Wall Street bonuses may drop, but not expectations
Anyone paying attention to the question of how high Wall Street bonuses will be this year is likely to complain of a case of whiplash. The Wall Street Journal wrote last week that bonuses are expected to be down 22 to 28 percent this year, according to the executive search firm Options Group. That's despite half of Wall Street executives expecting that they'll pay higher bonuses to employees this year, according to one study, and notwithstanding yet another survey that says bonuses will actually be about 5 percent higher this year.
But however the direction of incentive amounts may have changed this year, there's one thing that hasn't: Expectations. The belief that bonuses are an entitlement on Wall Street is quite alive and well, as The New York Times writes today. The latest horror to befall the poor traders who bring home annual salaries of $250,000 to $500,000 is the prospect of being part of a new strata of Wall Street once so unthinkable they had to name it: The Zeros.
No, these are not necessarily people who made it big during the 2000s, a decade when Wall Street went crazy, as was chronicled here. Rather, it's a "broad swath of back-office employees and middle-level traders, bankers and brokers" who are embarrassed and panicked at the idea of receiving no annual bonus this year at all. This despite the fact that new government-imposed pay rules set amid the financial crisis ironically prompted many base salaries to balloon in order to make up for the potential bonus shortfall. Base pay for managing directors at Goldman Sachs, for instance, climbed from $300,000 to $500,000, the Times reports.
We've read a lot over the past few years about compensation on Wall Street, so it's not all that surprising to hear that traders are unhappy at the prospect of paltry payouts. Instead, what I found most interesting about the story was one of the reasons for their dismay. It wasn't that they were upset to hear they couldn't go out and buy Tiffany's jewelry for their girlfriends or pay cash for a house in Connecticut. It was the possibility of someone finding out--gasp--that they had gotten no bonus at all. "Everybody is talking about it, but they're actually concerned about it becoming public," executive search consultant Richard Stein told the Times. Another senior banker told the paper that there was so much grumbling at his firm that "we'll throw $20,000 or $25,000 at each of the Zeros so they're not discouraged."
That, in a nutshell, is the problem with Wall Street pay--and with executive compensation in general. It's not really that it's too high. It's that it's expected to be high. When profits are up, and a firm is performing well, its board of directors or executive leaders should handsomely reward the people who have worked hard and who are responsible for those results. But when a company dishes out $25,000 just to make sure someone isn't discouraged--or worse yet, embarrassed--there's a systemic problem that must be addressed.
The issues surrounding Wall Street compensation will never be resolved by new rules or new laws about how big bonuses can be or in what way people can be paid. The people who work there are smart, and they will find a way around them. The only way any change will happen is for firm leaders--who currently have little incentive to change things themselves--to upend company culture through making tough, bold decisions that overturn years of ingrained expectations.
December 20, 2010; 11:05 AM ET |
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