Paper Economy - A US Real Estate Bubble Blog: Question of The Day - Too Systemically Important For a Base Pay of $180K?

Friday, March 27, 2009

Question of The Day - Too Systemically Important For a Base Pay of $180K?

How great is this?… On the very day that Bankers meet with Obama to tell him that “We’re All In This Together” Bank of America released plans to increase investment banker base pay by… get this… 70%!!

Simply Unbelievable!

Apparently “during such challenging times” they regularly “review compensation programs” to decide if investment bankers can get by with a mere $120K increase.

Wow! America you are suckers! That’s your money! Ha! Ha! Ha!

$45 Billion in government bailouts and hmm... have you checked the APR on your overdraft lately?

What's it up to like 29% now?

Labels: bank of america, more suckers, suckers

10 Comments:

My guess is thell reduce bonuses though. Fact of the matter is, these guys get most of their income via bonuses - they rely on them & figure that into their decision whether or not to work for a firm.

Problem is, at the end of the year they get their bonus and everyone goes apeshit because its a bonus, and they didnt do jack to deserve it.

This has been a long time coming. If average salary was 120K, and average bonus was 400K (520K total), they should restructure it into somethig like 200K in salary, no bonus whatsoever.

By Anonymous, at 3:40 PM
Anon I agree but the problem is by paying these people 500k a year they implicitly are condoning and essentially forcing these bankers to seek and support risky investement vehicles. They have no choice or they will end up losing their clients to other firms.

The greed has been outrageous and has essentially caused this entire mess. It began with bankers figuring out how to securitize horrible investments, ended with the blowup we're seeing and will continue with the next scam as everyone wants to make money without producing anything tangible.

By David, at 8:51 PM
"David said...They have no choice or they will end up losing their clients to other firms."

David - I agree. I think my prior comment just wasnt clear. The problem I think is the connotation that the word "bonus" implies a job well done, whereas on Wall St. Bonuses are a major part of annual compensation. Every trader expects to get 50+ percent of their income from bonuses.

If their income was say mostly from a much higher base salary, & much smaller bonus, we wouldnt have these image problems. Media doesnt go into a tizzy when a guy making 600K a year gets his biweekly paycheck, but they go crazy when a guy who makes 100K annually and 500K "bonus" gets the bonus.

So lets say these guys got 80% of their compensatoin via salary. If thats the case (and if all firms did this) they could skip handing out bonuses for now, and the trader still has plenty of $$$ for everyday life.

If they are that worried about losing talent, just hide the ball dammit. Give these guys deferred comp, iso, something. Wait til the storm is over, normal life has returned, and joe sixpac doesnt get outraged when the corporate "fat cat" gets paid.

By Anonymous, at 9:29 AM
Little misleading here. They aren't increasing banker PAY by 70%. Rather they are incresing salary. Bonus still makes up well over 50% of every banker's total pay. BoA is doing this, most likely, in conjunction with a revised bonus structure that will have them paying a larger percentage of bonuses in long-term vesting equity, which has inherent clawbacks, as opposed to cash...hence they are going to give the bankers a little current income break on salary.

I really like this blog, but the "populist" compensation theatrics are getting worn. BoA is, conceptually, doing exactly what you want them to here, reducing huge CASH bonuses, and tying the bulk of compensation to the long term health of the firm...and in doing so are throwing the bankers a 100K cash "bone. " Which as I'm sure you are aware, barely covers the monthly household budget of a Managing Director at MER.

Rememeber 75% of these guys made a lot of money for their shareholders, EVERY YEAR, with relatively benign products like M/A advisory, Capital Raising, wealth management, fixed income trading, etc...

Those guys are now having the day 1 cash component of their bonuses drastically cut, so it is equitable to give them a bump in salary. What does MER have? Maybe 500 MD's...95% of which are going to tbe the guys bringing the firm up out of this mess with the "boring" products...This isn't a huge deal..

And yes! Every one of those guys (MD'S) could leave MER tomorrow and have a job at a boutique in no time. You need them. And they ARE going to get PAID less going forward.

I am NOT a banker by the way. Just an individual sick of seeing the blogging media jump on all the wrong details here...you guys are "supposed" to be the ones discussing the important things.

Investment Bankers salaries ain't it...

By cmd, at 10:00 AM
Little misleading here. They aren't increasing banker PAY by 70%. Rather they are incresing salary. Bonus still makes up well over 50% of every banker's total pay. BoA is doing this, most likely, in conjunction with a revised bonus structure that will have them paying a larger percentage of bonuses in long-term vesting equity, which has inherent clawbacks, as opposed to cash...hence they are going to give the bankers a little current income break on salary.

I really like this blog, but the "populist" compensation theatrics are getting worn. BoA is, conceptually, doing exactly what you want them to here, reducing huge CASH bonuses, and tying the bulk of compensation to the long term health of the firm...and in doing so are throwing the bankers a 100K cash "bone. " Which as I'm sure you are aware, barely covers the monthly household budget of a Managing Director at MER.

Rememeber 75% of these guys made a lot of money for their shareholders, EVERY YEAR, with relatively benign products like M/A advisory, Capital Raising, wealth management, fixed income trading, etc...

Those guys are now having the day 1 cash component of their bonuses drastically cut, so it is equitable to give them a bump in salary. What does MER have? Maybe 500 MD's...95% of which are going to tbe the guys bringing the firm up out of this mess with the "boring" products...This isn't a huge deal..

And yes! Every one of those guys (MD'S) could leave MER tomorrow and have a job at a boutique in no time. You need them. And they ARE going to get PAID less going forward.

I am NOT a banker by the way. Just an individual sick of seeing the blogging media jump on all the wrong details here...you guys are "supposed" to be the ones discussing the important things.

Investment Bankers salaries ain't it...

By cmd, at 10:00 AM
All above,

Its comments like the ones above that make me almost (a little) ashamed of my wacky populist rants (relatively infrequent) ... These are great comments!

Where the heck are you guys on the other posts?

Oh well.. I think the BofA base pay move is a big mistake... I understand what you all are saying but it seems to me pretty obvious that BofA will need more govt bailout money and considering that so many millions of regular Americans are loosing their jobs (an for a good long time) base pay raises for banking insiders is simply a PR fiasco the country can't afford.

These salaries are way in the stratosphere even for urban center dual income families or small business owners... so your not going to find many people who are sympathetic.

I can believe that these folks can leave for small boutique firms (probably not all of them opportunities must be more limited now) but I think we need to be just as careful about creating an atmosphere of systemic unfairness.

A democracy doesn't work very well if its participants feel (or know) that aspects of it, particularly economic, are rigged.

I think we are heading into a rough period with possibly bouts of civil unrest... I know that sounds maybe a bit loony at the moment but if we have rising and high unemployment over a prolonged enough period there is going to be serious trouble at some point.

The point is not so much to fear the mob but to recognize if there really are elements of systemic unfairness that are easily observable there will be resentment resentment and if things get bad enough there will be real trouble.

By SoldAtTheTop, at 4:08 PM
While you guys make valid points, you underestimate the power of populist rants. Don't you guys understand how the general public will see this?
Here's how it looks to outsiders: Company screws up and needs government money; now they are increasing base pay for their employees who screwed up.

Yes, a "bonus" on wall street is stupidly large and is expected. But so was housing prices going up forever. Tough shit. You're on the government teat now. Everyone else in this world would have simply lost their job (even if they were one of the "good" employees). This one is not going to go over well, even if it has good intentions.

The only way I can see BAC salvaging this mess they just created is if they can show (and shout it at the top of their lungs!) that total compensation actually went down by a significant amount (say over 5%).

By Towelie, at 9:02 PM
Regarding this populist view - I wonder if the US public is really as stupid as we presume?

I was recently interviewed in our local media who wanted a "man on the street" view of these pay plans. I bascally made several of the same points made in this thread. A guy they interviewed right after me made some similar points.

I watched the story on the news that night and all I saw was a parade of people railing against "fat cats" and "corporate profits"!!!

So thanks to editing, it looked like everyone was mad as hell and out for blood - yet I wonder how many people had views like mine were excluded because its not what the producer wanted to see.

By Anonymous, at 7:00 AM
Let's face it. The big money comes from Wall Street and therefore dictates policy. Whatever the cost, GS, Citi, and BOA will have the government spend until they are back in the black and richer than ever.

As far as the "profitable employee" argument goes (or, Let's Blame it on a Few Bad Apples Theory), let's bear in mind that most of these stinkin' geniuses made fortunes for the bank because of the bubble created by their even stinkier genius colleagues down the hall. The size of the credit bubble practically guaranteed that everyone got rich at every bank; only morons, incompetents and honest people failed to make money.

The truth is that the profits were transfers from the Black Hole of Toxic Waste to the rest of the bank. These banks made NO MONEY AT ALL for ten years; in fact, they lost trillions.

You want to retain qualified people? Ok, but we want competent, reasonable, responsible bankers, not the wankers, thieves, liars, and scumbags who have been running the show for fifty years.

Fuck these bankers and their pseudo-justification for their outrageous salaries. If they want bonuses, they should work in the private sector, not public companies like Citi, Goldman, BOA, JP Morgan, etc.

By Expat, at 2:09 PM
Expat is right...

How foolish is it that these banks are scrambling to retain this "talent"?

The whole banking system is a scam why should anyone care if the people who are perceived as the real talent of this era move on to private firms... good riddance.

The banking system needs a lot less of their type of creativity no?

By SoldAtTheTop, at 10:35 PM