News yesterday of President Obama's ire with Wall Street CEO bonuses--many of which were earned by CEO's of companies being bailed out by the US Taxpayer--amounting to $20B.
Good for the President. The bully pulpit is one of the most powerful aspects of the Presidency, and the arrogance of Wall Street on this account is astounding. I know that there are going to be full-throated capitalistic explanations for this, but capitalism does not mean "absence of common sense". When you seek the aid of the American people for your failing business, you should not profit unduly from it.
Friday, January 30, 2009
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3 comments:
While I'd like to give him the same approval, it is hard to take this sort of statement seriously on the heels of the extremely expensive Inauguration. As usual, it appears Barack Obama can talk the talk, but that's about it.
It's easy to make an after-the-fact hit on these things. I suspect that the comp plans of many (if not most) if these Wall Streeters were set in 2007 -- before everything came crashing down. While I'd love to be eligible for a six or seven-figure bonus (I'm not), I can hardly begrudge the companies for paying out what they were legally obligated to pay out. Maybe the erasure of the investment banking industry, the near-nationalization of the regular banking industry, and the political climate will change the culture and make banks change compensation to a primarily salary-based one, vs. the current system where "bonuses" are part of the expected annual salary. And maybe that'll bring the finance profession into line with the rest of the workforce (to some degree).
After 2002, people in MBA programs looking for quick million-dollar payouts by selling their on-line business idea right out of B-School found things had changed. There's no reason that MBA students going into formerly-high finance can't find the same reality.
That said, as soon as the banks whose comp plans are regulated by govt have limits that others don't, where do you think the smart people will go? Somewhere else. And then the entities in which the taxpayers have invested hundreds of billions of dollars will be deprived of the human capital necessary to repay said taxpayers. And, as a taxpayer and, not to my choosing, an investor now in so much of Wall Street, I don't want that to happen.
I guess this wasn't so much a comment as a rant. Whoops.
If the companies had existing obligations to pay bonuses based on agreements made in 2007 that's one thing. But what kind of "bonus" structure pays out to that degree when Wall St. has its worst year in decades?
I'm not advocating changing the salary/bonus structure. Don't know enough about it to do so. What I am advocating are bonus structures that reward effective stewards of capital.
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