The Bucks Don’t Stop

February 29th, 2012 by Harrumpher Leave a reply »

Lo the, if you pardon the expression, poor executives and financial-industry professionals. Articles in the FT, WSJ and the other usual suspects bemoan the diminished bonuses to these greater mortals.

Bloomberg, for example, puts a sad tale near the top. A broker/dealer’s marketing director is suddenly impoverished when he is held to his $350,000 income. That pathetic amount “doesn’t cover his family’s private-school tuition, a Kent, Connecticut, summer rental and the upgrade they would like from their 1,200-square- foot Brooklyn duplex.” He says (perhaps whimpers), “The New York that I wanted to have is still just beyond my reach.”

We must suppose that his own private school and Ivy U. didn’t teach money management. Likely they never insulted their students hinting they would need it. It is a bit peculiar though that his financial biz hadn’t impart that expertise, at least by osmosis.

Those downgraded from millions to hundreds of thousands in take-home say they have to look at prices of things, even groceries.

At the core of these reports though are some reasons. Trading volumes are down, eurozone is in turmoil, recovery lags, and there are fewer deals being made. Those latter were where big shops skimmed off enough millions to slather bonuses on everyone’s baguettes and croissants. The FT reports (may require free registration for limited number of reads) that the seven biggest financial houses average 22% less income last year.

Banks have been increasing salaries to stay clean by limiting reliance on one-time bonuses (the stuff risk comprises). To get the ROI they want, they are also having to fire people as well as restructure compensation. To ordinary mortals, the amounts are still breathtaking, but for the bankers they suddenly can no longer anticipate increased growth bringing in those handy millions.

If you’ve paid attention to investment bankers and their ilk, you know that the wail you will hear the most is that paying in the low millions instead of tens of millions and up will crush them. The mythical best and brightest will go elsewhere and somehow it is America, America as a nation, I say, that will suffer.

Don’t buy that for an instant.

Decades ago when a bunch of us were writing for Inc. magazine, a conservative and raised-in-privilege-with-a-banker-father cohort scoffed at such claims. He held the overcompensation was simply theft from the shareholders. Among his evidence was his MBA thesis, which analyzed performance of numerous companies and concluded that the average U.S. corporation would be, in his words, “managed better by an oak tree” than its top team. That is, if the board put corporate cash into index funds and tracked the markets, the return would be higher than what their overpaid twits could do.

The cant and rant continue even though numerous observers have found similar disappointing underperformance if not outright incompetence. Like professional sports teams, corporate boards seem terrified of not overpaying to get “championship” personnel. Teams though are unlike financial houses in turning out or trading their losers…as well as admitting they exist.

At this point, banks, other financial houses and corporations are likely locked into this dreadful whirlpool, spinning and spinning. Unless a couple of big ones admit the oak-tree finding, they are almost certain as a group to  overpay their alleged stars drastically. If some deal works, they’ll swear the blustering boys and girls are magic. If bad to terrible things happen, as we all know too well they do, that’s the nature of the business and no blame follows.

The guys at the top, both the outlandishly paid front-folk and the cowardly board members, aren’t about to call the game on anyone.

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One Response

  1. RW. Rawles says:

    You don’t sound like someone whose spouse has two Cadillacs at her disposal.

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