Pay or Play
One of the maddening features of the financial crisis has been Wall Street’s constant insistence that without its mind-boggling compensation, talent will go elsewhere. On the face of it, this seems an empty threat from a group of hysterical prima donnas who don’t want to have to suffer the consequences for their actions. We focus a lot on pay for the top few at a public company (my, how that term has a new ring to it after the bailout) because public companies disclose the pay of those at the top.
Those who defend spending taxpayer money on bonuses say its the troops in the trenches who will leave without proper compensation. Yesterday, the Times ran a story that suggests bankers are already voting with their feet. Jamie Sprayregen was a leading bankruptcy lawyer at Kirkland & Ellis. Two years ago, Goldman Sachs recruited him to work in their restructuring practice.
There were probably many reasons Sprayregen moved from billing his and other lawyer’s time by the hour to becoming an adviser with a broader fee structure. But it is hard not to see compensation as the root cause for Sprayregen leaving his new colleagues–whose shabbier state the Wall Street Journal explores this morning–to rejoin his old partners. Read the Times story explaining the move, and you’ll get the distinct sense Sprayregen is focused on protecting his earning potential.
This is obviously a good time to be in the bankruptcy business. But Goldman’s sinking share price probably robbed Sprayregen of much of his Goldman compensation. In the years he’s been with the firm, the stock has been on ski slope down.
Now, with the bonus pool the main topic of conversation at the firm, Sprayregen discovers that:
he began to miss the practice of law, and a little more than a week ago reached out to Kirkland.
Nostalgia may have had something to do with it but the seamless return to his position as co-Head of the bankruptcy department at the law firm also suggests a frustration with banking.
With the tight credit markets making bankruptcy refinancing or loans expensive — if available at all — Mr. Sprayregen predicted that more ailing companies would need to seek legal solutions to their troubles. That may include negotiating with creditors to extend their debt or to swap that debt for a stake in the company.
In other words, those hourly fees are looking much better these days.
Source:
Bankruptcy Lawyer Leaves Goldman
MICHAEL J. DE LA MERCED
New York Times, December 1, 2008
http://www.nytimes.com/2008/12/01/business/01goldman.html
December 2nd, 2008 at 8:48 am
As long as you can get those big hourly fees. As a top guy he can get them. Bankruptcy is one thing; most other areas of practice are going to be in the toilet and we will likely start seeing the shrinking of the silk stocking firms as the contagion spreads.
December 2nd, 2008 at 9:23 am
I’m sorry, but I don’t know why I just spent 2 minutes reading this.
The Big Picture is full of so much more content these days that I have less tolerance for almost-meaningless posts. And, yes, I know I don’t have to read The Big Picture anymore, but I WANT TO READ IT. The past couple years have been enjoyable, educational, and profitable. But lack of editorial restraint (or focus?) by contributors is killing the goose…
Thanks,
AP
P.S. Is it just me, or did the quality of reader comments actually go down after BR required us to register?
December 2nd, 2008 at 2:56 pm
“P.S. Is it just me, or did the quality of reader comments actually go down after BR required us to register?”
QED
December 2nd, 2008 at 6:53 pm
Touché, though I still don’t understand why I should give a rat’s behind about Jamie Sprayregen.
December 2nd, 2008 at 7:29 pm
There is no reason you should care. The site is constructed so that you need not read anything on this tab. Should you find yourself wandering here, it isn’t hard to skip over a post that you don’t find interesting. But since you’ve already read it, I’m happy to explain my thinking.
You and I are now partial owners of Goldman Sachs and a slew of other banks/financial players. As a taxpayer, I don’t like seeing my money go to bonus someone like Sprayregen. He wanted to work at Goldman for the riches but doesn’t want to contribute through the tough times. As a taxpayer, I say good riddance to him.
As an owner of Goldman, I have to be troubled by the loss of talent. When we talk about the bonus issue, we do so in the abstract. The Times ran this story for the same reason I posted it but they’re constrained by some of the tenets of their trade. They cannot make guesses about Sprayregen’s personal motives.
One of the purposes of an outlet like this is to make explicit what is usually read between the lines. So I wrote the post above hoping to generate some debate about the bonus issue. I would sincerely like my stake in GS to pay off but I resent the callow greed of someone like Sprayregen–hey, maybe he really does miss the practice of law but most likely he just realized Goldmine Sachs may never be that again.
So, do you give a rat’s behind about your investment? Because a version of Sprayregen’s story is playing out a few hundred times over the next few weeks, months and years. And you might want to have thought it through.