Posts filed under “Wages & Income”
Last weekend, we discussed issues of Wall Street compensation and liability in placing a natural limit to excessive risk-taking: Delay Pay? Try Partnership Liability.
This week, Floyd Norris received an email from a retired investment banker regarding what Wall Street compensation used to look like, and why that curtailed excessive behavior, and private gains, socialized losses:
“The old pay system (era of John Whitehead): you work at an investment bank for 30 years, have a reasonable draw and cash bonus, build up stock in the firm as most of your bonus, and when you decide to retire you request of the partners their permission to go limited. If they assent, you get to withdraw your money over five years, all the while continuing to expose the balance to the risks of the enterprise.
The new pay system post-Donald Lufkin Jenrette’s original I.P.O.: you’re a young 29-year-old punk playing with OPM (Other People’s Money), taking huge risks for which you get huge bonuses, while the outsiders shoulder the losses on your bets. You make all the money you’ll ever need in three years, stay around 15 years to pile up five times as much as you need, and then you retire with your cash hoard, buy a winery in Napa/Sonoma or a huge farm in Connecticut, living above the fray for the rest of your life.
Which system, do you think, makes people consider the downside of their actions?”
Note once again the impact of partnership liability — a negative incentive towards speculation — on banker behavior.
Old Wall Street Discusses the New
Notions on High and Low Finance June 21, 2010
In the Sunday NYT, Yale Professor Robert Shiller discusses one of the recommendations of the Squam Lake Report — holding back some executive compensation to align their risk with taxpayers (Help Prevent a Sequel. Delay Some Pay.) Here is their recommendation: “The Squam Lake group recommends that companies be encouraged to withhold a good part…Read More
One of the data points that has been getting some attention is the total withholding tax receipts, as reported by the IRS. According to the table below, it is down year over year. Some are interpreting this to contradict BLS, and likely means that the improving jobs data are bogus. Bill King specifically noted that…Read More
As per our prior discussion, let’s take a look at a nice set of charts showing the present state of Consumer Finances (all data thru Q1 2010): Balance Sheet, Savings Rate, Debt Service Ratio click for larger chart Source: (Left chart) JPM, FRB, J.P. Morgan Asset Management. Data includes households and nonprofit organizations. (Right charts)…Read More
There is a longish Sunday NYT article on CEO pay that I plan on reading. But before I get to it, I wanted to share some longstanding thoughts of my own on exec compensation. While there was a temporary drop in exec comp caused by the market crash, we still have structural compensation issues that…Read More
Here are the top 10 managers for 2009 in terms of net compensation. The majority of this comp is based on performance fees, plus investment returns on their own money. The top 25 earners were paid a collective $25.3 billion. The lowest earner on the list earned a puny $350 million — a shanda! —…Read More
Matt Trivisonno shares with us some of the research he does at Daily Jobs Update regarding payroll withholding taxes. He notes that in March, there has been a very strong surge in withholding taxes. The amount is roughly equivalent to 300,000 new workers being paid $30,000 salaries. Matt presume many of these jobs are Census…Read More
Here are the key data points: • The average CASH payout for the top 25 execs at the 5 companies that were bailed out by Uncle Sam — AIG, Chrysler, GM, GMAC and Chrysler Credit — has been cut in half since 2008 to $469,777. • For the top earners at those companies, pay is…Read More
I have a few quotes in Matt Taibbi’s no holds barred look at Wall Street’s profits and bonus culture. It is classic Taibbi, full of righteous indignation and fury over the bailed out banks quick transformation from near bankruptcy to record profits. He details 7 scams the various TARP recipients have pulled. Here’s a taste…Read More
This chart, from a Reuters’ analysis of pay at the 18 biggest banks by market value, illustrates the massive differences in pay among the CEOs of the world’s top banks. The compensation of the CEOs of the largest U.S. banks towers above what’s paid to banking chiefs in other parts of the world. > Source:…Read More