Why Wall Street bonuses are different
Fortune Magazine's Allan Sloan talks with Steve Chiotakis about how Wall Street bonuses got to be so big, and what we should do about them.
Allan Sloan is a senior editor-at-large at Fortune. (APM)
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TEXT OF INTERVIEW
Steve Chiotakis: Remember when bonuses were all about a modest reward for hard work and energy? Not anymore -- at least on Wall Street, where making millions is par for the course. It's been a sour point for the majority of those who don't work on Wall Street. Fortune Magazine's Allan Sloan's been taking note of this big gap at Wall Street and Main Street. He joins us now. Good morning, Allan.
Allan Sloan: Good morning, Steve.
Chiotakis: I'm curious about this, because we know how these bonuses work on Wall Street and all that. But how did these bonuses get to be millions upon millions of dollars?
Sloan: Well it's a formula. Now, a million years ago, when Wall Street was private, and people wanted to keep their fixed costs down, you worked for basically survival wages, and then you got a piece of the action afterwards. Now that most of these companies are stockholder-owned, they have a bonus. And on Wall Street, bonus does not mean what it means in the real world.
Chiotakis: So what's the difference then?
Sloan: In most of the real world, a bonus is something for extraordinary effort and extraordinary accomplishment. And it's a bonus! On Wall Street, it's generally part of your base pay, they just call it a bonus for historical reasons. And the word "bonus" itself is complicating the relationships because Wall Street guys feel entitled cause they consider it compensation. And people on Main Street who don't know this world -- no reason they should -- think it's outrageous because what do these people done other than take government bailout money?
Chiotakis: But it still feels like there's this tension here. I mean what should we do about these bonuses? Should we call them something else?
Sloan: First we should call them something else. But I was an English major, and I actually care about words. On Wall Street, they care about money. That's why they don't call them something else. Second, at least this year, the real heavy hitters in these firms ought to be smart and take nothing in the way of bonuses, and say, "We got so much money from the government, and we benefited so much, that the money we would normally pay as bonuses, we're paying to the U.S. Treasury. Now I think there are two chances of that happening: slim and none. But I think that's what I would do if I were running a Wall Street firm. Then again, that's why I'll probably never run one.
Chiotakis: Fortune Magazine's Allan Sloan with us this morning. Allan, thanks.
Sloan: You're welcome, Steve.
Comments
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From Fallbrook, CA, 11/02/2009
I have an idea - let's give everybody a bonus that facilitates commerce - that's what the WS dudes are claiming isn't it. So the guys fixing potholes on the 710 Freeway that lets freight coming into LA harbor get distributed, or the FAA controllers that help those bizjets carrying all those important WS execs make their flights, and even the janitors that keep the stock exchanges neat by working all night should share those bonuses, eh?
From Richardson, TX, 11/02/2009
I accept that bonuses are part of compensation on wall street. However, this entirely misses the point of main street anger by seeming to indicate that the compensation is therefore fair. The problem is the 'formula' that calculates bonuses is out of line with the reality of the workers' and companies' performance. The bonuses are calculated by formula, which, by the way, puts them clearly in the domain of bonuses and not the same as salary compensation.
As an engineer, I have worked for companies where bonuses were based on the performance of the company and my division, not directly on my personal performance. If the company did well, the bonus was good, if not, it was worse. I would be surprised if wall street bonuses weren't exactly the same: somehow based on the performance of the company. Main street understands that wall street bonuses work the same as their own corporate bonuses. However, Wall Street workers received large bonuses, *based on company performance*, totaling billions, when the economy tanked; they received large bonuses, *based on company performance*, when the companies involved were bailed out by government tax dollars; they received large bonuses, *based on company performance*, when the companies did well during the boom years. The 'bonuses' are still out of line with performance regardless of whether they are a standard method of compensation or not. That's what makes 'main street' angry, not that wall street workers get compensated by a 'bonus' system, but that main street is funding a no-lose gravy train for wall street workers with tax dollars and the economic disruption of their lives.
If wall street wants to get rid of the problem, then make compensation a fixed salary, and be done with the supposed main street mis-perception (which it's not). However, I suspect that wall street workers won't like that, because they won't get to participate in the gravy train provided by their respective 'formulas'. If many individual wall street bonuses had not been in the millions when the employing companies should have been bankrupt, 'main street' would not have been upset. But, the reality is, wall street workers got millions from tax dollar funded bonuses, after they had driven the economy to ruin and their companies to bankruptcy, while, in stark contrast, main street got downsized because of wall street mistakes. Main street anger over bonuses is entirely justified. The 'poor us, all we got was misunderstood (and a few million)', attitude only shows that wall street is still out of touch with main street and reality.
From foster, CA, 11/02/2009
Steve –
Is there a presumption here that may not be economics, but rather – envy?
Steve Chiotakis: It's been a sour point for the majority of those who don't work on Wall Street.
Chiotakis: But it still feels like there's this tension here. I mean what should we do about these bonuses?
Sloan: … the real heavy hitters in these firms ought to be smart and take nothing in the way of bonuses, and say, "We got so much money from the government, and we benefited so much, that the money we would normally pay as bonuses, we're paying to the U.S. Treasury.
Would you use the same words in discussing whether there should be a “sour point” about teachers getting big pensions and salaries and tenure but only work 9 months every year?
Should there be tension about writers working whenever they please in their pajamas and then making millions from a successful book, irrespective of whether the book raises our spirits or instead depresses our confidence by excessive criticism and cynicism? How about successful actors? Dentists? Doctors? Politicians? In general, Wall Street firms have the same demographics—only a fraction of really talented, motivated people get a chance to work there; if successful, they get a lot of money (most still work long hours and don’t have much vacation.) But a large number don’t make it, and wash out.
I agree with Mr. Sloan: “If I pay, I say.” In the case where the “I” is the government, and a company took money from the government, then the government should make the terms-in advance-about compensation along with any other fiduciary terms it seems fit.
If you decide to hire really talented folks that enable you to acquire a large audience, shouldn’t you make gazillions and pay your staff millions?... and, by the way, pay a bunch of taxes?
The head of a futures desk once told me that her goal was to pay the IRS over a million dollars each year. We should be so lucky to have the same opportunity.
Would we be better off as a society if we spent less time looking at what others make and figuring out how we can profit from others’ efforts?
BB
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Bob Buyers – 650/440-0380
RHBuyers@comcast.net
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From Richmond, TX, 11/02/2009
Even if a wall street bonus is considered part of the base..... it doesn't change the fact that their compensation is out of line with rest of corporate society... and it doesn't change that they've successfully ... legally ... robbed the US Treasury.... Don't think this over by a long shot... I liked your suggestion of how they should behave.... unlikely as it is... Here's another one that has little chance... Anyone taking money from the US Government should limit their compensation to a cap not to exceed the compensation of the president .... $400K...
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