Posts filed under “Wages & Income”
Have a quick look at yesterday’s post: Wedbush: Cheap as a Fox.
There was a robust discussion in comments — and the general take that resonated with me was summed up thusly: Being judicious about expenses is one thing, but being ultra cheap can be counter-productive and myopic when you figure in the opportunity costs.
The truth of that statement made me recall an incident from earlier in my career, where I worked in the research department of a Sell Side firm. I was employed for a perfectly fine shop with a few billion under management and about 1,000 employees. The CEO was a nice guy, but a cheap sunuvabitch. He was formerly of Bear Stearns (from decades prior), where he must have caught that cheapness bug.
It manifested itself in all manners of counter-productive ways. There were lots of little monetary annoyances, and it affected their recruitment and retention of talent. Bonuses were insultingly punk — that’s why I ultimately left. Mind you, this was during a relative boom period, and not during a recession or crisis.
But here’s what I recall most about where being notoriously cheap hurt them: Like many Wall Street firms, they had an override system in place for recruiting. I brought in a new department — a sharp group of distressed asset buyers. They were wildly profitable for many years (though they did get hurt in the 2008 collapse).
Getting paid on it was always a headache — constantly a day late and a dollar short. “They aren’t profitible yet, the start up costs are big” was the common cry. All the other excuses were similarly annoying, but when senior execs were taking home millions, it was utterly unacceptable. I asked around the more senior guys, and the most common answer was SOP: Standard Operating Procedure.
The cheapness was almost a running gag — but it had a pernicious impact. When employees sense that the firm is not a two way street, that “favors” only run one way, it leaves an impression. The takeaway message was don’t bother recruiting, ’cause you won’t get paid on it.
Mind you, all of this was early in my ramp up in the media. Soon after this event occurred, I was getting lots of inquiries from many people who were either seeing me on Kudlow or hearing me on Bloomberg radio or reading quotes in the WSJ. Big institutional sales traders and RIA/Brokers — nice books, lots of AUM, large trailing 12s. (That’s street speak for big producers).
Whenever I got one of these inquiries, I could not have been nicer. I was nothing if not honest to a fault with the inquiries:
“Hey these are really nice guys but truth be told, they are super cheap motherfuckers. Terrific guys to have a beer with, but tight-assed as all shit. Money isn’t everything, and if you want a great home with nice guys, this is a great place. But I would be lying if I did not tell you the bonuses suck. I am happy to introduce you to them, but you can do much better comp-wise elsewhere. Do you know Joe XXXX at XXX ?“
I kept a running total of how many of them I simply sent elsewhere. Following the lack of payment on the departmental recruitment, I tracked about $25M in gross annual revenues that had reached out to me. We would never have signed all of them, but even a fraction of that was a lot of revenue. I got no money for steering this cash flow to other firms that paid nice bonuses. I’m sure the new hire and his boss must have thought ‘I was swell,’ but that was not my motivation. I was going to be damned if I was going to generate one excess dollar in revenue for the owners and not get compensated for it.
The crap bonus during our biggest year ever was the last straw. Truth be told, that was the beginning of the end — and I couldn’t bring new guys in if in my mind I knew had a foot out the door. I left the first day in January, and never looked back.
This one comment summed it up:
“Being in the tech industry, I am of the view that the “cheap as a fox” approach to running a company is ultimately inferior to providing your workers with the proper tools and resources they need to perform at a high level. I’ve found that people/companies who have a cheap approach towards infrastructure/operating expenses also tend to be cheap when it comes to acquiring the best people, which in technology (and I suspect in other fields), is ultimately a losing game.”
Its hard to find fault in that analysis.
But I wonder: How many employees behave similarly? How much money is management leaving on the table because of how cheap they are with their employees? Not just new talent, but new ideas, costs savings, innovations, new business lines? I am an unusually vindictive prick, or is that pretty normal human response?
I wonder how many start ups have been formed because people said “Up yours” to their former employers?
UPDATE November 20, 2010 4:52pm
Postscript: One of the people who traded with this division as a counter-party emails me:
Do you recall the conversation we had at Bobby Vans about XXXXXX and his group back in 2006? You laid out for me why they were going to blow up — too much leverage, too much RMBS exposure too much structured junk. You scared me out of some of my positions, and for a few months, I cursed you for it (then I had the best P&L on the desk for a year).
I asked you if you were going to warn XXXXX about the group’s exposure, and I recall your exact words: “I never got paid one dollar on this group or any of their transactions, so my ex-firm and I have no fiduciary relationship about this. That is lawyer speak for ‘They can go fuck themselves.’ ”
I still trade with them occasionally. In case you don’t know, the group left the firm some time ago, after racking up 100s of millions in losses. I would wager they gave back the past decade’s profits and then some.
It cost them a whole lot more than mere missed commissions and assets. It definitely left a mark.
Heh heh — that quote does sound like me
A little Karma goes a long way . . .
Back in October, a friend at Merrill told me about an arbitration award that could rock Bank of America. It was circulating via email from desk to desk, and was causing some consternation amongst the troops. It seemed that two former Merrill Lynch brokers had bolted for Morgan Stanley after the Bank of America acquisition…Read More
Want to pull down the big bucks? Floyd Norris advises you to get a job on the street of dreams: “Wall Street incomes are surging back. The government reported this week that the real wage and salary income of finance industry employees based in Manhattan rose nearly 20 percent in the first quarter of this…Read More
Category: Wages & Income
We interrupt the George Bush reputation rehabilitation tour for this brief reminder: “For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. The past decade was the worst for the U.S. economy…Read More
Interesting chart that Macro Market Musings calls “The Revenge of the Balance Sheets.” Each of our double peak in assets — dot com stocks and housing — sent the ratio to unsustainable levels and back again. You may recall at each of these peaks, some idiot was invariably trotted out to discuss how the debt…Read More
Floyd Norris digs up the dirt on US income, via the SOI Tax Stats of the IRS: – In 2008, Americans reported $8.4 trillion in total income, down 4.6% 2007. – Inflation adjusted, that is down 8.4% — the sharpest decline in total income since 1990. – Biggest source of decline: Falls in Investment Income…Read More
> 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,…Read More
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