Tags: Banks, Compensation, NY Fed, Regulation, research
The Fed has three basic functions: central banking, bank regulation, and calling down police brutality on Occupy Wall Street protesters. While the first function is getting all the attention today, the New York Fed’s blog is spending some time on the second. Specifically, they’re trying to figure out how bankers should get paid.
Optimal design of banker compensation is a thing that people like to think about, and that regulators like to regulate. We’ve talked about it before, and I’ve suggested that the right way to reward bankers is not to give them mostly equity or extra-levered equity, which encourages asymmetric risk-taking, but rather to give them exposure to their firm that roughly matches that of their main stakeholders. Which, for a bank, means basically various flavors of creditors. So a bank CEO whose net worth consists 20% of equity of his firm and 80% of unsecured debt of his firm, like Brian Moynihan, in theory has better incentives to do the right thing by bondholders, depositors and the financial system than someone who’s 100% in out-of-the-money stock options. And a banker who is paid in structured credit products that can’t be foisted on to clients has incentives … well, he’s an interesting case study at least.
I like the NY Fed researcher-bloggers because they’re pretty sober people who want to optimize banking regulation but don’t spend their time freaking out about stupid popular things like how CDS will kill us all, banning short selling, or just generally hating on bankers. So I’m pleased to see NY Fed researcher Hamid Mehran is with me on this whole comp thing: Read more »
Tags: $6k shower curtains, a birthday cake in the shape of a woman's breasts with sparklers mounted on top, bonuses, Compensation, Dennis Kozlowski, opinions, prison interviews, Tyco
Remember Dennis Kozlowski? Bald guy, about yay* high? Actually kind of cherubic-looking, in that you could see him playing Cupid in the school play? Used to run this company called Tyco until he was sentenced to 8 1/3 to 25 years in prison? Anyway, quick story about Big D is that the reasons he’s in jail include but are not limited to: 1) paying himself $105 million in 2000 when maybe he should’ve taken a bit less, 2) outfitting the bathroom in his company-funded apartment with a $6,000 shower curtain that even John Thain said no to when it came to decorating his executive washroom, 3) throwing his wife a birthday party in Sardinia that cost (Tyco) $2 million, on account of the performance by Jimmy Buffett, the togas for the guests, the “ice sculpture of Michelangelo’s David spewing vodka from his penis and a birthday cake in the shape of a woman’s breasts with sparklers mounted on top,” the latter of which do not come cheap, this much we promise you. For all of that and more, D-Koz was found guilty on counts of grand larceny, conspiracy and securities fraud. Anyway, the joint has provided a lot of reflection time for DK, and recently, he sat down to share what’s on his mind. Read more »
Tags: clauses, Compensation, Goldman Sachs, London, that's gonna leave a mark
Goldman Sachs International has triggered a clause inserted into the employment contracts of a group of its London-based investment bankers in mid-2009 that will result in them having to take a pay cut, Financial News has learned. A number of staff across the investment bank’s European division, which is based in London, have been told this summer that their base salaries will be cut, a source with knowledge of the situation told Financial News. [FN/WSJ]
Tags: Compensation, raises, UBS
As you may have heard, lots of people have been leaving UBS lately, which may have something to do with the fact that people would like to get paid. While a handful of marquee names (within the industry) have been lured with big checks, many senior bankers have heard nary a peep re bonuses in several years (and the staff’s pay overall is nothing to write home about, either), making employment with places like Citi look good. Possibly seeing recent defections to Vikram’s House of Kicks as one indignity too far, management tried to put a stop on the exodus late yesterday. Read more »
Tags: Carsten Kengeter, Compensation, pump up speeches, spoiled children, UBS, you just don't get it
As you may have heard, UBS has been going through a bit of a rough patch. Despite posting an annual profit (of 7.2 billion Swiss francs) for the first time since 2006, things just haven’t been the same since the crisis, and some have suggested it never will be, claiming that the bank “doesn’t have a chance” getting back to pre-crisis levels because “too much damage has been done.” Not helping things is the fact that there’s been very high turnover in the last couple months, which may have something to do with the fact that people would like to get paid. While a handful of marquee names (within the industry) have been lured with big checks, many senior bankers have heard nary a peep re bonuses in several years (and the staff’s pay overall is nothing to write home about, either). As one might imagine, tension is running high and recently within the investment bank, there’s been a decision, among those who’ve yet to quit, to air their grievances. The reaction from management? Put a sock in it. Read more »
Tags: Compensation, outright lies, UBS
As we reported last week, in response to the sense it was getting that people were quitting and/or not accepting offers because they wanted to get paid, UBS raised base salaries for some employees. Not everyone got a bump, however, making the statement by CFO John Cryan that raises were “across the board” chap some serious hide. Read more »
Tags: being an investment banker used to mean something!, bonuses, Compensation, go work at a hedge fund, reader polls
Time was, you worked an ungodly amount of hours, sacrificed your personal life, health and so on and so forth in a banking gig because your employer was going to make it rain ka-ching! on your face at the end of the day. In these harrowing, post-crisis times, though, things have changed. The slave labor is still there but the pay is not. Take 2010- according to a “paymaster” interviewed by the Journal‘s Dennis Berman, median banker pay was at about $1.6 million and with this newly popular deferred bonus business, after taxes one is looking at about $380,000 in cash, which the paymaster notes is “not a lot of money,” and which some think might not be worth your time. Read more »