Despite numerous proposals to rein in compensation structure of financial sector, the Wall Street execs continue to make merry. I was just reading this much discussed NY Attorney General’s report. The report says it all: No Rhyme or Reason – The Heads I win, Tails you Lose Bank Bonus Culture.
The report analyses the compensations of 9 banks that weer the first recipients of TARP monies. It says:
As one would expect, in describing their compensation programs, most banks emphasize the importance of tying pay to performance. Indeed, one senior bank executive noted recently that individual compensation should hot be set without taking into strong consideration the performance of the business unit and the overall firm. As this executive put it, “employees should share in the upside when overall performance is strong and they should all share in the downside when overall performance is weak.”
But despite such claims, one thing is clear from this investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their
Thus, when the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well. Bonuses and overall compensation did not vary significantly as profits diminished.
The report shows how firms lost so much money but compensation remains unchanged and in some cases has gone up. And all these banks have received taxpayer’s money.
I was talking to a friend based in US and asked him whether you should name Wall Street as Greed Street or Shameless Street. He said these are understatements. I don’t know why but this bonus culture is so strong that nothing seems to stop them. They just keep flowing. Another friend in US was complaining in November 2008 that no one was offering bonuses this year. This was the peak of the crisis and he wanted bonus and said that is the culture, we don’t care!
Well if this was not hopeless enough, this article in Mint says:
The collective remuneration of top salary earners at 24 Nifty firms increased at three times the pace of their net profit growth in the last fiscal, when the economy expanded at its slowest rate in six years. The combined compensation of the top earners for these firms, whose annual reports are public, went up 33.2% against a net profit increase of 10.34%, a study by Mint shows. One-third of the firms have increased the salaries of their top-earning executive much in excess of their net profit increase.
The salary numbers used for this study are total compensation packages, which include fees for attending board meetings, commissions, bonuses and perquisites. In some cases, these are numbers for a department or divisional head who earns more than the chairman or chief executive officer because of the unit performance or seniority or when comparable numbers are not available.
What is going on really? It doesn’t report the salaries of India’s Wall Street earners and will be interesting to see the parallels. The wall street culture seems to be catching up thick and fast elsewhere as well, not just in countries but sectors as well. I have noted this elsewhere as well and it doesn’t look good at all (see this as well).
Other countries are still to catch up with Wall Street so we can keep it on sideline for time being. Something dramatic and urgent needs to be done to tame Wall Street. This is just not acceptable.