A familiar theme in the aftermath of the White House slashing executive pay packages at bailed-out firms concerned “talent” – the idea that these companies would not be able to attract or keep top executives if constrained on compensation. The Washington Post said executives were already fleeing rather than have to live on a paltry $500,000 a year.
For once, I’ve seen a bit of pushback on this. Business columnist Stephen Pearlstein didn’t hail the pay cuts as the entire answer for regulating risk on Wall Street, but he did puncture a hole in the whole argument about “talent”:
The big banks, of course, will make precisely this argument as they seek to water down the Fed’s pay proposal, just as they will try to water down similar proposals to require them to hold more capital or use less leverage. Their complaint will be that if they compete on an uneven field, they will inevitably lose talent, capital, market share and profits.
They may be right, of course, but if it turns out that these pay rules wind up steering the riskiest activity to smaller, more focused institutions whose failure won’t require them to be bailed out by the taxpayer, that might be a good thing.
Colin Barr, a writer at Fortune, went even further, asking “Who cares if Wall Street talent leaves,” noting that this group of talent wasn’t very talented over the last few years:
Still, we say Godspeed to this “talent.” After all, the traders and suits in the corner offices don’t exactly have an unblemished track record. In 2008, Citigroup, BofA and Merrill Lynch (since acquired by BofA) posted a grand total of $51 billion in losses.
Yet even as they were running themselves into the ground, the firms managed to pay out more than $12 billion in bonuses — including 1,606 million-dollar-plus bonuses, according to a report from the New York attorney general’s office.
“Even a cursory examination of the data suggests that in these challenging economic times, compensation for bank employees has become unmoored from the banks’ financial performance,” the report said.
Simply put, regular workers who turned in this kind of performance would have been fired without batting an eyelash.
Joe Nocera argues that only shareholders can really rein in CEO pay, which would especially be true if the “say on pay” provision, passed by the House Financial Services Committee and endorsed by the President, went into law (Nocera wants to actually go further and empower shareholders to toss board members out the door). Nocera doesn’t mention that the government IS the shareholder in the case of the bailed-out firms. But Nocera makes a worse factual error, or that is to say reveals some factual blindness:
Ken Lewis, the soon-to-be-retired chief executive of Bank of America, has declined to take a salary in 2009, at Mr. Feinberg’s urging. But he is still going to get around $70 million in retirement pay — which Mr. Feinberg could do nothing about. And so Mr. Lewis will soon join the ranks of other top Wall Street executives who walked away with millions after doing a miserable job. That’s the kind of pay practice that makes people justifiably angry.
And the American International Group is contractually obliged to make bonus payments of nearly $200 million in March 2010. The company has promised to try to reduce that amount by 30 percent. But once again, there is nothing Mr. Feinberg can do because those bonuses were already written into contracts — and there is a high likelihood that the bonuses will create another furor in Congress, just as they did earlier this year.
This is an amusing statement given the dichotomy, well-discussed by Matt Browner-Hamlin, of Nocera and many like him urging for the breaking of union contracts during the auto bailout. Union contracts can be broken with the bat of an eyelash, but Wall Street contracts are sacred writs scrawled in blood.





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There’s all this garment-rending about the purported “talent” that will flee – FLEE, I tells ya – Wall Street and go somewhere else. I say: hope the door slams on your collective asses really hard as you flee.
Feh. The other day, some high Lord Mucky Muck in GB who works for Goldman Sachs was bitterly bitching about how he and other upper class twit of the year Oxbridge pals would be shortly packing up their tea cups and moving along elsewhere if they couldn’t keep ripping the serfs off in GB and the USA.
Seriously: where are these people going to go? The world economy is in the dumpster. You messed it up. Who wants to hire you? Give me a break.
WTF? If I did one tenth as bad a job as they did, I would’ve been canned a long, long time ago from my job. And the one thing that I’ve learned in all my years of being a working stiff is that NO ONE is irreplaceable. I don’t really give a fig what you do, there’s always someone else out there who can do it at least well enough, if not better, than you.
These shites need to get over themselves and get used to what the rest of us deal with on a daily basis (something to dream about anyway).
I simply don’t accept that, with all of the MBA and Finance grads we have out there, we cannot replace these incompetents toute suite (well, what I mean is that upper levels of mgmt can move up and so on, and then grads can be hired at the lower levels). There’s always fresh blood out there to fill jobs.
“Union contracts can be broken with the bat of an eyelash, but Wall Street contracts are sacred writs scrawled in blood.”
Funny that. It should really be the other way around.
Union contracts are hard bargained and adversarial. They spell out exactly what value is given in exchange for value received. There is seldom any real doubt that a real agreement has been made.
But Wall Street contracts are made between cronies, in secret, using other people’s money. Value is given, given, given, but in exchange for what is hard to say. Neither party to the agreement risks anything.
To me, the union agreement sounds like the real contract. The other is just a nice gift.
I’m confident that we could get better results if we replaced the English Milord and all of the MBAs in finance with my 7-year-old border collie.
How could things be worse?