I come not to bury bonuses, but to praise them.
Yesterday the New York State Office of the Comptroller released itsannual report. The report is chock full of great tables and charts (seethis, this, and this). The key takeaways include these data points:
• The bonus pool for securities industry employees who work in New York City grew by 3 percent to $28.5 billion in 2014.
• The average bonus rose by 2 percent to $172,860 in 2014, the highest level since the financial crisis.
• The securities industry added 2,300 jobs in New York City in 2014, after years of downsizing.
• The cost of legal settlements related to the 2008 financial crisis continues to be a drag on Wall Street profits.
Two factors have made Wall Street bonuses a contentious issue: The size of the payouts, and that they were awarded in so many companies that had been bailed out.
I have been highly critical of both Wall Street and the bailout of banks during the crisis. However, it’s important to distinguish how Wall Street’s rank and file employees are compensated from what senior management “got away with.” Most professionals understand this difference intuitively, but much of the public and many elected representatives do not. They view enormous bonuses as a sign of excess or corruption.
As a denizen of the Street for a few decades, I’ve received bonuses big and small. The bonus structure on Wall Street serves three primary purposes: Continues here
This is why regulation, investigation, prosecution, and clawbacks are so essential for Wall Street’s own long-term survival. And most people know that those little insider trading prosecutions were just show trials to keep the attention away from the real stuff.
If Wall Street wants to operate as a Wild West culture where anything goes and muppets can be sacrificed on the profit altar, then Wall Street needs to be prepared to live with steady decline in public trust and approval. Look at how fast Lance Armstrong plunged once the truth came out. The steroids era in baseball could keep some of the career home run leaders out of the Hall of Fame for decades or forever. Nixon’s legacy has never recovered from Watergate and Vietnam/Cambodia despite his major foreign policy and environmental accomplishments.
America’s doesn’t mind people getting rich for high quality work. That is the American Dream. However, Americans don’t like it though when that money was effectively stolen from them. If obvious transgressions go unpunished, then the assumption is that there is probably lots of fire below that smoke and everybody involved is tarred with the same brush.
So far it appears that Wall Street has elected to close ranks in front of the worst offenders and prevent any from being investigated and prosecuted. The constant parade of new transgressions showing up with large civil fines, but no individual prosecutions, means that the culture is not changing. That is a conscious choice that has public relations consequences. The fines are clearly just a cost of doing business and so is rock-bottom approval ratings. We can only assume that Wall Street will not be looking for public support of another financial bail-out in the near future.
i am going to guess that public trust of wall street will be like it was after the great depression. seems like that generation never did get over that bit of flim flam
That period created the modern mutual fund which has meant greatly reduced commissions for stock brokers. Subsequently Vanguard and Schwab also made huge changes for the small investor and dramatically reduced costs.
We are currently seeing money flooding to Vanguard which is forcing competitors to reduce their expenses. Investment advisor costs are also dropping. More and more small investor money will be invested more and more passively (or robotically) at lower costs. That portion of Wall Street will be going away and never coming back. More and more people are realizing they don’t need Wall Street’s advice and “assistance”.
That will largely leave much of the rest of Wall Street playing trading games, investment banking, working with institutional investors, etc. If the big firms run into serious difficulties in another financial crisis or bear market, the small investor will likely not support them.
thinking thats case of when, not if
What percentage of the “bonus pool” is due to the fact that thanks to ZIRP the savers subsidize Wall St by hundreds of billions of $ per year?
My father is going to be 68 next month and cannot retire because the interest he collects from $250k in savings will not cover 1 month of his prescription meds. Thanks you the Fed and TBTF banks!
He hasn’t earned any interest in 4 years. According to Bernanke (who gets paid $250k per dinner) the rates won’t normalize in his lifetime. So either my father needs to buy SHAK on the “dip” and hope for the best, or he’ll have to live off the principal, which won’t last his estimated lifetime.
First, I consider ZIRP a Grand Theft and Grand wealth transfer. Second, some of that stolen money will end up in the bonus pool, dividends and buybacks by the TBTF banks. That makes me sick. That should make everyone not getting Wall St bonus equally sick.