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Our Take: I'm Cinna the Poet. Don't Kill Me!
Nov 7, 2008
Maybe, just maybe, America's historic elevation of Barack Obama to president-elect will take the edge off the blood-lust that's being directed against just about anyone working in the financial services industry.
Or maybe it won't.
Both economically and spiritually, it's ugly out there, and it's going to get uglier. People seized between the jaws called pain and fear rarely act from their best impulses. Instead, they tend to lash out at the nearest target - even if it happens to be a fellow victim. In today's marketplace of ideas, the capacity for reasoned contemplation of laboriously gathered facts resembles an exotic, illiquid asset, trading at a steep discount.
Consider the burgeoning movement to block financial services firms from paying the year-end portion of employees' compensation packages. eFinancialCareers unwittingly gave that movement a boost when we released a survey finding that most financial market professionals still expect a bonus this year, and one-third expect more than they received last year. Populist politicians responded the way a bull responds to a red flag.
At least two powerful House committees, and several states including New York, are demanding institutions participating in the industry-wide bailout program provide proof they won't use taxpayer funds to support bonus payouts. Since money is fungible, it's hard to see how anyone could prove bailout funds will or won't influence an institution's bonus decisions. It's worth noting, though, that before the bailout, nine of the biggest banks had already accrued $108 billion for compensation expense for the first nine months of 2008, slightly above the same period a year ago. The rescue legislation wasn't enacted until October, and was voted down as late as Sept. 29 - strong evidence that none of those accruals reflected anticipation of a rescue. What's more, the government had to pressure several recipients, Goldman Sachs among them, into accepting any bailout money.
That's Your Bonus They Aim to Confiscate
In last week's column we warned that officials such as New York Attorney General Andrew Cuomo were targeting bonuses earned by every Wall Street employee - not just top executives. Some observers are closing their eyes to this fact, which is clearly stated in documents like Cuomo's Oct. 29 letter demanding detailed company-wide bonus data from nine large banks.
It's also clear that both lawmakers and the general public hold two major misconceptions about bonuses. First, they believe executives are the only people who receive substantial year-end awards. In fact, I've seen more than one supposedly respectable media outlet automatically insert the word, "executive" in front of the word "bonuses," even when writing about compensation of ordinary employees.
Second, lawmakers and the public mistakenly view these year-end amounts as "extra" pay - an arbitrary, unearned privilege for folks they consider overpaid and overprivileged to begin with.
In finance, bonuses aren't for executives. They're for everyone. Far from icing on the cake, they constitute the meat of most banking professionals' compensation packages. Almost no one on Wall Street is working for the salary (what's called "base" - a word that perfectly describes how people in the business view it). So if a banker, trader or support staffer performed their work properly, they've earned their bonus at least in a moral sense - and possibly in a legal sense as well. For an operations worker whose pay comprises $75,000 base and an expected 20 to 30 percent bonus, that final $20,000 or so may bridge the gap to owning an apartment, or sending his or her child to private school.
The Mob Screams For Blood
Watching the debate over Wall Street bonuses play out in various online forums, I am awestruck by the degree of unthinking fury and willful blindness exhibited by so many of the industry's critics. It reminds me of a scene from Shakespeare's Julius Caesar that I read back in middle school. After Marc Antony eulogizes the slain emperor in words that whip up his audience into a mob hell-bent on vengeance, the crowd seizes some poor soul who happens to have the same name as one of Caesar's assassins. "I'm Cinna the Poet!" he protests. "Not Cinna the Conspirator! Cinna the Poet!"
It matters not: The crowd beats him to death.
The word bonus is completely inappropriate in the context you correctly presented, and should at the very least undergo a semantic review. It does, whether we like it or not, communicate the fact that we have somehow achieved or exceeded expectations. To assign bonuses to those whom have largely failed to meet expectations is to make a mockery of the word. We must struggle with the fact that we must now pay employees of failed institutions to keep the industry from becoming a hollow shell ultimately to be filled by bureaucrats. The public mood is such that they believe we are ripe to make some real sacrifice. This is, of course, through the lens of immediate self-interest if not schadenfreude. I don't think there is any panacea that can both cure the perception problem with bonuses and serve to entice healthy risk taking in markets. Increasing salaries and reducing bonuses certainly wouldn't promote responsibility. Were the finance industry to have taken their lumps without bailouts or government assistance, then perhaps we wouldn't be standing, but we would have survived. In the end, we may even have been better positioned to bargain. I guess we'll never know.
Marc 08 Nov 2008
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