Compensation

You would think that European regulators have a lot to worry about with their banks but they’ve got time for a surprising distraction: finalizing a plan to cap bankers’ bonuses at 1x base compensation*:

Bankers’ bonuses across the European Union are set to be limited by law, with many bank lobbyists admitting in private that they have lost the fight against a European Parliament initiative to limit the size of bonuses relative to salary.

Some banks still hope to increase the proposed ratio from 1:1 to 2:1 or beyond, while others are trying to limit the restriction to upfront cash bonuses, excluding deferred payouts. But many bankers now accept the principle of a ratio as inevitable.

“It’s dawning on many banks that this is game over,” said one senior lobbyist. “Many are now resigned to the 1:1 ratio.”

Assuming – as is currently the case – that the caps will be only on the ratio, not the amount, this is a somewhat weird move. Banks in Europe, as you may have heard, are somewhat undercapitalized. They also continue to need to employ bankers, and the going rate for senior bankers in Europe seems to be around 2.5x their current base salaries,** which are already up due to previous noise (and action) about bonus caps. A cap like this should push them up further, increasing banks’ fixed costs at exactly the moment they can’t afford to pay them.

But of course the regulators know that and view it as an acceptable trade-off for the benefit of the bonus cap, which mainly to nudge banks’ culture away from levered risk-taking and toward … I’m gonna say bureaucracy? Read more »

Here is a fun thing we can do, which is put arbitrary numbers in a list and see how they look. Shall we? We shall.

First, here is how much various bank CEOs and assorted other miscreants made in 2011, if you don’t worry too much about what “made” and “in 2011″ mean*:

This list is, of course, inspired by this exercise by Bloomberg, ranking the top 50 highest paid financial institution CEOs. But if you’re Lloyd Blankfein or, I mean, really, Henry Kravis, you are probably not planning your retirement around your paycheck. Instead you could to some approximation view your job running your financial institution as keeping an eye on the people responsible for your private wealth, in the form of your share ownership in that institution, and Lloyd’s $16mm 2011 paycheck hardly makes up for the $155mm of lost value on his GS shares. Read more »

Last month, Rochedale analyst Dick Bové sent out a note to clients that began with what he dubbed “some interesting stats.” Said stats were salaries of the New York Yankees’ top infielders (“not including promotional deals”!) versus those of JPMorgan’s Jamie Dimon, Wells Fargo’s John Stumpf, Citigroup’s Vikram Pandit, and Bank of America’s Brian Moynihan. The baseball players’ compensation totaled about $80 million, the CEOs’ $65 million. Fair? Bové didn’t think so, noting that while the talentless hacks in the Bronx have won but single World Series in the last 10 years, the banks run by the aforementioned CEOs “impact virtually every American household” (and if pressed to, could surely bring home at least a few Major League Baseball championships).

“Clearly, society values the New York Yankees infield above that of the leaders of the banking industry even without a World Series ring,”  Bové concluded sarcastically, shouting “nailed it” at Mr. Giraffe. Obviously, Bové is of the mind that it’s a crock how little these chief executives are paid considering all they do compared to noncontributing zeroes like Alex Rodriguez and Co. It’s unclear if the former head of MLB’s players’ union caught Bové’s riff or if not but last night he offered something of a rebuttal and, spoiler alert, he thinks Wall Street pay is bull shit. Read more »

How does a nanny earn more than the average pediatrician? The simple answer is hard work — plus a strange seller’s market that follows a couple of quirky economic principles. A typical high-priced nanny effectively signs her (and they are almost always women) life over to the family she works for…And, alas, it seems that there just aren’t enough “good” nannies, always on call, to go around. Especially since a wealthy family’s demands can be pretty specific. According to Pavillion’s vice president, Seth Norman Greenberg, a nanny increases her market value if she speaks fluent French (or, increasingly, Mandarin); can cook a four-course meal (and, occasionally, macrobiotic dishes); and ride, wash and groom a horse. Greenberg has also known families to prize nannies who can steer a 32-foot boat, help manage an art collection or, in one case, drive a Zamboni to clean a private ice rink. [NYT via BI, related]

What is the best thing about these Jefferies bonuses? For me it’s this:

For 2011, we offered our employees the option to receive the stock portion of their year-end compensation in the form of either shares or cash, with the cash amount being equal to 75% of the grant-date amount of the stock that an employee would otherwise receive. The election resulted in a decrease to share-based compensation expense of approximately $23.3 million, as certain employees elected to receive reduced cash awards lieu of the full grant-date amount of the shares. This offset increased cash compensation expense by approximately $17.5 million. The net effect of this election on total compensation and benefits expense was a reduction of approximately $5.8 million. While these cash awards were fully expensed in 2011, they will legally vest in future periods.

When I first skimmed the headline I thought, okay, paying a 25% discount for liquidity makes sense. I, anyway, would be a lot wealthier had I gotten … really almost any percentage of my stock-based comp in cash rather than vaporizing most of it and leaving a small stub subject to a nondisparagement agreement when I left (I love you guys!), but that is neither here nor there. Because that’s not actually what the Jeffererers got. The people taking the “cash” got no more liquidity or vestedness or, um, cash, than the people taking the shares. They got … at a first approximation, they got an illiquid JEF bond. If they’re around, and Jefferies is around, and the cash is around, in three years or whenever this stuff vests, then they get a fixed amount of money. If not, not.

So the only thing that the Jeffers got for giving up 25% of their stock-based comp was … avoiding the risk that Jefferies stock would decline by more than 25%. Here’s a silly coincidence: Read more »

You can’t argue with this:

Last year, the cash portion of bonuses was paid entirely in cash.

Well glad that’s cleared up then! Anyway the actual story is not complete nonsense:

Bank of America told senior bankers this week that the cash portion of investment-bank bonuses, the part that is payable immediately, will be paid 25% in cash and the rest in stock that vests immediately, said a person briefed on the matter. The shift applies to bonuses above $100,000. …

The same bankers also will receive a portion of year-end bonuses in the form of deferred stock, as they did last year. The deferred-stock amounts will vary according to overall pay. A bank spokeswoman declined to comment.

Maybe they’re using “cash” in the trading sense – meaning your “spot” bonus, as opposed to your “derivative” bonus, the one forward-settling in three years?
Read more »

  • 23 Jan 2012 at 1:58 PM

Bonus Watch ’11: Credit Suisse

A couple weeks back, a report circulated that Wall Street banks were considering freezing compensation for junior employees. The firms were hesitating, however, supposedly on account of the backlash they feared would occur from failing to keep “potential future stars…engaged and happy.” Yes, they were terrified at the consequences of how their junior mistmakers would react to the news and didn’t want to pull the trigger unless everyone promised to do the same, preventing a dire situation wherein a handful of first and second  year analysts quit to join firms where their unique talents would be appreciated. Credit Suisse CEO Brady Dougan, for one, has decided not to be afraid anymore. Read more »