This isn't leadership....
To the argument that it is nationalization of the banks; it seems to follow that if the companies rally for corporate welfare, they should then be bound by sensible rules. Don't we ask the same of social welfare recipients? Food stamps should be for buying bread and butter, not beer and cigarettes.
Think,
I believe you are making a fundamental mistake about what banks are and should be. Because banks drank the Wall Street Kool-Aid they abandoned their traditional role and adopted the behavior of investment banks (leverage!). The regulators were drinking too, so they allowed them to act like investment banks, even encouraging them.
This was a disastrous error, and like the last time it was allowed in the 1920's, led to exactly the same sort of excesses. The so-called "talent" you want to reward subsumed the depository function into large casino capitalist enterprises and poisoned the well for all and sundry.
Depository banks should be free from political interference -- we don't want the kind they have in China and Japan. But also they should be strictly regulated and prevented from engaging in behavior that can eviscerate their capital adequacy. Such institutions would not and should not make a gazillions of dollars in profit. So they don't need the sort of buccaneer "leadership" that unlimited compensation attracts.
Those folks have a perfectly valid place in American capitalism: as entrepreneurs, private equity managers, and venture capitalists. But they should not run depository institutions because their gambling ways put the government's insurance programs at risk. Let them reap huge gains and suffer huge losses on their own, without the taxpayer's implicit, explicit, or fantasy backing. And caveat investor when dealing with them.
Banks serve the vital function of providing credit to businesses and citizens, and obviously they need to make a profit to increase their regulatory capital allowing greater loan making capability. But they should NEVER engage in non-depository activities. They also need to be forbidden from becoming "too big to fail". The only real value I can see in Wells-Fargo and Bank of America having become truly "national" banks is that people can visit an ATM in a different state without having to pay a fee.
Thus they will not need enormously compensated CEO's. There are plenty of people running local banks and credit unions profitably for low six figure salaries who are completely capable of running larger enterprises so long as the "financial engineering" element of the mega-banks are not present. Let them.
By the way, credit unions offer the same fee-free "foreign" ATM access through their national co-op. Smaller banks could do the same thing if they wanted to offer the service to their customers.
On Feb 04 11:23 AM Think! wrote:
> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.
On Feb 04 12:13 PM Anandakos wrote:
>
> Those folks have a perfectly valid place in American capitalism:
> as entrepreneurs, private equity managers, and venture capitalists.
Raise your hand if you think there will be huge packages to "retain talent" to go along with this.
Thanks for the excellent timely article, and I like your take on the subject. I think this cap is just one more move closer to making all of these big banks entirely owned by the government. I cannot see any way for companies to attract top talent on only $500k per year. These C-level execs are usually extremely smart, have exceptional experience, and an incredible work-ethic. I just don't see top talent working for $500k per year when they can make so much more elsewhere. What we'll be left with is huge banks run by government... there is basically no way they'll be profitable, and it will end up increasing the national debt.
As an example of this phenomena, who on these boards thinks that having companies pay for their employees' healthcare is a good idea? Concensus opinion these days seems to be that this is a problem since people become unemployed, or change jobs. How did we get to this point? FDR instituted wage controls in an ill-advised attempt to limit wage inflation during WWII. In response to that, companies still needed to attract workers so they started paying for people's healthcare as an enticement. Now we have this healthcare mess. The same thing will happen here. Companies, desperate for top-notch CEO talent, will use other means to attract and keep those people and we will create another unintended consequence that will most likely be worse than the "disease" we were trying to "cure".
I actually agree with people who are suspicious about this cap having loopholes. I really don't like the sound of giving them stock options, etc...these alternatives will just be exploited. I want to see a clause like" if finanicial irregularities are found or reports are revised downward during tenure of this officer, he/she will be required to payback all his perks to company except base salary". With the kind of money we are dealing with, there should be a payback clause like this.
Lastly for people who think that salary cap will hinder competitive growth....look where it has gotten us after paying these high-ranked officers. Enron, tech bust, housing crisis,....giving these hugh compensation does NOTHING for the ecomony. We need to encourage a culture of honesty and hardwork.
I am perhaps most sickened by how badly many financial companies have been mismanaged such that many of them are technically insolvent.
How about the organization that is $11TRILLION in debt? Why don't we take away their executive air fleet? Why don't we limit their compensation and benefit package? After all, they have received a bailout from the taxpayers already. Are we thinking that the government will cease to attract the highly qualified people that are there now...don't make me laugh. The organization that has demonstrated a total lack of fiscal skill is making rules for everybody else.
Am I the only one that finds that odd?
On Feb 04 11:00 AM thebigpayoff wrote:
> He also talked about capping company's that didn't take any funds,
> is that what we want. How about when he decides how much you can
> make you idiot. The good news is, there are plenty of people like
> me, with a year and half of college, that will be more than happy
> to take these CEO's jobs when they can't find anyone that will work
> for $500,000. Give me a call. I think I could do better than some
> of them, and better than Obama's cabinet picks. At least I pay my
> tax's, and can balance my check book.
Bottom line: why not institute a performance-based system instead of capping pay at some arbitrary number?
The point isn't to get just anyone, it's to get the absolute best. I haven't made up my mind about the new executive comp policy, but a fair amount of the logic in this analysis is flawed.
Promoting some understudy will not fill those shoes and revenue and profit from those operations will drop off dramatically as the best that exit those firms will be taking their clients with them. That is how it works Felix. Get a clue.
Doing "a good" in business is operating in such fashion that you preserve and enhance shareholder wealth. I agree that some of these folks failed miserably, but then so did the American consumer, and lest we forget, the government we seem to now so love. If we're going to pillory the Wall Street chieftans, then why not Barney Franks, Maxine Waters et al. Can you say Fannie/ Freddie?
Why should "they" have forseen the future when no one else, including your beloved government, did.
I for one am really excited about BO's stimulus, especially the free condoms.
So their financial crack smoking has now involved me and my children, and every citizen of this country (and the world), by force.
On second thought, OFF WITH THEIR HEADS! Seriously. Maybe they don't realize people feel this way. Neither did Marie Antoinette.
Second, if they need government money because the Fed increased interest rates 18 times and threw the economy into a tailspin, and thus feel they were put in this position by the government- they should have done a better job making that case, especially back in 2006 and 2007.
Third, most rainmakers are not covered by this cap, and most rainmakers are smart enough to know that their rainmaking ability is not totally independent of their firm.
The senior investment bankers, top traders and top producing brokers are the ones that will jump ship and take their clients with them and that is huge. They have either a unique talent or a book of business (clients) and that goes right out the door with them when they leave. And think about it - of the $18.5 billion in bonuses paid - if 100 top managers (and that's a lot for 8 or so firms) got $20 million, on average, each, that makes $2 billion. The lions share - $16.5 billion is paid to the people that bring in up to half of a firms business. Get rid of them and its game over for profitability for that firm.
The absurd part is that the government's hand was forced to require these salary caps. Are there no morals on wall street or in corporate america anymore? If your company reported a net loss for 2008 and the company required additional capital from the government to remain a going concern, bonuses should not have been paid to any employee of that entity. Its is a bonus, by definition, a payment made above and beyond the required amount of salary, paid to employees because their efforts contributed to the company's profits being above and beyond the expected profitability. To require a capital infusion from the government just so your company can remain solvent is considerably below expectations.
On Feb 04 01:50 PM sether wrote:
> Dude, what revenue? These are the people who brought in the Lion's
> share of the debt, insolvency, and bankruptcy. Good effing riddance.
> You dumb jock-sniffing wannabee. How far up your @ss do their d!cks
> have to be, before you realize you're getting effed?
>
>
> On Feb 04 01:36 PM Robert Perrego wrote:
On Feb 04 01:53 PM BS Detector wrote:
> Don't forget that on top of the $500,000 can be stock-based compensation,
> as long as it's not paid until the government's paid back in full.
> They could easily structure it so that their CEOs could end up making
> MORE. Which is fine - who doesn't think executives should have mostly
> performance-based compensation?
On Feb 04 01:50 PM sether wrote:
> Dude, what revenue? These are the people who brought in the Lion's
> share of the debt, insolvency, and bankruptcy. Good effing riddance.
> You dumb jock-sniffing wannabee. How far up your @ss do their d!cks
> have to be, before you realize you're getting effed?
>
>
> On Feb 04 01:36 PM Robert Perrego wrote:
When the govt. no longer owns them, the new owner can jack up the salaries.
If they don't like $500k, they can quit. It's very simple.
If someone takes the $500k and succeeds, that person will be a hero or financial wizard and thoroughly rewarded for years to come. That is a huge incentive already.
What do you have left? The Kansas City Royals. And then it takes years to rebuild by waiting for players to come back on the market and back to your team. it's not like these producers grow on trees or are mid-level talent.
This says that the government is buying into these banks and destroying their business models.
Not too smart.
On Feb 04 02:05 PM rrgg wrote:
> The problem is no one wants to admit that the government owns these
> banks now. Whoever owns a company can set whatever salary they want.
>
>
> When the govt. no longer owns them, the new owner can jack up the
> salaries.
>
> If they don't like $500k, they can quit. It's very simple.
>
> If someone takes the $500k and succeeds, that person will be a hero
> or financial wizard and thoroughly rewarded for years to come. That
> is a huge incentive already.
What has any investment bank ever done for me? Please educate me. I think I understand what they have done TO me.
On Feb 04 01:56 PM Robert Perrego wrote:
> Whats wrong with you? One area of the finance puzzle lost money -
> mortgage derivatives. The equity trading (and in Goldman's case the
> bond trading), brokerage and investment banking businesses made a
> LOT of money. Take away the talent here and you have even bigger
> losses. Read a little, educate yourself, then open your mouth.<br/>
On Feb 04 02:08 PM Robert Perrego wrote:
> OK - you buy the New York Yankees - a historically winning franchise,
> cap all the salaries and let all your best players leave.
>
> What do you have left? The Kansas City Royals. And then it takes
> years to rebuild by waiting for players to come back on the market
> and back to your team. it's not like these producers grow on trees
> or are mid-level talent.
>
> This says that the government is buying into these banks and destroying
> their business models.
>
> Not too smart.
On Feb 04 02:13 PM coffee is for closers wrote:
> The government has to buy into these banks because the business model
> is broke already broken.
>
>
> On Feb 04 02:08 PM Robert Perrego wrote:
Stop playing roulette then.
On Feb 04 02:13 PM sether wrote:
> Yeah and I made $200 at craps, blackjack, and slots last week, but
> I lost my house playing roulette. Oh yeah, I also lost my neighbor's
> house.
> What has any investment bank ever done for me? Please educate me.
> I think I understand what they have done TO me.
>
>
> On Feb 04 01:56 PM Robert Perrego wrote:
How would you rate Obama's ability as an executive? He's working for $400K a year. What about other senior government officials? Furthermore, many of the smartest people in the world forego the riches of the private industry and serve the private good by pursuing jobs in the non-profit, NGO, and academic worlds. These folks make fractions of what we are talking about here.
PERHAPS THE TYPE OF PERSON WHO IS ONLY MOTIVATED BY THE FINANCIAL REWARDS OF THE JOB IS PRECISELY THE WRONG LEADER TO "REFORM" A GIVEN BANK AND THE INDUSTRY AS A WHOLE. That's probably a tough pill for many in the industry to swallow, but if you are primarily motivated by money, you'll probably continue the greedy paradigms that got us into this mess.
On Feb 04 02:08 PM Robert Perrego wrote:
> OK - you buy the New York Yankees - a historically winning franchise,
> cap all the salaries and let all your best players leave.
>
> What do you have left? The Kansas City Royals. And then it takes
> years to rebuild by waiting for players to come back on the market
> and back to your team. it's not like these producers grow on trees
> or are mid-level talent.
>
> This says that the government is buying into these banks and destroying
> their business models.
>
> Not too smart.
If the cap is 500k for receiving funds and the payoff for the executive team is higher for not receiving funds, what is the motivation for taking said funds?
Now to jump into the "talent discussion". Sure there are a lot of people that'd take the CEO job for 500k, but those same people might consider the 600k CEO job more. Further, if the company that offers 500k hires on a CEO for that amount and they fail, the whole "magic bones" fallacy comes into play. Was it the CEO? Does a better CEO cost more? What is the ROI with a CEO anyway? If the CEO succeeds what is the company doing to keep them? The entire question of compensation needs a reevaluation from the side of the business paying out salaries and needs to call the bluff of those people.
This business is a lot about who you know and who you can call. You cannot simply plug in a smart junior exec and have the people at the other end of the deal pick up the phone and want to do a deal. Its a relationship business - maybe thats wrong - but it is how it is. I know this personally - I was promoted from desk analyst on a Municipal Bond institutional trading desk to Head Underwriter years ago. We were a mid tier firm and did business with the Goldman's and Merrill's. They fired the Head Underwriter as they asked him to take a pay cut and he refused, promoted me, and when I called Goldman or Merrill I git hung up on for months and months. I got the short end of the stick in deals we were in syndicate on and they basically did not acre to talk to me - much less do business with me. It was not until I brought in big clients on the other end of the deal that they would even speak with me. They had no idea who I was, were not my friends, and eventually i built a relationship with them but it took years. this business and deal making has a lot to do with personal relationships just as retail brokers have to establish trusted relationships with their clients. Most of these jobs are not production line 'everyone-can-do-them-... jobs.
That is just the way it is.
On Feb 04 02:25 PM David in D wrote:
> I'd like to challenge the assumption that you can't attract "top
> talent" for $500K a year. While there are several posters who have
> already echoed this position, perhaps we need to reimagine what motivates
> the "best" people to work in a given situation.
>
> How would you rate Obama's ability as an executive? He's working
> for $400K a year. What about other senior government officials?
> Furthermore, many of the smartest people in the world forego the
> riches of the private industry and serve the private good by pursuing
> jobs in the non-profit, NGO, and academic worlds. These folks make
> fractions of what we are talking about here.
>
> PERHAPS THE TYPE OF PERSON WHO IS ONLY MOTIVATED BY THE FINANCIAL
> REWARDS OF THE JOB IS PRECISELY THE WRONG LEADER TO "REFORM" A GIVEN
> BANK AND THE INDUSTRY AS A WHOLE. That's probably a tough pill for
> many in the industry to swallow, but if you are primarily motivated
> by money, you'll probably continue the greedy paradigms that got
> us into this mess.
I understand what you're saying, but if the top performers were put under the same restrictions, they could be offered the same kinds of deals. To keep them the top end of the possible performance-based compensation (after TARP is repaid) would have to be higher, which they could do. At least then there would not be the open floodgate problem you suggest.
Maybe your comments would better be appreciated in the healthcare, charity or welfare sectors.
On Feb 04 02:25 PM David in D wrote:
> I'd like to challenge the assumption that you can't attract "top
> talent" for $500K a year. While there are several posters who have
> already echoed this position, perhaps we need to reimagine what motivates
> the "best" people to work in a given situation.
>
> How would you rate Obama's ability as an executive? He's working
> for $400K a year. What about other senior government officials?
> Furthermore, many of the smartest people in the world forego the
> riches of the private industry and serve the private good by pursuing
> jobs in the non-profit, NGO, and academic worlds. These folks make
> fractions of what we are talking about here.
>
> PERHAPS THE TYPE OF PERSON WHO IS ONLY MOTIVATED BY THE FINANCIAL
> REWARDS OF THE JOB IS PRECISELY THE WRONG LEADER TO "REFORM" A GIVEN
> BANK AND THE INDUSTRY AS A WHOLE. That's probably a tough pill for
> many in the industry to swallow, but if you are primarily motivated
> by money, you'll probably continue the greedy paradigms that got
> us into this mess.
On Feb 04 02:42 PM BS Detector wrote:
> Perrego wrote: "Agreed. But if you were offered options in a company
> where a lot fo the top talent left and it was going to be a few years
> before the TARP would be paid back, and THEN you had to rebuild your
> talent core competency would you think twice about staying? It's
> a slippery slope."
>
> I understand what you're saying, but if the top performers were put
> under the same restrictions, they could be offered the same kinds
> of deals. To keep them the top end of the possible performance-based
> compensation (after TARP is repaid) would have to be higher, which
> they could do. At least then there would not be the open floodgate
> problem you suggest.
Not talking about rings - talking about profit. The Red Sox have two rings in the new century and have been until this year, in the top 3 in salaries. there is a correlation and the metaphor I applied, while not perfectly apt does fit well.
On Feb 04 02:35 PM sether wrote:
> The Yankees have not won in 10 years because they are composed of
> a bunch of overpaid, 'roid-shooting mercenaries, with no concern
> for anything but their own bottom line. In that sense The Yankees,
> and most of baseball, is like Wall Street. How about teams like the
> A's, and Tampa Bay? Good clubs who have built up talent through their
> own farm systems and prescient trades. As soon as anyone gets too
> entitled, they can go extort the Yankees or Sox. Same thing should
> happen to all that fabulous 'talent' on Wall Street, once we regulate
> the sh*t out of it. Maybe that will leave us with a functional market,
> chugging along, that people can trust if they want to, or can count
> on to stay the hell out of their lives if they don't. I suppose that
> will cramp your high-rolling trader lifestyle, but to hell with that.
> Go buy some scratch tickets if you miss the adrenaline.
>
> On Feb 04 02:08 PM Robert Perrego wrote:
"I can't wait for Reda's assertion to be empirically tested; my guess is that there is no shortage of people willing to run massive, multi-billion-dollar companies no matter what the pay."
---------------------
It already has been empirically tested.
Numerous studies have shown a negative correlation between executive compensation and shareholder returns. Double-digit percentage growth in executive pay in the last decade has certainly not led to double-digit profit or share price growth:
money.cnn.com/2006/10/.../
ideas.repec.org/p/bri/...
articles.moneycentral....
www.allheadlinenews.co...
The same geniuses the banks were paying hundreds of millions of dollars were the ones who destroyed their institutions by taking on stupid risks. Despite high pay, they failed. If the executives had been paid $1 billion, would the outcome have been better? Would the $1B CEO have been wise enough to avoid the real estate bubble and accept lower growth in exchange for lower leverage? I doubt it. Probably the banks would be better off if this "talent" decided to spend life on the golf course rather than working for a measly half-million, and an army of capable, ambitious middle-managers applied for their jobs.
I say let them work for $500k. If they do a good job, they can stay indefinitely and then retire very comfortably.
If someone thinks they're too good to work for $500k, that in itself demonstrates an attitude of arrogance and hubris. How can we expect individuals with a messianic complex to make good decisions? The evidence says they don't.
This should happen and be permanent.
Speaking of talent...you've got to by kidding...didn't all of those smart millionaires run their bank down?
Ironic and just the way it is. Like I said earlier pro0f this is happening is on Bloomberg.com. News was out yesterday. Top producing brokers being paid up to 260% of last years production by UBS. Now the profits they bring in will go to a Swiss firm, not the TARP firm our taxpayer money is invested in and the firms the U.S. government is invested in will be, as a result of all this, less profitable.
On Feb 04 03:02 PM Tim H. wrote:
> James F. Reda says $500,000 is not alot of money... PLEAAAASEEEE!
> What the hell? To realize how out of whack these Wall Street Financials
> companies are is to read what Reda say's reprinted in this article.
> These people are soo outta touch with reality. These so called talented
> execs Reda speaks soo highly of are the one's who have put the banks
> at the mercy of tax funded bailouts. I submit that their may be an
> underling at one of these banks who is very talented and make's far
> less than $500,000. This underling has never kissed the right azzes
> and therefore fills under promoted. So since all these talented execs
> will leave for more money where? Since companies are laying people
> off left and right and hurting for cash. This underling takes the
> job and does a very good job. Making a name for himself and enriching
> himself down the road. If anyone just read my post do you not see
> what B_llsh_t these people like Reda are selling? I have another
> post below to reply to Robert Perrego.
On Feb 04 03:06 PM 303820 wrote:
> Wall street is a little angry to day. Per haps they should join a
> UNION!
>
> Speaking of talent...you've got to by kidding...didn't all of those
> smart millionaires run their bank down?
I ask you again, How has anything that any investment bank has ever done, ever benefitted me, or the vast majority of people in this country? You don't get it. The whole paradigm is bankrupt, man. Moving, lending, and speculating on money that doesn't exist is not a legitimate or viable enterprise.
On Feb 04 02:17 PM Robert Perrego wrote:
> Poor baby. i bet the banks got up each morning and thought about
> you.
>
> Stop playing roulette then.
This entire mess is from the mortgage derivative area, and you might remember Fannie and Freddie (The government) had a lot to do with this.
What Obama is proposing is to limit the people who WERE making a lot of money for the firm and being paid to do so as a result of the derivative quants on the mortgage desks. Punish them all right?
And the result will be that those working at these banks that were making the banks a lot of money will simply leave and then what will our TARP banks have?
No money from derivatives (dead business), no money from mortgages too, and a lot less money from the investment banking, trading and brokerage functions.
I am sooooo glad my taxpayer money is invested in an idea that looks set up for failure from the start.
Pissed off is fine. I am pissed off these quant derivative freaks and politicians that let Fannie and Freddie run amok is kicking the economy's ass (I am working in the internet sector by the way - was on Wall Street for 14 years so you are correct) It is just that when you want to punish someone, then punish the wrong people, and then punish yourself because you are being irrational - now that is just plain stupid.
On Feb 04 03:11 PM Tim H. wrote:
> Robert Perrego you sound like an exec at one of these banks. Hey
> Robert who has gotten us into one of the worst finnancial crisis
> since the Great Depression? So whom at these bailed out banks is
> responsible? According to you Robert these top talent guys who bring
> in all the money will leave. Robert are these the same guys packaging
> these subprime loans into securities and selling them as AAA+ securities?
> If not then why didn't these TALENTED EXECS at these bailed out banks
> who are soo smart. Why didn't these guys spot what was going on with
> these phony securities and inform top level execs at these bailed
> out banks that "hey these securities are not legit and could destroy
> our company." I want some answers ROBERT. Please I am just an average
> dumb F_ck. Please explain this to me cause I just don't understand
> why some BRILLIANT banker should be making like 15 mil and all the
> other peon workers should be forced to scratch and claw for a pittance
> salary. If I sound mean then I apologize Robert because ya see....
> I am F_Cking P_SSED OFF! These people don't even realize the jobs
> and lives they have ruined. F THEM ALL!!!!!!!!!!!!!
Did you have to carry cash for all these transactions? barter with chickens and pigs?
The ATM you used moved money that was nothing but electronic, chances are you shop at a store that merged with another store or raised money through an investment bank to perform R&D for a product you like.
The function of traders and investment bankers and commercial bankers has been helping you since the day you entered the financial and economic world.
On Feb 04 03:16 PM sether wrote:
> Stop making bets and putting me on the hook when they go bad. And
> don't tell me that other activities of I-Banks are profitable. It's
> only a matter of time before the best 'talent' works those rackets
> as well. When they go bad, do I have to pay that off as well? Profits=private
> : Losses=public.
> I ask you again, How has anything that any investment bank has ever
> done, ever benefitted me, or the vast majority of people in this
> country? You don't get it. The whole paradigm is bankrupt, man. Moving,
> lending, and speculating on money that doesn't exist is not a legitimate
> or viable enterprise.
>
>
> On Feb 04 02:17 PM Robert Perrego wrote:
On Feb 04 03:21 PM Robert Perrego wrote:
> Actually they are different people. I stated earlier that the rainmakers
> are who I am talking about - the investment bakers, brokers and traders.
> Not the CEO's, CFO's etc...
>
> This entire mess is from the mortgage derivative area, and you might
> remember Fannie and Freddie (The government) had a lot to do with
> this.
>
> What Obama is proposing is to limit the people who WERE making a
> lot of money for the firm and being paid to do so as a result of
> the derivative quants on the mortgage desks. Punish them all right?
>
>
> And the result will be that those working at these banks that were
> making the banks a lot of money will simply leave and then what will
> our TARP banks have?
>
> No money from derivatives (dead business), no money from mortgages
> too, and a lot less money from the investment banking, trading and
> brokerage functions.
>
> I am sooooo glad my taxpayer money is invested in an idea that looks
> set up for failure from the start.
>
> Pissed off is fine. I am pissed off these quant derivative freaks
> and politicians that let Fannie and Freddie run amok is kicking the
> economy's ass (I am working in the internet sector by the way - was
> on Wall Street for 14 years so you are correct) It is just that when
> you want to punish someone, then punish the wrong people, and then
> punish yourself because you are being irrational - now that is just
> plain stupid.
Let me explain...When Pres. Clinton got elected...why did he change his mind on NAFTA? He knew that by loosing their jobs Americans would lose their buying power...That's when the government and the banks stepped in and gave credit and home equity loans to any one that asked.
replacing pay checks with credit cards!
I agree with a lot of what you have to say. the point I am trying to make is merely that driving away the talent that was making money - yes making money - for these banks is not a good idea.
Fire the rest of the idiots involved and limit their salaries - I am fine with that. problem is a blanket cap like this will gut the profitable business lines fast and the taxpayers are now shareholders. Just sounds like a bad plan to me.
On Feb 04 03:27 PM Tim H. wrote:
> HEY THINK!!! You sound like someone who deals with top CEO's... Oh
> My Gawd they are under soo much pressure. Life must be soo hard making
> all those millions or even hundreds of thousands of dollars and getting
> stressed out and hopping on a plane to some resort for a conference.
> Plus all those perks. Why don't you tell that story to someone making
> $50,000 a year with 4 kids and just lost their job. I don't really
> care how much these execs make. More power to them. BUT when thru
> irresponsibility and plain old freaking greed. Their decisions lead
> to the collapse of the financial industry and a recession. Then they
> have the tax payers bail their azzes out. Then whine because the
> government wants a piece off their azzes. Well yeah I got a problem
> with how much they are making. Reading some comments on this board
> just proves how out of touch the wealthy in this country are from
> the rest of us peons. If your wealthy you are special and deserve
> to make as much asyou wish even after the less wealthy tax payers
> have to bail you out from your screwups. No responsibility at all!!!!
I think that you, like Felix and so many of the people on SA have what I like to call an Eddie Lampert problem. In short, because you are intelligent, and in some cases, have made a lot of money making big directional bets on firms, you severely underestimate what it takes to run a large company. Perhaps Dilbert's pointy haired boss put it better: Anything I don't understand must be simple.
Insiders at Sears discuss a raft of basic problems that any halfway competent retail executive knows how to fix, but are destroying Sears. Bankers keep ATMs running, service millions of loans, run a network of retail stores (we call branches) larger than most large retail companies... not to mention trying to manage exposure to vast currency, interest rate, and other markets. If you really think any joe off the street... even one that is intelligent, hardworking, and can manage an enterprise of this level of complexity well... frankly... you know not of what you speak.
Yet, here we go saying that every bank executive in America (really the world) was incompetent and should be fired. Great rhetoric, horrible basis for decision making. First of all, think a minute about what you are saying... Everyone was incompetent? Really? ALL of them? How is that even possible... surely some should be competent, if only by chance. Or, is it a more reasonable and realistic assumption to belive that something extradordinary happened in the environment that no reasonable person would have anticipated? Is it more reasonable to understand the pressures and constraints of regulated banks (and despite the other favorite talking point of the day, banks are regulated... heavily)... which led inevitibly to business models allowing banks to remain competitive with unregulated entities. But then, thats a lot less fun than making jokes about how these people expected to get paid a lot of money to destroy the industry.
Its a bit of a strech, but blaming banking executives for this crisis is not really so far from blaming a drought on the incompetence of farmers.
I am not saying that compensation is not out of hand in many cases. But, as a general rule, executives at major banks are paid a fraction of what they could earn at private equity firms, hedge funds, and other money management jobs, or in fact at private investment banking firms... it is no accident that Goldman wants out of these restrictions as quickly as possible.
Ultimately, regardless of moral indignation, the question has to be about consequences. Its seems many of the people on SA are happy to gamble putting these huge, complex, and immensely important institutions in the hands of people without adequate experience... To which all I can say is... sincerely... I wish us all the best of luck, we're going to need it.
On Feb 04 12:13 PM Anandakos wrote:
>
> Think,
>
> I believe you are making a fundamental mistake about what banks are
> and should be. Because banks drank the Wall Street Kool-Aid they
> abandoned their traditional role and adopted the behavior of investment
> banks (leverage!). The regulators were drinking too, so they allowed
> them to act like investment banks, even encouraging them.
>
> This was a disastrous error, and like the last time it was allowed
> in the 1920's, led to exactly the same sort of excesses. The so-called
> "talent" you want to reward subsumed the depository function into
> large casino capitalist enterprises and poisoned the well for all
> and sundry.
>
> Depository banks should be free from political interference -- we
> don't want the kind they have in China and Japan. But also they should
> be strictly regulated and prevented from engaging in behavior that
> can eviscerate their capital adequacy. Such institutions would not
> and should not make a gazillions of dollars in profit. So they don't
> need the sort of buccaneer "leadership" that unlimited compensation
> attracts.
>
> Those folks have a perfectly valid place in American capitalism:
> as entrepreneurs, private equity managers, and venture capitalists.
> But they should not run depository institutions because their gambling
> ways put the government's insurance programs at risk. Let them reap
> huge gains and suffer huge losses on their own, without the taxpayer's
> implicit, explicit, or fantasy backing. And caveat investor when
> dealing with them.
>
> Banks serve the vital function of providing credit to businesses
> and citizens, and obviously they need to make a profit to increase
> their regulatory capital allowing greater loan making capability.
> But they should NEVER engage in non-depository activities. They also
> need to be forbidden from becoming "too big to fail". The only real
> value I can see in Wells-Fargo and Bank of America having become
> truly "national" banks is that people can visit an ATM in a different
> state without having to pay a fee.
>
> Thus they will not need enormously compensated CEO's. There are plenty
> of people running local banks and credit unions profitably for low
> six figure salaries who are completely capable of running larger
> enterprises so long as the "financial engineering" element of the
> mega-banks are not present. Let them.
>
> By the way, credit unions offer the same fee-free "foreign" ATM access
> through their national co-op. Smaller banks could do the same thing
> if they wanted to offer the service to their customers.
>
> On Feb 04 11:23 AM Think! wrote:
On Feb 04 03:32 PM sether wrote:
> I understand your point about booting talent from firms we now 'own'.
> I was just ranting macro a little. I think the govt is in this for
> the long term though, and is likely unconcerned about immediate further
> deterioration and would be happy with several years of stagnation.
> I think there will be heavy regulation instituted, in part to restore
> confidence in the markets and financial institutions in general.
> Under those conditions, the high rollers will indeed be gone.
>
>
>
> On Feb 04 03:21 PM Robert Perrego wrote:
This problem started solely on the derivatives and mortgage desks. The meltdown started with Fannie and Freddie (mortgages) and multiplied through to the banks derivative desks.
The equity trading, brokerage and investment banking was nowhere near all this and they were making money. now - should you punish these guys too?
On Feb 04 03:37 PM Tim H. wrote:
> Robert Perrego you didn't answer my question. If these commercial
> bankers etc... If they are soo smart and brilliant. How did they
> allow this crisis to happen? An average dumbazz can figure out that
> if you give someone a loan for a house they cannot afford. Then set
> up a subprime loan that's interest rate will kick in much higher
> when said loanee has no business geting loan in first place. Plus
> the loanee has crappy credit rating. That the first chance things
> go bad for loanee. The loanee will walk away from the home and default.
> Do you have to be a brilliant Ivy league Grad to figure out how screwed
> up that idea is? Yet these people looked the other way or OK'd the
> deals. This is unbelievable. I am outta here... BTW a good friend
> of mine just lost his job at a bank. So sit on that! Cutbacks ya
> know? Times are tough!
The "brain dead" replacement CEOS couldn't do much worse than some of the current talent. How much brain power did it take to decide to buy Golden West, Countrywide, or Merrill Lynch. The janitor probably could have make those kinds of decisions.
Perhaps you should disclosure what kind of "regular personal contact" you have with bank CEOs. You sound like board of directors material - perhaps chair of the compensation committee. In any case, hope your "contact" didn't require kneepads.
On Feb 04 11:23 AM Think! wrote:
.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that you
> have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.
You label me petty and false while you are the one slinging accusations with no proof and insults. I have tried to give you recourse through SeekingAlpha by sending that email to show I did no such thing. Hopefully that works as I cannot think of any other way show I did no such thing.
I am sorry you do not believe me. nothing more I can do.
On Feb 04 03:44 PM Ricard wrote:
> Mr. Perrego,
>
> Thanks for the compliment. Unfortunately, I believe you are lying
> through your teeth when you say "I have no idea how you lost those
> points". I also find it hard to believe you do not know how a simple
> "thumbs up thumbs down" rating system works - you are much too intelligent
> to feign ignorance on simple affairs. Again, the points don't matter
> nearly as much as what it speaks about the character of the person
> resorting to such tactics.
>
> If it were not so blatantly obvious, petty, and comical, I probably
> would not be singling you out right now.
>
> Buffett (the subject of our prior dispute) demands two specific characteristics
> of a person under his employ - integrity and intelligence. Without
> the first, the second will destroy you. People have compared Mr.
> Perrego to Wall Street, and without passing judgment on Mr. Perrego,
> one can easily see what the lack of integrity has done to Wall Street.
>
>
> My apologies, but I cannot salute you in return.
>
The vast majority of financial innovation such as credit and mortgage derivatives came along purely in response to finding new means of screwing people over. Once a product became sufficiently understood by market players, the margins which i-banks could charge on them shrank hence providing the incentive to create ever more complex products. This ensures that only the initiated can understand them so it's perfectly easy to embed within them massive profit margins. The average company utilising these derivatives cannot even begin to fathom the ways that they are being screwed over by i-banks.
Personally I would scrap all structured products and all derivatives should trade on exchanges with tight margins. What's so wrong with that, derivatives should be meant for risk mitigation not risk taking, leave that to the cowboys who want to do it with their own money.
I totally agree that the current incentive packages attract the wrong type of people. The average person on the street has never been on an i-bank trading floor, the animal instinct that drives these individuals is to screw over their fellow man and personally I wouldn't want to hand my money over to such a person. These "brilliant" execs have overseen this mess and have been largely powerless.
The balance of power in i-banks is not with management, it's with the sales people and traders because they are the ones who generate profit for the bank. If the exec asks them to cut down on expenses, they would say F* off because they know who pays whose wages.
If this salary cap drives away these execs, I have two words for them "good riddance"!
I remember you now and went and read the message stream from the last article. You were debating and wished me luck with my trading. I had no problem with you and I enjoy a good debate. I had no reason to click you down 100 points but I will admit I did click down the articles you posted against me that day with this account, and this account only. You only had like 7 posts on that article and did you lose 100 points through those posts?
I did not open other accounts and I think you did not lose 100 points on those posts anyway.
You are mistaken. Relax - you will live longer.
On Feb 04 04:49 PM nab2807 wrote:
> Sether I completely agree! How do you think i-banks make money out
> of "trading"? That's just a euphemism for screwing over other market
> players by taking advantage of informational asymmetry. Ultimately
> i-banks serve absolutely no economic purpose except to transfer wealth
> from the pockets of the consumer to that of the i-banker.
>
> The vast majority of financial innovation such as credit and mortgage
> derivatives came along purely in response to finding new means of
> screwing people over. Once a product became sufficiently understood
> by market players, the margins which i-banks could charge on them
> shrank hence providing the incentive to create ever more complex
> products. This ensures that only the initiated can understand them
> so it's perfectly easy to embed within them massive profit margins.
> The average company utilising these derivatives cannot even begin
> to fathom the ways that they are being screwed over by i-banks.
>
>
> Personally I would scrap all structured products and all derivatives
> should trade on exchanges with tight margins. What's so wrong with
> that, derivatives should be meant for risk mitigation not risk taking,
> leave that to the cowboys who want to do it with their own money.
>
>
> I totally agree that the current incentive packages attract the wrong
> type of people. The average person on the street has never been on
> an i-bank trading floor, the animal instinct that drives these individuals
> is to screw over their fellow man and personally I wouldn't want
> to hand my money over to such a person. These "brilliant" execs have
> overseen this mess and have been largely powerless.
>
> The balance of power in i-banks is not with management, it's with
> the sales people and traders because they are the ones who generate
> profit for the bank. If the exec asks them to cut down on expenses,
> they would say F* off because they know who pays whose wages.
>
>
> If this salary cap drives away these execs, I have two words for
> them "good riddance"!
This madness of trying to securitise everything under the sun needs to stop. I am all for a market for futures, options and even certain credit derivatives. However they should all be exchanged based and not reside in the Wild West aka the OTC market.
On Feb 04 05:00 PM Robert Perrego wrote:
> So you do not believe in the the trading function at all? How do
> you propose to set prices then?
Lets make it $50K cap, and any remainder that companies might want to pay them in the form of restricted stock that they can sell when the company does pay back all the money borrowed from the government. There's incentive to clean up their act and get things back on track. Otherwise, take the hands they are holding out and out them where the sun don't shine.
Just like the old saying goes - option writers (and CDS writers) eat like chickens and sh*t like elephants.
On Feb 04 05:39 PM nab2807 wrote:
> Well you do not need to set prices for products if they no longer
> exist, the likes of CDOs and CMOs serve no other purpose than to
> transfer risk from banks to unknowing investors.
>
> This madness of trying to securitise everything under the sun needs
> to stop. I am all for a market for futures, options and even certain
> credit derivatives. However they should all be exchanged based and
> not reside in the Wild West aka the OTC market.
>
> On Feb 04 05:00 PM Robert Perrego wrote:
People work at these jobs because of the status and prestige of saying "I am an investment banker on Wall St. and I make big deals worth millions of dollars." They do it for the challenge and the thrill of the chase. Also, if you cut out the bonuses, what are they going to do? Stomp out in protest and threaten to leave. Where are they going to go? For every on that leaves, there are probably 10 at the top B-Schools ready to take their place for a fraction of the cost.
The rest of us working smucks work at the same job day in and day out for less money and smaller bonuses. Why? Probably because we like what we do, who we do it with, and who we do it for. After a while, its not about the money, its about the satisfaction. If they are not satisfied with their job, maybe cutting their bonuses and forcing them to quit is doing them ( and us) a favor.
Executives reap the rewards in good times, likewise, they need to make sacrifices in hard times....like any business owner. All Executives should be capped at $500,000 before they can legally lay off employees....not just the companies being bailed out by the government....
We need to recognise, the financial industry as a whole, did not create wealth but destroyed wealth and partook in assymetrical redistribution of wealth so much so that wealth concentration stifled the mitigation of risks when bigger and more convoluted and toxic instruments were created to feed on greed and relationships.
It was the very deep relationships, that Perrego so emphatically argued, as to why rainmakers and "top talents" be paid lots of dollars, before they move their clients out of the doors and the breakneck speed of UBS offering 260% of last year's earnings for "wealth managers" from TARP assisted bankers, to lure talents over to UBS, as empirical proof of his proposition.
We also need to recognise, Wall Street, as Perrego puts it, is all about the Firm, making money - nothing else. Well, that was until Jan 2008, when the floor caved in and swallowed everything else standing on it. It doesn't really matters which subsector of Wall Street caused this tectonic plate to shift - my guess is, it was greed manifested through a network of all subsectors - an integrated system functioning as one. How else, could this failure be so systemic ?
Surely, Think, Perrego et el, can understand the concept of a mispriced trade and therefore, abitrage sets in. Well, we have been mispricing Wall Street talents for the last 2 decades as greed set in and infected the integrity of talents and relationships. If it was not for this compromise, how did Madoff and the SEC gotten on with the Ponzi scheme with such enduring and distinguished rolls of the 'who-is-who' of investors?
How can M&A deal in the $ billions done 6 to 12 months ago, with the abettment of i-bankers ( both sides - target and predator ) with the i-bankers, CEOs / CFOs, COOs, all top echelons of management ,walking away with $ millions in fees, compensations, sign on/sign off bonuses, are now not worth half its value ?Where is the talent in wealth creation ?
The testimony given by Mr Markopolos to Congress yesterday, sums it all.
The talent, that should emanate from Capitol Hill, is the gumption to discard the broken wheel of fortune of Wall Street and replace it with a new wheel of ethics, integrity, real wealth creation for the economy. Lets have the KISS of life in place -i.e 'Keep it Simple, Stupid' .
1) The reputation of firms like Citibank, Bank of America, Merrill Lynch etc is not what it used to be, and may never recover. Top-earning performers will probably want to work for a firm whose reputation matches their talent.
2) These firms are bleeding money. Sure, it may not be in the departments they head, but losses tend to bleed through multiple layers of business.
3) Sans talent, the resulting firms would then look like the incredibly bad bets they were to begin with. Perhaps what the government is unintentionally doing is creating "bad banks" out of Citi, BofA, etc. This may have some advantages.
Regardless, the real talent is not what anyone is worried about - it is the inept and corrupted management of firms that have destroyed a large part of our economy that the public at large seeks to punish. Pay caps would indeed mete out this punishment one way or another. Those intelligent enough to earn millions through diligence will continue to do so, whether or not BofA pays them or a private firm.
On Feb 04 01:53 PM Robert Perrego wrote:
> For those that think this article is speaking to the CEO, CFO, COO,
> etc... that is not where the majority of talent drain will come from
> even though that will happen too.
>
> The senior investment bankers, top traders and top producing brokers
> are the ones that will jump ship and take their clients with them
> and that is huge. They have either a unique talent or a book of
> business (clients) and that goes right out the door with them when
> they leave. And think about it - of the $18.5 billion in bonuses
> paid - if 100 top managers (and that's a lot for 8 or so firms) got
> $20 million, on average, each, that makes $2 billion. The lions
> share - $16.5 billion is paid to the people that bring in up to half
> of a firms business. Get rid of them and its game over for profitability
> for that firm.
But overall, the government shouldn't be sticking its nose in this making such an arbitrary mandate. If anything, I feel that they should mandate that the pay purely be in options (at an exercise price far higher than currently).
Give incentive rather than disincentive.
Overall, I think that Obama has the idea to go in that direction, but publicly stated the $500,000 pay cap as a crowd pleaser. I feel his idea is more to get pay directed towards options and other such incentive-driven pay structures.
1. These restrictions only apply to banks that were so ill-managed by highly-paid poor talent as to require extensive federal bail-out money in the billions. So all their talk about "socialism" because Obama wants to apparently "regulate" pay is a moot point because at this point these executives are beholden to what is in de facto a new member on the board of directors.
2. There are tens of thousands of talented, desperate laid-off Wall Street executives and managers who would KILL about now for $500,000 per year (and the promise of stock and other compensation based on solid performance that would have to occur AFTER American taxpayers are paid back).
(Personally I think the government should have just forgotten about bail-outs in the first place, because the hole is more of an abyss than a ditch, and I believe in the Austrian school, not the Keynesian school of throwing good money after bad.)
"Wall Street is the bastion of Capitalism. The Theory of the Firm is to make a profit."
"The senior investment bankers, top traders and top producing brokers are the ones that will jump ship and take their clients with them and that is huge."
Idiot, idiot, idiot. The finance world has convinced itself that it holds the keys to magical wealth formulas and that what they produce is somehow vital to America. It's not. It's a storm and fury of morons playing in a casino, but they all think they're playing as the house. Hedging their hedges (and re-hedging those hedges) and believing that they're creating something, rather than just alternately piling chips on red and black in roulette and demanding a cut of the money for doing so.
If this country is going to recover, it's not going to be on the backs of the financiers. It will be because of the engineers at the next Google, the research scientists working on stem cell advances, or someone who figures out how to make solar power cheap. And yet, we spend hundreds of billions bailing out firms full of people no better than your average casino drunk instead of planning for the future.
To hell with you and your "talent". Just because you've fooled some people into thinking you're talented (and I wonder if you actually doubt yourself privately) doesn't mean you actually are.
On Feb 04 01:36 PM SA Editor Jonathan Liss wrote:
> Why put a cap on pay? Why not set up a system of incentives instead?
> The better these guys do turning around their brokedown companies,
> the more they earn. If they continue to screw up, I don't see why
> they deserve even 500k.
>
> Bottom line: why not institute a performance-based system instead
> of capping pay at some arbitrary number?
Yes, you will be able to find housewives, homeless people and 5th graders to be the CEO of a large, multi-national bank. But, no, experienced, talented executives will *not* choose that job if they're offered considerably more to work for any other industry or non-capped bank. What's a poor government to do in that case? Cap all pay everywhere?
Further Felix, define "work" when you say "Why Capping Pay Is Likely to Work." That's such an ambiguous title when precision is necessary. Work for who? Clients of the bank, the taxpayers, Congress, or the "Re-Elect Obama 2012 Campaign"?
Further, commenter Chris B notes that "If someone thinks they're too good to work for $500k, that in itself demonstrates an attitude of arrogance and hubris. How can we expect individuals with a messianic complex to make good decisions? The evidence says they don't." Are you high? Seriously. Are you stoned? Just for argument let's just go ahead and assume your bong-induced comment that good decision-making and arrogance are mutually exclusive.
You seriously want to assert that anyone shunning a $500,000 compensation package is hubristic? Good for you, sensei. It sounds to me like *you've* got the messianic complex. You know the exact nature of the problem and its precise cure-all, don't you, my msnmoney-quoting freind? Even though markets are complex multi-variable systems, capable of evolution and adaptation, you've been so endowed with wisdom to have placed your divine finger on what ails us. Thank God (for your presence in the midst of our ignorance)!
Go ahead Chris B (previous poster, not to be confused with me - Chris Butler) - tell free agents in the NFL that they're all arrogant. In fact, every professional athlete in the big three sports here in America are arrogant. They are all so hubristic to think they can make more for another team. And then they go out and confirm their arrogance by getting it. It seems that GMs are willing to pay more for more perceived talent. That same thinking is flawed in banking, apparently.
OK, so you say entertainers don't count. Fine. Heart surgeons? Egotistical b*st*rds! Who do they think they are earning more than half a million! Hell, I've heard a few of them actually killed patients! Sure, they perform a few menial tasks like curing the terminally ill, but they actually think they're deserving of hefty compensation packages! For killing people, no less! They must all think they're God or something.
Enough sarcasm. If you can't see that such an important policy intervention into the private sector would have unintended consequences (perhaps both good and bad), then in my opinion, you either cannot see at all, or refuse to. Either way, you'd be better off just admitting what you already know - people make mistakes. Investment and commercial banks made huge mistakes and had the governmnet let it go, the free market would have punished them severely. And yes, the real economy would have been punished. I dare say, however, we would have learned a hard lesson, adapted, and moved on.
As to the claim that salary caps will be permanent, Please!
As soon as the economic swoon passes, Wall St will regain control and get its way through backroom political dealings as it always has.
The caps are a fine nod to current reality.
I hope that's true for you. It is for me. For many, many, though, it's about feeling really glad to have a paycheck and benefits (albeit probably declining), even when that means doing mind-numbing, joy-sucking work day in and day out. Because that job gives one the means to support a family, however tight things may be. The alternative is the near lack of any semblence of security, the thing that's near the top of most of our "biggest fears" list.
I can't really muster much sympathy for the overpaid schmucks who brought things crashing down when they were paid to know better.
Nope. Respect and acclaim is their desire. How about Paulson? He used to make millions. Would he rather have that money now, or respect?
Our financial geniuses need to step up to the appropriate rewards for a genius; acclaim and respect.
On Feb 04 11:23 AM Think! wrote:
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
Amen.
Of course CEOs will hate and fight this as it makes their pay subject to market forces. They feel free market influence on wages is for the little people, the outsourceables, not the big guy. CEOs would rather hire some lackey compensation consultant who will recommend whatever the CEO wants to a lackey board who will approve it (isn’t that right Dick Grasso).
Pass me another gold-encrusted croisant, Jeeves...
"Equity (how Sr. Mgt and even the rank and file has been receiving the majority of its compensation for the past few years) has been gutted. " WHO IS RESPONSIBLE FOR THE LOSSES THAT LED TO THE DECLINES IN SHARE PRICES?
On Feb 04 11:23 AM Think! wrote:
> Unfortunately, it is looking more and more like nationalization.
>
> Obama has opened up the gates of hell by feeding populist opinion
> in order to achieve his policy objectives.
>
> The American people are angry and "rich and fat" bankers look like
> a great place to blame, right? No realtor, mortgage broker, appraiser,
> leveraged borrower or home buyer has any responsibility for this
> mess, right? Let's sock it to those nasty bankers who have the nerve
> of getting paid part of their comp with bonuses!
>
> Capping comp in the short-term is probably ok but has risks. It
> has a lot more downside in the medium and long term.
>
> You arm-chair pundits don't have any idea what it takes to run or
> even be in the top 2 levels of management at a major financial institution.
> No, they won't be "giving you a call" because you don't even begin
> to have the skill set to get the job done. I have regular personal
> contact with the Treasurers, CFOs and CEOs of most of the top 20
> banks in the U.S. You have no idea how hard these people work and
> the pressure that they are under.
>
> If you drain the talent, then these organizations will truly be brain-dead.
> That is the problem. Removing all employee incentives will produce
> corresponding behavior. Equity (how Sr. Mgt and even the rank and
> file has been receiving the majority of its compensation for the
> past few years) has been gutted.
>
> How will you recruit, manage and motivate talent? "Be glad that
> you have a job" is a very-short term motivator. If there is no upside
> offered, there will be a brain drain from the industry.
>
> That will not be good for the institutions or the country.
>
> Try to moderate the emotion and maximize the strategic thinking.