The welcome hike in bankers’ salaries

By Felix Salmon
June 22, 2009

I don’t know whether bankers’ pay is really “soaring” or not, as the FT would have it. But this I think is a positive development, and doesn’t for a minute mean that pay is actually going up:

According to insiders and rivals, market salary rates for managing directors have jumped from about $250,000 (€180,000) only a few months ago, to closer to $400,000.

The point here, of course, is that base salary is finally become important again, after many years of being to all intents and purposes irrelevant. It got stuck at $250,000 at some point in the distant past, and never really rose from there — and in the context of managing directors who were pulling down seven- and even eight-figure packages, it was essentially an afterthought.

With a base salary of $400,000, bankers might start feeling that they’re actually getting paid to turn up to work every morning, and also that they’re being paid enough to be able to be asked to give up their bonuses should things fall apart again and their institution require a massive bailout. The concept of a bonus as something to be paid over and above a base salary, rather than as the only reason to turn up to work at all, will slowly start migrating out of Congress and popular culture and into the banks. And that’s a good thing.

On the other hand, there is the question of whether bonuses are going to be $150,000 smaller now than they were before, all things being equal. I suspect they won’t — and that once again, bank employees will take home more money at the expense of bank shareholders. ‘Twas ever thus.


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That will depend, Felix, as someone says, on many things.

I will note, however, that one usually couches discussions of remuneration in investment banking in terms of “total compensation,” which includes both salary and bonus. For example, a banker who earns $1 million takes home a salary of $250K and a bonus of $750K (much of which is deferred, by the way). From this perspective, banks will have every incentive to shrink bonuses by the net amount of any salary increases, other things being equal.

Of course, for really highly paid bankers, who knows? $150K is a rounding error for Lloyd Blankfein.

I guess it depends on the entitlement factor. Bankers are professionals, and should be compensated as such. But that does not mean that compensation is uncapped. Those who work in Manhattan need to be compensated at a premium based on either housing costs or commuting costs.

I would tend to use myself as a (probably flawed) measuring stick. I’m professional Boomer with a low six-figure income, in a lower-cost area of the country. I’m probably better educated than most bankers. So what does that translate to in NYC? I don’t generally handle money. And I don’t do sales, which in good times does better, but in bad time should be the first up against the wall.

Of course, the market doesn’t work by way of comparison, so that all this is irrelevent. We don’t set bankers’ salaries; we let the market do so. The problem is that the market is not competitive, but rather an oligopoly. Once you have achieved that level, through luck, ability, or connections, you are not subject to the market.

Posted by Curmudgeon | Report as abusive

> On the other hand, there is the question of whether bonuses are going to be $150,000 smaller now than they were before, all things being equal. I suspect they won’t

what is your reasoning here? compensation expenses are compensation expenses. they come from the same revenue and the same budget.

Posted by q | Report as abusive