Felix Salmon
About this author:
Andrew Ross Sorkin is worried about what happens if you don't pay bankers enough money:
The trick, of course, is to dole out enough rewards to keep executives working, and working hard, but not to dole out too much...
Citigroup and other firms need to find ways to keep and attract talented people who can make smart decisions, without lavishing pay on them or rewarding them for shoddy performance...
Mr. Pandit and others -- to the extent you believe they are the right leaders of Citigroup -- or whoever takes their roles are unlikely to hang around if they're not amply paid.
The risk, Mr. Johnson said, is that if we taxpayers don't offer the possibility of a payday, we won't get the performance. "If you were in senior management and you knew you'd never get paid, you're not going to work as hard or you'll leave," he said. "It's actually worse if they stay. If you have a bunch of demoralized people hanging around, it will kill you."
I say, let's take the risk, and see what happens. I've now reached the point at which I simply don't believe people when they say that lower pay for bankers will result in worse performance -- especially since it looks very much as though it was higher pay for bankers which was at least partly responsible for much of the present crisis. Let's bring down pay, a lot, and see whether performance really falls.
The financial system went for decades, quite happily, without monster paydays: Why can't we go back to those days? No one thinks we need to pay the Treasury Secretary lots of money to make sure he's "working hard"; why are bank CEOs any different? And insofar as lower bank salaries would drive America's best and brightest into other sectors of the economy, that would surely be a good thing.
A massive, across-the-board pay cut in the banking system -- to levels which would still be incredibly generous by normal-America standards -- might result in a mass exodus of employees and a radical downsizing of the banking sector. But that's going to happen anyway, this would just achieve it without layoffs. And the outcome can't really be worse than what we've seen to date.
Disclosure: No positions.
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This article has 12 comments:
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User 311027
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1 Comment
Dec 02 11:37 AM-
DonSuper
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51 Comments
Dec 02 12:37 PMA friend has a P.h.d in Physics, she is very bright, and instead of working to solve serious problems, she was attracted to work in trading models for Wall street because she made much more money, but I bet her talent would be put to much better use in another place solving real world problems.
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Buddy Anderson
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1 Comment
Dec 02 12:59 PMHe still would be overpaid.
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Big Jack58
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2 Comments
Dec 02 01:38 PM-
who
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119 Comments
Dec 02 02:04 PM-
Big Jack58
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2 Comments
Dec 02 06:01 PM-
jimmy46
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254 Comments
Dec 02 07:35 PM1. Money
2. Glory or power
3. Sexual favors
For the big shots I think #2 is more important than the other 2
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bike 05673
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11 Comments
Dec 03 08:46 AMThe board of directors system is a complete failure and needs to be completly rebuilt.Seems almost every board acts as a rubber stamp and is not performing.
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kmarkt
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1 Comment
Dec 03 09:30 AMMake Executive Chairman/ CEOs accountable for their decisions, through a deferred reward scheme as they make strategic decisions that could only manifest their results in 3 to 5 years time.
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sumosama
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237 Comments
Dec 03 10:09 AMOn Dec 02 11:37 AM User 311027 wrote:
> I would argue that we "did" indeed pay the Treasury Secretary a huge
> amount. Since he was foreced to resign his post as CEO of GS for
> a government job he was forced to sell all of his GS stock and not
> have to pay capital gains taxes. So if you figure when he sold his
> stock at or around GS trading at $250 that is a huge windfall he
> received by not paying ANY taxes on those shares. Considering his
> gains were huge since he received most of his pay in stock and was
> at the firm before they went public. Maybe that is why he is working
> so hard. Who needs a $100k a year government job now that he cashed
> out $500mm of tax free money 2 years ago!
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Spencer2
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1 Comment
Dec 04 06:36 PMThe manipulation of the money supply by the Fed which can print money without limit has caused the dollar to inflate to less than 5 cents of the value it was when the private cartel of the Federal Reserve took control of the issuance of our currency in 1913.
Inflation and ultimately deflation is the result of allowing our money supply to be controlled by private interests and decisions made are not to facilitate the market place or the nation but rather to facilitate their interests. This is why billions upon billions have been siphoned to the financial firms it has. They are basically transferring their losses to the public in an effort to save themselves at the expense of the common citizen.
Read "Web of Debt" by Ellen Hodges Brown or go to the website webofdebt.com for some details on derivitives and other factors fueling our current economic crisis. Go to meetthesystem.org for a downloadable pdf on who the Fed is and how it effects you. The Fed is and has created this mess. Until we stop being complacent and accepting of their presence and their dominant control of our ecomomy by allowing them to issue our currency and dictate economic policy the problem will never be fully resolved.
Otherwise, we will continue to watch policy be created to aid their interests above and beyond those of the common person. Bankers high compensation levels in reality are the least of our problems compared to the private control of our economic and political systems by a minority of financial elites.
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You're Kidding
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34 Comments
Dec 05 08:00 AMAs long as we have a capitalistic economy, top talent will follow top pay. So not paying will almost always lead to underperformance.
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Congratulations. You have been successfully brainwashed into the kind of illogical thinking that supports exactly what is contrary to your own best interests (assuming you are not what you call "top talent" yourself.)
The people at the top are the ones who decide what pay they and their friends receive. It isn't the ordinary worker in the factory who votes to give the CEO hundreds of times his own pay. This pathetic system we call "capitalism" isn't real capitalism at all. And in no way does anyone at the top believe that it is. Those who run corporations buy out or merge with their competition whenever they can, because the last thing they want to do is compete. Competition is expensive and unproductive because it is inefficient when considering what the true goal is: to maximize profits and thereby rewards for the decision makers. This is the system that we have evolved to, and the one that our schools, media, and politicians teach us is best. But it isn't best for all of us, just those at the top.
There are plenty of people that could be CEOs, just like there are plenty of people that could do most any job. But most of us really aren't that competitive and willing to pay the price to rise to the top echelons of power. There aren't that many of those positions anyway. So we do something else and are happy without needing to be multimillionaires or billionaires. But the vultures who run things aren't necessarily any smarter than a lower manager or programmer. But they do love power more. Unfortunately, those who have the gold make the rules, so they inflate their own value to whatever they can get away with, think short term far more than long term, and then watch helplessly when things go bad because of their own shortsighted and self interested ways, and thereby completely miss the overall picture and the macro direction. But of course, they still deserve their big bonus; we owe it to them because they are so smart and they're the only ones who could possibly do their high power jobs.
Keep telling yourself that.
And now, after decades of this: Welcome to the Meltdown.
But the rest of us are waking up. We even got one of ourselves elected President. So some of the power elite capitalists are going to lose a little of that power and we are going to gain some (which is the only way a performance based pay system is ever going to be established.)
Its about time.