I know one can maintain outrage for only so long, and I find it deeply disturbing to look at the inability to rein financial industry pay in despite horrific results. If these people are so valuable, let them go to boutiques and prove it, where you eat what you kill rather than feed off a big corporate plate. Companies on government life support should not be taking risks with taxpayer money, they should be cleaning up the dreck and focusing on relatively low risk business (even though the incentives are to do the reverse). That posture does not warrant paying up for largely mythical talent.
And as to “what can we do about it,” yes, venting here is good for one’s mental health, but does not advance the ball much. The powers that be are sensitive, however, to what plays in the MSM. The big reason the TARP passed despite considerable public opposition was that the media fell into line. Doubtful Congressmen did not have the air cover they needed.
So ping your Congressman, but also send posts that make points you think the media is overlooking to the editorial page editor of your city paper. Other reader suggestions for making the fourth estate aware of the growing unhappiness among the fleeced taxpayer class are welcome.
From the Wall Street Journal:
In response to expected bonus restrictions, officials at Citigroup Inc., Morgan Stanley and other financial institutions that got government aid are discussing increasing base salaries for some executives and other top-producing employees, people familiar with the situation said…..
The discussions are at an early stage, partly because the government hasn’t yet issued specific rules on the bonus payments that will be allowed at companies that received TARP aid. The talks also are proceeding cautiously because of the political volatility of pay, bonuses and perks on Wall Street, including outrage over American International Group Inc.’s promise to pay $450 million in bonuses to employees in the insurer’s financial-products unit.
Yves here. So these changes are being negotiated, meaning whatever emerges will have been sanctioned. Lovely. Back to the article:
Most traders and bankers on Wall Street get a base salary of anywhere from $200,000 for managing directors to $1.5 million for a chief executive. But the lion’s share of their pay comes in the form of a bonus, a tradition that began when most firms were private partnerships and partners shared directly in the annual income of the firm.
As banks and securities firms wrestle with growing regulation of compensation practices, substantially increasing the base salaries of top employees could become a popular response, some industry officials say. A larger salary would reduce the relative importance of bonuses but also help financial companies increase those payments, since they usually are calculated as a percentage of total annual compensation.
Yves here. Notice the peculiar use of present tense, “their pay come in the form of a bonus,” as if it’s an entitlement? No profits should mean little to no bonus.
Readers can correct me, but my recollection is that salaries for mid and senior level people in the mid-late 1980s were in the $100,000 to $125,000 range. Compound that forward by 3% inflation, you get around $200,000. And while bonuses were bigger than base comp in a lot of areas in most years, they were nowhere near as large as in recent years. And back then, everyone accepted that bonuses were heavily dependent on overall firm results. Back to the article:
“The trend is to increase the base pay in light of the reduced bonuses,” said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. “Without the revenue” that top performers provide, he adds, “these companies can’t survive.”
Yves here. I cannot believe these lobbyists can say this stuff with a straight face. These companies are not surviving with that supposed talent in place! I guess Mr. Talbott is the only person in America who missed all the media report of how the only thing between these firms and bankruptcy is plenty of government checks. So we are supposed to pay up for the people who drove these companies off the cliff so they can have the opportunity to do it all over again? The Journal does present more reality-based views:
“These are not bureaucratic positions where you’re paying individuals high salaries,” said Michael Karp, chief executive of Options Group. “How can you pay a banker a really high salary without knowing what kind of revenue that person generates?”
Still, critics are ready to pounce on any potential maneuver around the federal limits. Raising base salaries would play into “a long and dishonorable tradition of responding to any attempt to curb pay excess by just putting it in a different pocket and calling it something else,” said Nell Minow, editor of the Corporate Library, a research firm focusing on corporate-governance issues. Any attempt to get around bonus curbs “can expect pushback from shareholders,” she predicted.