Posts filed under “Wages & Income”

The Vilification of Goldman Sachs’ Pay Practices

Mike Santoli has an interesting perspective on the furious reactions to Goldie’s bonuses in this week’s Barron’s:

“Absent in the rage against people earning impressive pay after their firms got public help is the key question: Do we want the firms that received aid to continue operating as autonomous, profit-seeking businesses, or as quasi-utilities operating under tight government restrictions?”

That is the key disagreement I have had with those folks furious about the bonuses: The firms that paid back the TARP — do we never allow them to resume control of their businesses? Are they now “non profits?” Who is appropriate to determine their pay packages — their owners, board members and senior management — or the Government?

Santoli further suggests we consider the means and implications of explicitly limiting pay:

“Goldman, operating at less than half the leverage of a couple years ago, last quarter produced a return on equity well below what it logged in peak years. It set aside a much smaller portion of its revenue to employees last quarter than it typically has, 43%.

What if Goldman set aside half as much as it did for bonuses, say 20% of revenue. Where does the other half go? To the bottom line, where it builds up book value, which could allow Goldman to leverage a greater capital base and trade more and become even bigger in the markets it plays in, likely with fewer of the better people to oversee the risk as they could go find a new employer willing to pay. Or do we want to legislate away the chance for a Goldman to earn even what it did last quarter? Or require that the government get some percentage of the take? On what legal or practical basis, at this stage?

If Goldman weren’t exploiting the market opportunities it is, those opportunities would still be there, and others would get to them — whether other banks or hedge funds — and would pay their people (maybe some hired from Goldman) the big money.

Let’s get to the true heart of the matter” It is that these folks — many of whom are assholes — make oodles and oodles of money, much more than they would be permitted to if a munificent and just deity were paying closer attention to this little ball of earth and water:

“It has long been true that the “average” employee on Wall Street is overpaid, his or her bonuses dragged higher by those who make huge scores for their firm. The solutions — bonuses based on multi-year, risk-adjusted performance; “clawbacks” if trades go bad after bonuses based on them were paid; more pay in the form of long-vesting company stock — are being implemented by the remaining firms.This isn’t the same as saying “the market will sort it out,” but that any new rules or structural changes need to be considered from all the angles. And remember that the most important consequences of such measures are often the unintended ones.”

Interesting stuff, worth thinking about.

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Previously:
Much Ado About Nothing $23B: Goldman Sachs Bonus (Oct 14, 2009)

http://www.ritholtz.com/blog/2009/10/much-ado-about-nothing-23b-goldman-sachs-bonus/

Goldman Sachs: “A Bunch of Clever Thugs” (Oct 15, 2009)

http://www.ritholtz.com/blog/2009/10/goldman-sachs-%E2%80%9Ca-bunch-of-clever-thugs%E2%80%9D/

Source:
Will This Week’s GDP Validate the Rally?
MICHAEL SANTOLI
Barron’s October 26, 2009

http://online.barrons.com/article/SB125633731314404773.html

Category: Bailouts, Corporate Management, Wages & Income

Much Ado About Nothing $23B: Goldman Sachs Bonus

Its time for the quarterly hand-wringing amongst the populace regarding the over-sized bonuses at Goldman Sachs. This Q, its a mere $23B.

The focus on the bonuses of top performing traders and investment bankers is misplaced. There are many, many things to be upset about regarding the financial sector — but bonuses are not one of them. [BR: Or, at least not the most important thing to be enraged over]

We live in a capitalist system, where there are going to be winners and losers. Its not fair, but it is how it is.  You can complain about it, but it is all but pointless. Feel free to pursue a millionaire’s tax of 1% (or 10%) on everyone who earns more than $1m — a super top tier — to pay for health care reform or whatever you want. (Best of luck with that!)

Every few years, we lament overpaid athletes, musicians, movie stars. Bruce Springsteen is going to make $100 million+ this year on tour. While you can complain about it, ask yourself how many people can fill 50,000 seat arenas 200 night a year at $100 a pop. Lebron James, Peyton Manning, and others justify their salaries by generating massive revenue and profits for their employers.

So too it is with Goldman Sachs and others.

The traders who throw off the most profits, the bankers that generate the most lucrative deals are worth tens of millions to their “team owners.” That is how it is, and it is unlikely to ever change.

What should you be upset about?

• Paying people in year one for risks that last years or decades;

• The “privatized gains, socialized losses” of the current system;

• Dramatically reduced competition in the Banking sector;

• The idea that “Too Big To Fail” is now an official policy of the United States;

• The “gifting” of $100s of billions of dollars to mismanaged banks that should have been allowed to fail in a controlled fashion;

• Bank lobbyists preventing any sort of credible regulation from passing;

• Goldman Sachs wresting $19 billion from AIG;

• The absurd and poorly thought out $750 billion TARP plan;

• The suspension of mark-to-market allowing banks to hide losses and not accurately disclose their bad assets;

• The outsized influence Banks have on Congress and Goldman Sachs has within the Executive branch.

There are plenty of things to be upset about these days. Top performers earning huge paydays at the biggest firms is not one of them . . .

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Previously:
Looking at Wall Street Pay (August 1st, 2009)

http://www.ritholtz.com/blog/2009/08/looking-at-wall-street-pay/

Why Financial Reform Died: “Banks Run Congress” (October 12th, 2009)

http://www.ritholtz.com/blog/2009/10/why-financial-reform-died-banks-run-congress/

What’s Wrong With Billionaire Fund Managers? (April 16th, 2008)

http://www.ritholtz.com/blog/2008/04/whats-wrong-with-billionaire-fund-managers/

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Category: Bailouts, Wages & Income

Why Are Banks Paying Signing Bonus So Early?

I love the smell of napalm in the morning. You know, one time we had a hill bombed, for 12 hours. When it was all over, I walked up. We didn’t find one of ‘em, not one stinkin’ dink body. The smell, you know that gasoline smell, the whole hill. Smelled like [sniffing, pondering]  victory….Read More

Category: Bailouts, Corporate Management, Wages & Income

How Many Hours of Work Are Required to Purchase S&P?

Are stocks cheap or expensive? Are wages up or down? The answer to the  above question is obviously a a function of both hourly wages and S&P prices. Note that in the early 1980s, you could by the SPX with under 20 hours of labor — Stocks were cheap then. In the late 1990s, it…Read More

Category: Markets, Valuation, Wages & Income

Personal Savings Rate

Improved savings rate? Not exactly. Mark Warywoda of Addenda-Capital.com up in Canada offers up some thoughts on why we should not read too much into the recent improvement in Savings Rates: “So far, all we have had is a two-quarter bump up in personal savings rates — that is trivial related to the outstanding debt…Read More

Category: Consumer Spending, Wages & Income

Weak Consumers, Creditless Firms Impacts Recovery

Two interesting front page articles this morning expand on several of our favorite themes. The first, the NYT’s A Reluctance to Spend May Be a Legacy of the Recession, treads over some well worn ground with anecdotes and data.  The anecdotal stuff is the usual mix of sad tales, and psychology, some signs of improvement…Read More

Category: Economy, Employment, Wages & Income

Securtizing Goldman’s Bonuses

Zero Hedge has this hilarious offering memorandum of GS’ bonus pool this year: > click for larger, readable version

Category: Bailouts, Humor, Wages & Income

Income Falls 1.3%, But . . .

Don’t get too bent out of shape over the bigger than expected drop in income in June.

It was the biggest drop in 4 years, but it came on top of the big May stimulus, which helped income surge 1.3%.

Back out govvie largesse, and the 2 months net out to more or less flat  . . .

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NOTE:  Market Talk adds that personal income is down $453B since June 2008.

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Category: Data Analysis, Wages & Income

Record Bonuses At Bailed-Out Banks

Category: Bailouts, Video, Wages & Income

Regulation & Finance Sector Pay

Nice couple of charts that show correlation between what occurred when financial markets were deregulated and the outsized compensation packages that subsequently followed. The book does a nice job showing how one led to the other — that there was both Correlation and Causation. > chart via NYU ~~~ Here is a similar chart, with…Read More

Category: Bailout Nation, Bailouts, Regulation, Wages & Income