Do bankers deserve their bonuses? Maybe they’re overpaid? Plenty of people would, and do, argue that this is the case. Personally, I think it’s not that straightforward.
There’s no question that those of us who work in finance are very fortunate. If you dropped a contemporary banker into a time machine and sent him or her back 400 hundred years in time, they would be of almost no use whatsoever. If you’re reading this, you won the ovarian lottery: you were born in the 20th century under a late capitalist economic system. At another point in history, your role wouldn’t have been possible.
However, in this epoch bankers fulfill an important function by virtue of their position in the capitalist ecosystem. In the context of this system, a banker who does his or her job correctly helps create value for others. You might be an equity capital markets banker, helping a company raise money by selling its stock. You might be a fixed income trader buying and selling corporate bonds and thereby maintaining liquidity in the fixed income market and keeping interest rates low. You might be an M&A banker, helping two companies combine their operations to create additional value.
Bankers have an important place in the economic system. They are the facilitators. And for this, they get paid handsomely. Bankers’ bonuses should reflect the value they create for the clients they work with. The more value they create, the more they should be paid.
Now, the thing with the financial system, almost the alchemy is that it involves money. Very large quantities of money. This is what makes it special: no other industry directly handles, touches daily the thing we all get paid in. Finance is unique in that way. All of society gets paid in money, but when you work in finance you actually “touch” it: you manage it and control it for entire economies and countries. At the same time, finance as a whole has huge economies of scale. Whether you are trading, managing money, raising capital or advising a company, whether you’re working on a $1m or a $100bn transaction, the work is massively scalable. Pay can therefore increase exponentially.
When you work in finance, you get to be the toll collectors on the world’s biggest, most crowded road. You help the traffic. You make sure the cars go where they should. You even give directions.
And yes, clients should pay you for the service you provide.
However, don’t let the big $$$s inflate your ego too much. While you will work hard for your bonus, and you will add value, you also need to remember this: at the end of the day, you are just a toll collector. Don’t let it go to your head.
The author is a former Goldman Sachs managing director and blogger at the site What I Learned on Wall Street (WilowWallStreet.com). What I Learnt on Wall Street is an education focused business founded a group of Wall Street veterans from the best firms determined to help the next generation. They just launched: Smart Cuts to the Top, a live course delivered on Jan 24th.
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