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Marshall Goldsmith
Executive Coach/Author

Marshall Goldsmith

Marshall Goldsmith is an executive educator, speaker, coach and best-selling author. His most recent book is Mojo.

Quasi-Government Employees

The current economic crisis has hit us very quickly. Bonus numbers that seemed "normal" just a few months ago may be viewed as "obscene" by new stakeholders today. It will take the banking community a while to adjust to the reality that they have become quasi-government employees - and will need to adjust to a much lower level of compensation.


By Marshall Goldsmith

 |  February 2, 2009; 3:30 PM ET
Category:  Economic crisis Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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Marshall,

The problem is that this isn't just about getting costs under control at under-peforming banks. It's being framed as a moral issue. Compensation ought to be determined by the market, not moralistic nannying. Some people are pushing the idea that high compensation is inherently immoral. "It's obscene that CEO X makes 324 times a much as the company's lowest-paid worker!," etc.

Some people are pushing the idea that ALL executive compensation at ALL companies ought to be limited by governmental fiat. This is, quite frankly, both un-American and economic stupidity. Managers who can operate at the highest levels are a particular breed. It's all very easy for the average person to say "I could do that job." In fact, they could not. Prices for these managers, just like every other commodity, are most efficiently set by the market. If you try and impose a legal cap on managerial compensation, the good managers will go elsewhere and U.S. companies -- and the U.S. economy -- will suffer for it. You think we have problems now, wait until you see what happens when, say, investment banks are run by people who are willing to do it for a max of $500,000.

Between our knee-jerk reactions to 9/11 and Enron, we'd managed to put our financial sector into serious decline before the current crisis hit. London now does more deals than New York and has for some time. Let's not repeat that mistake with our corporate sector as well.

Posted by: anon99 | February 5, 2009 3:17 PM
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"Not a great deal of comfort in trumpetting, '60 years of growth', (it hasn't been), when the losses being picked up by the taxpayer exceed the TOTAL profits made in those illusory, 'golden years'"

This is exactly the kind of uniformed twaddle that must be extirpated from the public debate at all costs. For the last 60 years, real, per capita GDP has increased by an average of about 2.1% per year. This is, by the way, unprecedented in human history. The idea that the current crisis is going to wipe out these gains would be hilarious were there not a danger that this meme will worm its way into the public consciousness. To put it in perspective, the economy would have to contract by about 75% in real terms to wipe out these gains.

Posted by: anon99 | February 5, 2009 2:52 PM
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President Obama did not suggest capping every banker's salary - just the ones in banks that needed 'exceptional help' from the government. In other words, the ones that are completely insolvent. I don't think his ideas are the 'end of the market economy' - just the recognition of a tough reality. The US needs these banks to stay in operation - the banks cannot remain in business without taxpayer funding. The taxpayers are paying the executive salaries now. When these banks become solvent - and are no longer being financed by the taxpayers - they can pay their executives whatever they feel is right.

Posted by: MarshallGoldsmith | February 5, 2009 10:36 AM
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Money is seldom the number one determinant in any of the choices we make. These Wall Street "geniuses" wound up where they are because of family expectations and connections.

Can sub-500,000 dollar, mere mortals avoid making foolish financial decisions? Of course they can.

Posted by: julian2 | February 5, 2009 5:31 AM
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Not a great deal of comfort in trumpetting, '60 years of growth', (it hasn't been), when the losses being picked up by the taxpayer exceed the TOTAL profits made in those illusory, 'golden years'.

Posted by: Sapereaude | February 5, 2009 3:40 AM
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What a load of populist piffle. Yes, by all means, let's instill a government-style managerial ethos in all these companies. Government managers have such a stellar track record! They've gone from strength to strength at the old INS, the IRS, Homeland security, etc.

What actually went wrong is actually fairly subtle and populist grand-standing like this will just make things worse. The current free-market system delivered 60 years of relatively uninterrupted growth. We finally hit a bump in the road and suddenly everyone is talking about the triumph of socialism.

Get a grip, people! Once upon a time, depressions were actually common -- They didn't call it the "Great Depression" because everyone enjoyed it so much. The called it that to differentiate it from the more common depressions that had regularly plagued the economy. Because of the trend toward free markets, we've managed to avoid one for 60 years. Even if this turns into one, that's an unequalled record for free-market liberalism.

Posted by: anon99 | February 5, 2009 2:00 AM
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I don't know why people are crying about reduced pay and the best managers getting scared into going to other companies. As far as I can see, without government money, those companies would not be able to pay a dime in salaries anyway.

Besides, horrible managers have been paid plenty-- How much was Charles Prince making for driving Citibank into a pit? Wikipedia says: "Prince left with vested stock holdings valued at USD$94 million and the roughly $53.1 million salary he received over the four years in the position. He also received a pension of $1.74 million and another one million stock options.[citation needed] He is still a consultant with Citigroup."

So if you're taking my tax money, Mr. Manager, be happy you're drawing a paycheck, you greedy goat. Once you pay it back, give yourself all the bonuses you want.

Posted by: alarico | February 4, 2009 6:54 PM
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i work in the dc area and i'm alarmed by the prospect of a complacent, government lifer-type as the steward of any of my recent investments. you get what you pay for and - simply put - the market dictates the value of talent. what we need is more transparency, more accountability and a better corporate structure. but don't scare the best execs to healthier banks, other countries and functioning industries and then cry when we all take a haircut on our investment due to mismanagement (i.e. worse than we've seen to date).

Posted by: thickman22 | February 4, 2009 5:28 PM
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"let the destruction of the economy begin!"

You're a bit late to the dance. Those guys have already done their worst and the destruction of the economy is already accomplished. If these folks quit and leave it will be a happy day, but my guess is that like most government employees they are going nowhere. In this economy, they've got the best deal they are going to get.

Posted by: fzdybel | February 4, 2009 4:15 PM
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I think there are more than just one or two important points here. Aside from the outrage of the taxpayers, who are actually PAYING for the $12K trash baskets, and the outrage of these men and women accepting bonuses for work which they not only did, but apparently KNEW would eventually drive the country into ruin:

1. They work for the government now. I think capping their salaries at 25K above what the President makes is exceedingly generous. However, all bonuses, if any, need to be paid in the form of STOCK which will NOT be redeemed until every penny, plus interest, of MY INVESTMENT as a taxpayer, and presumptive equity holder in their enterprise, is repaid. And here's a novel idea: not one dime if they don't honestly make their corporations profitable. It's called PAY FOR PERFORMANCE. I suggest they get used to it.

2. For decades, the career civil service has taken it on the chin from the Solons of Wall Street, who considered us fools for being willing to sacrifice what we might have made on the outside for a job where the so-called "real action" is.

Over the years, many have called me a fool for sticking with the career federal civil service, which I took as a "calling" having fallen hook, line and sinker for John Kennedy's famous call to action.

These schnooks, OTOH, fell for the lure of simple money. It's not just that money is important, and if anyone wants to just THROW it at me, I'm not likely to throw it back, the problem here is that for these people, money was the ONLY thing. They famously knew the price of EVERYTHING, but the value of nothing.

Gordon Gecko was their patron saint, and is reviled in my circles not JUST for what he suggested as measures of "success" to the brooders of Wall Street, but more importantly for how fast, how far, and how disastrously that mindset has spread until it has contaminated literally EVERYTHING in the country.

I for one have not one single shred of pity for the former masters of the universe. They lived in a world where money was not only its own reward, it was the ONLY reward. Now that they aren't performing, I personally see no reason to pay them one d@mned dime. They didn't actually DO anything, except come up with creative ways of rewarding themselves for work they didn't actually do. They contributed NOTHING, zero, zip, nada to the national welfare. In point of fact, right now, they're the REAL Welfare Queens.

Posted by: Va_Lady2008 | February 4, 2009 3:07 PM
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I COULD NOT AGREE MORE WITH YOU MARSHALL! YOU'VE HIT THE NAIL ON THE HEAD! AS QUASI-GOVT. EMPLOYEES THEY NEED TO BRING THEIR BACK-ENDS DOWN INTO REALITY AND OUT OF THEIR RAREFIED ELITIST WORLD AND REALIZE THE LANDSCAPE IS NOT UNLIKE ONE HIT BY AN ATOM BOMB-IT LOOKS TOTALLY DIFFERENT-AND THEY MUST ACT LIKE SURVIVORS, INSTEAD OF INSISTING ON THEIR OLD WAY OF LIFE!

SO THE FINANCIAL CEOS OUT THERE-GET A GRIP! LOOK TO YOUR FED. GOVT. EMPLOYEES AND MANAGERS AND SEE HOW THEY LIVE-AND ADJUST YOUR MANAGEMENT PRIORITIES AND CONDUCT ON THE JOB ACCORDINGLY! OTHERWISE-YOU'LL BE OUT IN THE COLD-WITH NO ONE TO TURN TO!

Posted by: arrabbiato | February 4, 2009 2:26 PM
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'Harvard and Wharton elites '..yes, such an admirable job they did. Really, truly rolemodels for generations to come. I am sure our childeren will gasp in admiration. Those 'Harvard and Wharton elites' turned out to be incompetent, greed driven gasbags. While that is sad enough, it is truly disconcerting that there are still people fawning over them. 500K? Not after we strip every $ of those malfunctioning misfits and virtually string them up as a example for generations to come. The same generations that will be paying the bill for this.

Posted by: Rhodan | February 4, 2009 1:05 PM
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I think $500K is more than enough. Good management is not rocket science, its common sense. I am tired of all of these folks acting as though they walk on water. We don't need to look any further than the current state of the U.S. economy to see that this is not true. A blind person could have seen this train wreck coming. Its time we pay for performance, not for the size of a person's ego.

Posted by: mykaladrian | February 4, 2009 12:54 PM
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The best execs will simply move on to free market companies, leaving behind mediocre management that will ironically further deteriorate any company that accepts bailouts. I'd recommend anyone with personal finances tied up in these companies to disassociate themselves asap.

Posted by: tom2 | February 4, 2009 12:01 PM
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If you're not prepared to do a good job for half a million dollars per year, then no amount of money will ever be enough.

And considering how the current crop of executives did, I can imagine LOTS of people who could and WILL do better than they did.

Posted by: Bartron | February 4, 2009 11:20 AM
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If they are quasi-Gov't employees, then you will get GOV'T EMPLOYEES!

If you think for a second that the Harvard and Wharton elites WaPo worships so much elsewhere will happily take jobs as Gov't employees, you are wrong.

let the destruction of the economy begin!

Posted by: pgr88 | February 4, 2009 11:04 AM
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