Back In Bidness

by digby

I think most thoughtful people would agree that one of the most signs that our nation is is serious trouble is the fact that we are determined not to hold our elites accountable for serious lawbreaking, particularly that which endangers the nation. But just as serious is the fact that our elites continue to reward themselves for failure that endangers the nation:

The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise.

Workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began, because of the strong start of the year for bank profits.

Even as the industry’s compensation has been put in the spotlight for being so high at a time when many banks have received taxpayer help, six of the biggest banks set aside over $36 billion in the first quarter to pay their employees, according to a review of financial statements.

If that pace continues all year, the money set aside for compensation suggests that workers at many banks will see their pay — much of it in bonuses — recover from the lows of last year.

Now, it's true that some of this is going to regular employees as overdue raises. But the idea that these people have to be paid bonuses or they will leave for greener pastures remains the main excuse. Apparently, talented people will leave in droves if you don't allow them to continue to make obscene amounts of money, even when the companies they work for are responsible for a systemic failure of massive proportions:

“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”


Wall Street, of course, has a long history of high wages. Not all that long ago, most investment banks were private partnerships, and the workers were also typically the owners. Even when those firms began listing their shares on public stock exchanges, a standard was set in which half of their revenue was paid out to workers.

Their argument is that such lofty pay retains the best employees, who help earn more money, ultimately benefiting shareholders. The set-asides in the first quarter for pay can also help raise morale within the banks.

I like how they are referred to as "workers." Let's just say that the obscene compensation that caused all the short term thinking that led to the financial crisis wasn't going to the secretaries or the office managers. The vast majority of this "compensation" goes to the high flyers. Indeed, one reason these companies are able to crank up the free money machine again is because they've cut their workforces way back at the lower end and added the workload to the remaining low level workers. These low level workers didn't get their raises or bonuses either.

But the excuse that they have to pay these people such high wages because they will go elsewhere is puzzling to me. Are there really a lot of high paying jobs available in the financial sector right now? That seems pretty unlikely to me. And in fact, I'd have to assume that if there's one place where the competition is fierce and wages should be stagnating or falling, it's there. At least if the system were based on market principles.

But it isn't, is it? It's crony capitalism where the Big Money Boyz circle the wagons to preserve the ridiculous system they devised among themselves to keep that river of money flowing at the top --- no matter how many ridiculous risks their industry took and lost. It's quite the scam.

The Times indicates that the answer to this problem is that shareholders should simply sell their shares if they don't like what's happening, which is the equivalent of telling Americans they can always move to another country if they don't like what the government is doing. The real answer is that as the owners, the shareholders should demand that the companies change their compensation system or they will boot out the entire board. It's hard to believe anyone they replace them with could do any worse.