Comments on Rick Bookstaber: Banker Bonuses and Proportionate Pain

"Any plan that pays out a bonus nearly equal to sa...

2009-04-23T10:05:00.000-04:00

"Any plan that pays out a bonus nearly equal to salary is terribly flawed."
My reading is that is exactly what Rick is saying. Many people, perhaps even most people, who work for these banks are taking a below market salary for their work, thinking they will make it back in bonus at the year end. When that bonus doesn't materialize or worse is announced and then taken back, that is equivalent to being underpaid, sometimes severely, for the work done throughout the year.

80K is a pretty darn good salary, but when colleagues doing similar jobs in other industries are making 50% more up front...

What you're forgetting is that for most people in ...

2009-03-27T20:50:00.000-04:00

What you're forgetting is that for most people in most of the country, a $80,000 salary (w/o any bonus) is pretty darn good; as is just the $70,000 bonus.

Any plan that pays out a bonus nearly equal to salary is terribly flawed.

Strange but true. You can call it a bonus, but if ...

2009-02-13T15:45:00.000-05:00

Strange but true. You can call it a bonus, but if you are a mid- or lower-level employee, you are thinking 'the rest of my salary'.

This is the most prepostrous explanation I've hear...

2009-02-13T12:57:00.000-05:00

This is the most prepostrous explanation I've heard. Every company I've ever worked at paid bonuses at the end of the year only if the company had profits for the year.

"Some of those accountants are called traders, and...

2009-02-05T23:58:00.000-05:00

"Some of those accountants are called traders, and some of the PowerPoint generators are called investment bankers" - nice one, Rick, will remember it.

Rickster - [its been a while since I finished Demo...

2009-01-31T11:23:00.000-05:00

Rickster - [its been a while since I finished Demons. Nick Murray recommended it in his NMI newsletter a while back. Coming off Roger's R&F of LTCM, your piece was nothing short of masterful. So much great knowledge beyond the (yawn) topic of hedge funds.]

I agree with your post here from a pragmatic standpoint, since thats what you offer. But I think its a weak defense, albeit the correct conclusion.

Notwithstanding the influence of nationalization, and the baggage that brings, I must still hold out for the notion that the majority of shareholders should be in the position to decide what's "fair" or "enough". The howling of politicians is simply the signal of politics, nothing to do with economics of a particular industry, or enterprise within it.

The nice thing about being part of the howling class, is that you can impose great costs on others while doing so at very little cost to oneself (Chris Dodd, The Story of; Barney Frank, ditto; Madoff: How the SEC fell asleep at the Wheel), and of course provide oneself enourmous cover for the things you've not done well, all at once.

I would say this ranks about as serious an issue as the concerns of Congress a year past with Roger Clemons, The Patriots "videogate", and all esle they had their attentions glued to while the economy was coming unglued.

But its really all about votes.

You are right that the origin of end-of-year bonus...

2009-01-30T18:42:00.000-05:00

You are right that the origin of end-of-year bonuses was to divvy up profits. It is a model that no longer makes sense in the huge banking corporations. But it is used none the less. Although for some "producers" and "rain makers", it still is reasonable, my point is that for most people it is not reasonable. Indeed, the end-of-year bonus does not function as a discretionary payout based on performance -- based on in a sense how much money you brought in the door. If you are a senior accountant, you expect to be paid $150,000 for the year. You get $80,000 in your bi-weekly checks, and the $70,000 as a "bonus" at year end. But that bonus is basically part of your expected salary. It might vary a little bit, but not by too much. Because your alternatives to working in the bank would pay you a similar amount.

You must be thinking back to the time when most in...

2009-01-30T18:34:00.000-05:00

You must be thinking back to the time when most investment banks were partnerships and had to be sure they retained enough capital to finish the year if things went south! I don't believed there is bank in the world that is publicly owned that uses the model you suggest. Only private partnerships in law, medicine and other professions retain part of salary and pay out a "draw" during the year. Please give some examples of your assertion that these "bonuses" in question are actually deferred salary!