Awww, those poor bankers

Ok, so I reused this title. But this time it's another group with a misplaced sense of entitlement.

If you haven't been hiding under a rock for the past one and a half years, you will have an inkling of the fact that large banks, mostly in the Western world, have been having a heck of a time dealing with the credit crunch. Governments have provided bailouts, central banks have provided lifelines, strategic investors have lost lots of money... Yet after all this, some bankers think they continue to be entitled to the kinds of bonuses and perks (Citigroup's new jet?) they received during the good times. What nerve... The ones responsible for this mess should be subject to clawbacks and instead they ask for more.

Fine, that's still what one would expect. Ask, and if ye receive, take it.

What I definitely don't understand is people who are not bankers standing up and saying that bankers should continue to be paid their wildly exorbitant salaries. Lex recently argued that bankers needed to be paid their "massive bonuses" (their words) as long as they were properly structured to align bankers' interests with shareholders'. So are they saying that past bonuses were awarded willy-nilly with nary a structure in sight? They also say that the average bonus last year was "just $112,000". Here's another choice bit:

Troubled banks may struggle to attract talent if they limit compensation to base salaries that have historically been a minor component of overall compensation. Many of the best bankers, often already wealthy enough to retire if they wanted, simply may not bother turning up for work if that is all that is on offer.

More here.

To which I responded with a comment on their website. It's somewhere on this page (sorry, there's no direct link).

The average bonus was "just" $112,000? What world are you living in, Mr Journalist? I find this sort of statement completely offensive--and I work on the buy side not as a milk delivery boy. Pity the poor average banker in your universe who only made $400,000 last year and now finds himself on the street begging for $100 bills to wipe his tears away. For goodness sake, can't you find more worthy causes to champion?

Bonuses are awarded for performance, they are meant to be over and above base salary and they are meant to be (generally) discretionary. If the performance doesn't cut it, the bonus goes out the window. As it should in these times. This doesn't mean that we will have multitudes of poor bankers suddenly unable to feed themselves (unless they can only stomach caviar and champagne everyday). It will only mean fewer cocktail parties on private yachts. All the better.

Besides, if the average bonus is "just" $112,000 --and I don't believe that-- whence all this noise about pay caps not being appropriate? Why will all these "average" wage-earners suddenly bump up against salary caps?

And finally, who knows, once the rules have been reset, perhaps supply and demand will help even things out. If there aren't enough high-flying bankers available when the spigots are turned off, who cares? The ones left behind will by definition not be as greedy as the ones who leave. Bankers have always been a hugely overpaid bunch. Let the job market now adjust to a more reasonable equilibrium in this new reality.

And finally, if you read nothing else on this issue, then read this. Paul Wilmott demolishes the argument that bankers are properly incentivised in this article.

Comments

[Rathi]

That article by Paul Wilmott is really brilliant! "Demolish" is the right word!

-Rathi