Banker Bonuses and Proportionate Pain

For a start, we can stipulate that there are a lot of people in the banking industry (and especially in the subset of that industry which, up until September of this year, would have been called the investment banking industry) who are still making obscene amounts of money while the companies generate losses for the shareholders and force taxpayers to cough up bailout funds. And then there are the end of year bonuses paid to employees. Attacking the second does not get us very far in addressing the first.

Employees in banks and investment banks get part of their pay bi-weekly over the course of the year, and then get the rest of their salary in the form of an end of year bonus. It is called a bonus, but a large portion of it is deferred salary. Even if they perform their job at a hum-drum level, they will still expect and get a sizeable “bonus”, because, however you want to put it in technical terms, the simple fact is that when they receive their bi-weekly paycheck, some of their pay has been held back. Taking away their year-end bonus would be like telling workers on a weekly pay cycle to return the second and fourth payment they received each of the last twelve months.

We are talking about the workers who install and maintain the computers, do the back office accounting, run the HR functions, generate PowerPoint presentations and maintain the client relationships. Some of those accountants are called traders, and some of the PowerPoint generators are called investment bankers, but most are a far cry from the multi-million dollar traders and investment bankers that we read about. There are a lot of extras and bit parts in movies, too.

Before getting too apoplectic, let’s at least look at the breakdown. My bet is that the majority of bank workers whose bonuses Obama finds outrageous and Dodd wants to claw back are workers who get modest base salaries during the year and whose bonuses make up more than half of their total salary. These bonuses already were cut far below those of prior years. If they are already seeing their annual salaries cut by forty percent or more, do we go further?


Originally published at the Rick Bookstaber weblog and reproduced here with the author’s permisssion.

4 Responses to "Banker Bonuses and Proportionate Pain"

  1. benjie   February 5, 2009 at 3:37 pm

    Nobody is attacking the employees. It’s the CEOs.

  2. Anonymous   February 5, 2009 at 8:28 pm

    Exactly whose base annual salary was cut 40% before the bonuses?My guess is that most everyone in the financial “industry” is/was overpaid. I’ve seen this in at least one other high flying industry.With the collapse and down-sizing of many it should be easy to find qualified talent at more reasonable costs.

  3. Anonymous   February 6, 2009 at 12:33 am

    The pay system of bankers is understood ad nauseum. This group should go stand shoulder to shoulder with the likes of the unemployed—from all industries—whose now lost income never even approached the bankers’ bi-weekly or weekly or monthly paychecks. Bonuses? REALLY? They should feel lucky to get a paycheck at all when they created this disaster and their so called “bonuses” come directly from bailout money, the majority of which came from the paychecks of those standing in the unemployment line.We squeezed 20 years of business into 8 on borrowed money. The bill has come due and there is no demand left to employ people to pay the piper. It’s simple really. Either we nationalize banking and engineer a soft landing (with losses absorbed by the taxpayers) or we deal with a disastrous mess until the bill is paid off. Pick one.

  4. Anonymous   February 16, 2009 at 3:32 am

    I think u r wrong in saying that the bonuses are part of unpaid salaries. Firstly, lets understand that whats hurting the most now is the bonuses at middle level and top level which form a part of the major costs, what u r referring to is definitely not what Obama meant, m sure he knows whom he is targetting …the biggies in the picture obviously. Secondly, even the extras and bits, the so called traders and bankers have been handsomely paid compared to their peers in other industries, so why complain now when there was no noise when the party was on