Compensation should be adjusted to reflect performance, not to retain so called "talent". I argue salaries should be reduced in proportion to the decline in respective firms PPS! That way the "best and the brightest" will think twice about levering themselves at 40 to 1! Maybe it's time for a new variety of folk! Feb. 4 (Bloomberg) -- Oppenheimer & Co. analyst Meredith Whitney said banks and other financial firms shouldn’t ditch annual bonuses because the best employees would leave.
“No one goes into Wall Street to save the world,” Whitney said today in an interview on Bloomberg Television. “Compensation is the motivating factor.”
Wall Street pay is getting scrutiny after New York banks and securities firm paid $18.4 billion in bonuses for 2008 while the six biggest New York-based financial companies lost a combined $42.4 billion and got $90 billion in government bailout funds. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said yesterday that “pay got a little exuberant.”
President Barack Obama will today announce a cap of $500,000 on compensation of top executives at companies that receive significant federal assistance, according to an administration official who requested anonymity.
The failure to pay employees well may drive away “the best and the brightest,” Whitney said.
“If you can’t compensate your employees, they’re going to go somewhere else,” she said. “You’re going to get a different variety of folks who are going to come in.”
Citigroup Inc. lost a record $18.7 billion last year, while Merrill Lynch & Co., which was acquired by Bank of America Corp. on Jan. 1, lost $27.1 billion. Lehman Brothers Holdings Inc. lost $6.2 billion last year before declaring bankruptcy in September. JPMorgan reported net income of $5.61 billion, down 64 percent from the prior year.
To contact the reporters on this story: Bradley Keoun in New York at email@example.com; Margaret Popper in New York at mpopper1@bloomberg
Comp has to reflect the performance of the individual employee not of the entire firm. Every firm, good or bad has some good profitable employees and some bad unprofitable employees. Even the big disaster firms like Citi and BofA have some star performers. If they are not paid for their performance, they can easily go elsewhere. The US can easily regulate the firms receiving TARP. But if they do, non TARP firms will be able to hire all the money making talent. Goldman now wants to give back its TARP money. The US govt can even regulate all US firms. But then the talent will go to hedge funds and foreign banks which the US cannot regulate. It feels great to say stupid things like "screw wall street lets limit their pay" but hopefully policy will be made based on what makes sense for the US as a whole not on such an emotional basis. Some might argue that the US does not need its financial industry and we would rather see all these jobs go to London but I doubt this sentiment prevails. Special shame on Senator Schumer since his state would be bankrupt if not for all the taxes paid by Wall Streeters.
Appreciate the response! I argue the so called endangered species,"financial talent," should migrate to non-TARP firms. After all, doesn't this boil down to survival of the fittest? Shouldn't talent be concentrated in firms that refrained from excessive greed, assessed excessive risk, and didn't lever at 40 to 1? To quote William Black, law professor at Univ. of Missouri at K.C.,"Compensation is the root that created the preverse incentive that led to the current financial crisis." In closing , Senator Shumer"s state will be bankrupt, thanks to the LACK of talent on Wall Street!