Pay or Play

One of the maddening features of the financial crisis has been Wall Street’s constant insistence that without its mind-boggling compensation, talent will go elsewhere. On the face of it, this seems an empty threat from a group of hysterical prima donnas who don’t want to have to suffer the consequences for their actions. We focus a lot on pay for the top few at a public company (my, how that term has a new ring to it after the bailout) because public companies disclose the pay of those at the top.

Those who defend spending taxpayer money on bonuses say its the troops in the trenches who will leave without proper compensation. Yesterday, the Times ran a story that suggests bankers are already voting with their feet. Jamie Sprayregen was a leading bankruptcy lawyer at Kirkland & Ellis. Two years ago, Goldman Sachs recruited him to work in their restructuring practice.

There were probably many reasons Sprayregen moved from billing his and other lawyer’s time by the hour to becoming an adviser with a broader fee structure. But it is hard not to see compensation as the root cause for Sprayregen leaving his new colleagues–whose shabbier state the Wall Street Journal explores this morning–to rejoin his old partners. Read the Times story explaining the move, and you’ll get the distinct sense Sprayregen is focused on protecting his earning potential.

This is obviously a good time to be in the bankruptcy business. But Goldman’s sinking share price probably robbed Sprayregen of much of his Goldman compensation. In the years he’s been with the firm, the stock has been on ski slope down.

Now, with the bonus pool the main topic of conversation at the firm, Sprayregen discovers that:

he began to miss the practice of law, and a little more than a week ago reached out to Kirkland.

Nostalgia may have had something to do with it but the seamless return to his position as co-Head of the bankruptcy department at the law firm also suggests a frustration with banking.

With the tight credit markets making bankruptcy refinancing or loans expensive — if available at all — Mr. Sprayregen predicted that more ailing companies would need to seek legal solutions to their troubles. That may include negotiating with creditors to extend their debt or to swap that debt for a stake in the company.

In other words, those hourly fees are looking much better these days.


Bankruptcy Lawyer Leaves Goldman
New York Times, December 1, 2008

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