The plight of the overpaid

By Felix Salmon
April 20, 2009

Gabe Sherman has put together an astonishing concatenation of moans and whines from New York’s monied classes, and it makes for enlightening reading. You thought that New Yorkers were all liberal Obamaphiles? Well, they were — until their seven-figure bonuses started coming under attack.

The most interesting part of the piece, to me, is the way in which these professionals consider what they do to be much more valuable than what other people do:

“No offense to Middle America, but if someone went to Columbia or Wharton, [even if] their company is a fumbling, mismanaged bank, why should they all of a sudden be paid the same as the guy down the block who delivers restaurant supplies for Sysco out of a huge, shiny truck?” e-mails an irate Citigroup executive to a colleague.

As Sherman says, bankers are the last Americans to Get It: they don’t think that the excesses of Wall Street were responsible for wealth destruction rather than wealth creation, and they still think that a degree from Wharton is, in and of itself, a Good Thing. One financier essentially tells Sherman that the going rate for any job which involves being woken up in the middle of the night should be roughly $2 million a year — which is not the kind of attitude guaranteed to make you friends among, say, the farming community.

Most people outside Wall Street have come to the conclusion that excess pay was a direct cause of the current meltdown, but the highly-paid symbolic analysts at our biggest investment banks somehow have a massive blind spot when it comes to that fact. Just check out the cognitive dissonance here:

“One of my relatives is a doctor, we’re both well-educated, hardworking people. And he certainly didn’t make the amount of money I made,” a former Bear Stearns senior managing director tells me. “I would be the first person to tell you his value to society, to humanity, is far greater than anything that went on in the Bear Stearns building.”

That said, he continues, “We’re in a hypercapitalistic society. No one complains when Julia Roberts pulls down $25 million per movie or A-Rod has a $300 million guarantee… you can pick on Wall Street all you want, I don’t think it’s fair. It’s fair to say you ran your companies into the ground, your risk management is flawed—that is perfectly legitimate. You can lay criticism on GM or others. But I don’t think it’s fair to say Wall Street is paid too much.”

Of course Wall Street’s compensation structures were doubly responsible for its flawed risk management. Firstly, they created excess risks: they encouraged investment bankers to put on what I call the Rubin Trade, where you make massive bets that something with a 95% probability of happening will indeed happen. And secondly, they contributed to the marginalization of the risk-management function in investment banks: since risk managers were paid so much less than star traders and top management, they tended to get overruled a lot, and in any case be discouraged from spending too much time looking at the really important big-picture views of systemic risk.

The bankers’ belief in their own ability to make money is so unshakeable that you still hear things like this:

The most aggressive employees, those who took the greatest risks, thought of themselves less as members of a firm and more as independent contractors entitled to their share of the profits. In this system, institutions tended to be hostage to their best employees. “The feeling is, if people don’t get compensated adequately, they’re going to go out and do this on their own,” says Alan Patricof, who founded the private-equity firm Apax Partners.

Well, I hope they do. So long as they’re not gambling away trillions of dollars of other people’s money at systemically-important institutions, they’re welcome to do as they like. But if they do work at a systemically-important institution — one where the government and the economy as a whole will pay dearly if they blow up — then they shouldn’t be paid the kind of money which encourages putting on outsize risks. And the sooner they wake up to that fact, the better.


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Can you be a voice of reason and write an entry on how a “bailout is a loan not a give-away.”

It’s a CHRONIC problem in the press with the bailouts implied to be handouts. They are not. They are loans. It’s a huge difference. It all just sounds so childish when writers misuse the word for emotional effect.

Posted by Chris in Boulder | Report as abusive

In the thick of all this blamesome, fingerpointing analysis, can you advise, or rather can you make an effort to publish an article that discloses doesn’t just prattle on about how much some individuals have been paid but how much tax these corporations and individuals have had to pay during the boom years?

I am sure it is rather substantial and you must remember this most important basic economic dependency:

High earner = high tax payer*.
Low earner = tax recipient.
Non earner = tax recipient.

* The number of high earners who are also tax dodgers etc is quite low and always exagerated by a less than thorough media.

Looking forward to the article.


Posted by nick | Report as abusive

I know a lot of people who have had jobs in which they were on call in the middle of the night who would be delighted with a tenth of $2 million a year.


I’d like to see an article about how much banksters’ income came from an implicit subsidy: heads I win, tails you get stuck with the bill.

Do you think banksters’ tax payments even remotely approach the amount of wealth destruction and unemployment they have caused by taking advantage of this subsidy to take unconscionable risks?

Your taxes were not a gift; they were a kickback.

Posted by Mike | Report as abusive

Excuse me; those tax payments, not yours. I shouldn’t make unsupported inferences.

Posted by Mike | Report as abusive

Right on.

On point. Compensation, though, is what you can get. Not what you’re worth?

People are entitled to get paid the value of their services. If bankers are able to generate millions of profits for their company, they deserve to get paid millions. Otherwise, they would be exploited by their employers and isn’t that what Marxists like you want to avoid? There is nothing more pathetic than a low paid journalist going after people who are much smarter, and more successful, than they are. Loser!

Posted by Deaconblue | Report as abusive

The points regarding people employed in finance are well made; but even phrases used by their critics have become distorted, as though to garner some kind of sympathy for them. Since when has ‘compensation’ become a
synonym for ‘remuneration’? The implication is that their jobs are so demanding and misunderstood that they deserve better treatment. Most of us would happily stand being so misunderstood, remuneration-wise, just for a day or two!

I am a Wall Street executive (now unemployed) that had been making a decent income, but nowhere near 7 figures. I think the public needs to realize that not everyone on Wall Street makes an obscene salary- that is the exception, not the rule. That being said, however, I agree that there have been ineffective and irresponsible execs that have been paid far more than they are worth.

Reuters is going the way of Breitbart with this corny Commentary crap too — instead of wholly being a news aggregate? Oh no! Bad move…

Listen, one of the many reasons Obama won is because
a huge number of REGISTERED REPUBLICANS voted for him…
basically no one could – or still can – fathom an old man McCain/ Girl from Alaska presidential ticket.

And, based on the way the GOP does finances, by now they’d be inventing a new super-country called IndiaChina so we’d have some other ridiculous reason to ‘go global’, for the king-of-the-hill myth of bigger is better…

REAGONOMICS (along with Thatcher) created today’s financial mess of the world. Since it is clear it may take some time to un-do the past 30 YEARS of laissez-faire mis-management…let’s hope Reuters can hold their paid-off tongues – AND STOP THE SPIN!

Posted by STOP THE SPIN | Report as abusive

Felix, the Sherman piece is not enlightening, but rather nauseating. I felt like I was re-living the McCain campaign, with all of the quotes about Obama’s taxes and how hard people on Wall St. work, and how they deserve so much money because they work so hard and have prestigious degrees (not that they are elites).

This attitude of entitlement that has become the public face of the defiant financial industry execs epitomizes their cluelessness. They don’t understand that the middle class had gone along with their outsized compensation, in exchange for an economic system that more or less guaranteed jobs, and the stuff those jobs paid for, as long as they showed up for work and didn’t do anything really stupid (like make 100% ARMs to people with no income). Now that the promise of semi-guaranteed employment and easy credit for the middle class has been broken, they are upset about the broken promises of bonuses. They had a deal with the American public, these latest incarnations of the masters of the universe did – keep the rivers of money flowing across the nation, and they get to live the big life.

Well, the rivers stopped flowing, so guess what – the big time is over. Nobody cares about your Wharton or Columbia education anymore, because they lost their jobs, and maybe their homes. Why do you get to collect a bonus?

One constant, recurring message I hear from bankers and other Wall St. execs is that they are threatening to leave the industry. I’m not religious, but I keep praying they follow through on this threat/promise. It will be the best thing that could happen to the country if those responsible for the financial “innovations” that crashed the system leave this system. Unfortunately, we’re probably stuck with them, for they don’t realize the rest of the world, whose economies have suffered more than ours, is even more adamant about the assignment of blame on the US financial industry.

Posted by KenG | Report as abusive

in a hypercapitalist society, employees of a firm that loses a ton of money and then loses the confidence of its creditors generally find themselves out of a job as the firm fails. the pay packages on the street certainly strike me as highly assymetric, with large payouts when markets are going up, but without any offsetting losses on the downside. and in some cases, the payout structure seems to be large no matter what the profitability of the firm/ long-term profitability of the trade

Posted by bws | Report as abusive

@ Chris,

The bailout is a loan, and a massive giveaway. (We can discuss some other time whether this giveaway is defensible).

It is a giveaway for two reasons, even if you agree with Felix’ bailout outline above:

1. This is a loan/equity investment in lieu of bankruptcy – a very favorable investment/loan that carries almost no strings, no union concessions, no replacement of management, no termination of pensions/benefits for executives, etc., on terms that absolutely could not be gained in the private market. So this is government charity.

2. More importantly, it appears that the purpose of the investment/loan, somewhat explicitly, as Felix points out, is to protect *unsecured* bondholders – precisely the people who would take the fall in a bankruptcy.

So now the American public takes on serious equity and loan risk to assume the operating and debt risk of a failed set of businesses, without stringent operating and protective covenants, to protect a group of unsecured creditors.

That may be a loan(and an equity investment), but it is also a giveaway. And it will cost us billions in the mid case, more in the worst case, and we might make a little bit in the best case.

More on justification later.

Posted by DollarEd | Report as abusive

“Can you be a voice of reason and write an entry on how a “bailout is a loan not a give-away.””

A bailout is a “give-away” when a loan is given with no interest or interest well below market rate. Why can’t these companies get their loan from a private bank instead of taking my money? Because private banks don’t think they will be able to pay it back, and consider the loan so risky that they would charge an extremely high rate, if they would be willing to do it at all.

Posted by Dave | Report as abusive

I won’t bother with justification.

We should not let this orgy of entitlement and lack of perspective pass without mentioning Mao.

Remember what a terrible thing it was to send the intelligentsia to work in the rice paddies in the name of “re-education?”

It still was cruel and a huge waste of a desperately needed educated workforce. But maybe the most terrible thing about this “re-education” is that it becomes easy to understand in the face of these pathetic New Aristocrats. Maybe after a few years in the fields they might understand why we need OSHA, unions, national healthcare, and a few other things that might allow the true middle class ($40k-$100k/year family income) to lead a healthy, dignified life.

Posted by DollarEd | Report as abusive

“Stop The Spin – Reuters is going the way of
Breitbart with this corny Commentary crap too —
instead of wholly being a news aggregate? Oh no! Bad

This is a Blog. I think the intent is to incite commentary and discussion – not so much hard hitting journalism. I don’t think Reuters has given away anything on its true mission. At least what you find on the Reuters site is all Reuters, not an aggregation like

This is a great forum to bring up issues like this whole Wall Street/Bank over payment for under delivery issue. I enjoy hearing the different perspectives on whether or not the large salaries are warranted and the arguments made for and against. It’s amazing how some people can justify just about anything in their minds – O.J. Simpson and Roger Clemens come to mind.

Posted by Jerry H. | Report as abusive

You thought that New Yorkers were all liberal Obamaphiles?

NO I DID NOT. You seem to think this, but I do not.

Posted by James C | Report as abusive

I for one, have no problem with rainmakers getting a piece of the business they bring in. The whole problem here, is that the business that was being brought in was illusory, half fraud, half not really real. Any other person who is paid contingent (primarily salespeople) has a clause in their contract that says that if the deal doesn’t stick, they don’t get paid. These guys get to keep the big bonuses they earned on the backs of what were frauds. Nowhere else is this even mildly acceptable. They should be sued by the shareholders, being paid a commission on a false sale is stealing.

I agree with Dave, the banks should have gotten a ridiculously high interest rate. Most of the banks taking the the bail out money are raising the rates on there credit cards without cause. Let the people see some return on the on the investments that Obama and Congress choose for them.

Posted by H Friar | Report as abusive

I grow weary of hearing all of this talk of capitalism gone mad. Capitalism didn’t cause this mess – government intervention did.

If you really want to point fingers, you could take it all the way back to Woodrow Wilson and his establishment of a centralized bank. That aside, the crux of this mess comes down to two things: 1. The Clinton administration’s manipulation of the housing market through the amendments in the Community Reinvestment Act in the mid 90′s. 2. The Bush Administration’s manipulation of rates in the early 2000′s to encourage buying.

Banks had to adhere to government regulations to lend to people who were less than creditworthy otherwise they risked government penalty. An outline of the stipulations can be found here:  /testimony/braunstein20080213a.htm

As for anyone who wants to bring up the Madoff issue or perhaps Sanford – well, those people had multiple reports filed against them by…the private marketplace. The SEC either ignored them or just issued fines so they could get a piece of the pie.

A lot of people messed up, but don’t blame it on capitalism. Capitalism is what exposed the frauds.

PS the rich pay more in taxes in one year than many people do in a lifetime so stop blaming them and start blaming the real idiots – politicians. And no, I’m not rich.

Posted by Shaun | Report as abusive

H Friar (8:34pm GMT) – Anyone who uses the word “there” when “their” is the appropriate grammatical usage, should never be allowed to have a say in anything that requires more than 4th grade education.

Imagine what would happen if you were running this country? I imagine we would be trading sticks and stones.

I’ll take Columbia and Wharton MBA’s instead.

Posted by m zk | Report as abusive


The CRA canard doesn’t even remotely hold water. Much of the securitization was set up by investment banks like Lehman and Bear Stearns, which were not subject to that law. Anthony Mozilo even threatened to take all of Countrywide’s business to them if Fannie Mae didn’t finance their riskier paper: ss/05fannie.html?_r=1&scp=1&sq=reckoning %20mozilo&st=cse&pagewanted=all

But you’re half right. The crisis was caused by government insuring financial institutions (via FDIC, limited liability, the “Greenspan put”) while deregulating their decisions. It’s called moral hazard for a reason.

Posted by Mike | Report as abusive

Here is one question none of the people referenced in the article will answer:

Why not accept a Silicon Valley compensation structure?

The problem here is incentives. There is a failure in corporate governance to address the long-term health of the organizations. They are creating compensation instead of value.

Posted by Tom | Report as abusive

“One financier essentially tells Sherman that the going rate for any job which involves being woken up in the middle of the night should be roughly $2 million a year”

I once worked as a facilities manager for a large large bank. I was solely responsible for overseeing the infrastructure (Chillers, UPS Systems, leak detection, halon, etc) of 3 major server rooms. If the server rooms had an infrastructure problem, and the servers went down, they lost millions of dollars every minute they were down. I was on call 24/7. I once slept under my desk during a 36-hour stint at the office. I made 38K a year, (and part of the time I made less, with no health care).

I wonder if “One financier” feels that military personnel, firefighters, on-call doctors, or even say…facilities managers also deserve 2 million dollars a year. Douche. Bag.

Posted by Matt | Report as abusive

The true problem is that executive compensation is not market-based, unless the market includes other executives who belong to the same country club. Compensation boards are made up of other executives who want to drive up compensation so they can justify to their boards that the “market” has set compensation at this level.

And, the idea that paying 3% more taxes creates a disincentive for those who “strive” to create wealth is disingenuous. The other 99% would gladly take the top’s earnings in exchange for paying 3% taxes. Oh, but they probably wouldn’t be capable of misunderstanding the risk involved with transactions and crippling their company. That takes a degree from Wharton.

Posted by Jesse | Report as abusive

This whole “I am a graduate of WhereEver so I deserve more money than you” attitude is so transparent. Nice to rely on prestige and your parents’ tuition money to measure your worth, guys, but most of us measure success — and compensate for it — based on performance … and you failed.

Posted by Bird Williams | Report as abusive

“the going rate for any job which involves being woken up in the middle of the night should be roughly $2 million a year ”

Don’t I wish!!! Four four years I was a dairy veterinarian in Wisconsin where the night time temperatures are between -50F to 32F for six months of the year. During that time there was only one night (Christmas of one year) that I was not called out by a farmer for an emergency. At the time I was making about what the local dentist was paying in income taxes.

When I read about these worthless wimps moaning about not getting paid enough, I understand what East Texans mean when they say that some people just need dying.

Posted by Texas Aggie | Report as abusive

Can you be a voice of reason and write an entry on how a “bailout is a loan not a give-away.”

It’s only a loan if there is any chance that it will be paid back with interest. Otherwise, and that is what seems to be happening, it is a giveaway. The loans that have been “paid back” were paid with money that the banks got from AIG when the worthless papers they had were supported at full value by tax payer funds.

This bailout is most definitely NOT a loan.

Posted by Texas Aggie | Report as abusive

Deaconblue starts out with the right idea (\”People are entitled to get paid the value of their services.\”), but then he blows it. These guys have destroyed the banks and the US economy causing incalculable losses, but despite being the world\’s worst losers, they still expect to get paid some ungodly sum. They, along with deaconblue, seem not to understand that under capitalism, your salary should approximate the value that your work has added to the GDP.

In this case, their work has subtracted from the GNP to the tune of billions of dollars, but instead of being charged for the damage they did, they not only expect to be paid an outrageous fortune, but they then object to returning 3% of it in taxes. Before complaining about being taxed, they need to explain why they should be paid at all.

Posted by Texas Aggie | Report as abusive

“…the going rate for any job which involves being woken up in the middle of the night should be roughly $2 million a year.”

I’m sure this will be great news to the police and firefighting force of New York City, some of whom may be called up in the middle of the night to rescue this twerp from a burning building. Or to the doctors and nurses who would take care of his overpaid a** if he had a heart attack, or, God forbid, was mugged or shot by some irate representative of the untermenschen. And these guys think they’re being subjected to class warfare? Wonder if these words ring any bells: “It was the best of times, it was the worst of times.” They might want to meditate on the fate of Foulon, whose head was carried through the streets of Paris on a pike with his mouth stuffed with grass for remarking that if the people had no bread, they’d eat hay.

Posted by Bluesky | Report as abusive

Certainly that article shows one aspect of why TARP and the Fed bailout of the past six months – loan to a bank at two percent to let them buy gov. bonds at 2.5 percent, that is called a bailout – is poison. This elite group of rentseekers sounds exactly like the Communist party elite under Brezhnev. The money wasted on keeping their dead enterprises going for six months more should be regretted all the way around. It would have been much, much better either to have set up a national bank, or to have set up modalities through the viable banks – regional and local – and simply loaned consumers money on the terms the Fed was loaning the big banks.

What is truly funny is that Obama is their best friend. And he is going to raise their taxes to – what they paid under Clinton? My god, it should be what they paid under Truman.

Summers and Geithner are doing their best to bail that clueless sector out. All share the expectation that normal is, like 2006, and we are going back there. So after the pop of spending the trillions for this set (which has a remarkably low unemployment figure so far – 6.5 percent – as compared to other industries, because – ta da! – it is so on the federal tit) has been exhausted, the shrinking process will continue, inexorably. These are the types to become all rightwing militia about it too. Was the Columbia/Wharton line a joke, by the way?

Anyway, again, raising taxes is not enough. Real reform is needed. Crush the OTC system, for instance, the peer to peer trading in hazardous instruments, and trade in a real, institutionally transparent forum – even Myron Scholes is for that. Crush the idea that the equities market is a speculators play thing by instituting a rule advocated by Theodore Roosevelt – market capitalization can never get above the real value of a corporation. Abolish the system of letting corporations chose to headquarter in some compliant state and obey those state laws – make them register nationally and obey national laws. Simple things, but collectively they will shrink the financial sector to the size that it should be for a healthy capitalist economy.

Getting a call at 2:00 in the morning gets you a couple million!?! Damn, when I was on call for IT sorts of things, I got calls at 1 or 2 or 4 in the morning, or even 10 minutes after I left work. Why am I not a multi-million $$ man. Worked hard, got up when the phone rang, know lots of random things. I should be rich or something.

If these quotes in the article are true, the wall street wankers are really detached from reality. What babies.


Posted by Don N | Report as abusive