Posted by: Matthew Goldstein on January 30
Huge bonuses. Corporate jets. Corporate retreats. Office upgrades. These are all some of the excesses that Wall Street executives have shown an unwillingness to give up, even as their firms are losing billions and crawling to the federal government for help.
It’s easy to understand President Obama’s anger over the news that Wall Street firms paid out nearly $20 billion in bonuses last year. Obama called such payouts in the middle of the worst financial crisis since the Great Depression: “shameful.”
Other payouts Obama might want to slam are the dividends financial firms continued to payout to shareholders, even as banks and brokers posted big losses and depleted what remaing capital they had. Banks kept out paying out dividends to investors, even as they clamped down on lending—making the recession worse.
So what is it with the folks on Wall Street? A big problem is the way compensation is structured on the Street—in that so much of the salary for a trader, banker and broker comes in the way of bonuses and year-end compensation. Going forward that may have to change, with base salary constituting a higher percentage of pay. That may encourage employees to reframe from shooting for the moon in the hopes of a big payoff. After all, that’s how it works for most people.
The excess and tone deafness on Wall Street also is a good argument for the federal government forcing corporate change as part of any future bailouts. In some cases, it may even require changes in the board rooms and corporate suites. That seems like a fair price for taking taxpayer money to save a company.
BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.