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The bright side of financial turmoil

October 27, 2008

Who says it’s all gloom and doom on Wall Street? Sure, job cuts are fast and furious these days, but the deepening financial crisis is bringing about some interesting unintended consquences.  Time magazine reports that although the government bailout caps the salaries of top executives, it may actually prop up the bonuses of rank and file bankers.

True, those bonuses are substantially lower than they would’ve been had the markets not imploded in recent weeks — but not nearly as low as one might expect.

Compensation consultant Alan Johnson predicts the average managing director at an investment bank will be on the receiving end of a $625,000 bonus this year, with top bankers earning as much as $1 million. That may be a tough pill to swallow for the taxpayers footing the bailout bill, but some argue that bankers shouldn’t be penalized for their firm’s bad decisions.

Banks already recognize the importance of rewarding newly acquired talent. Bank of America last week offered retention packages to more than 15,000 Merill brokers in a bid to stave off defections.  Only time will tell if it works.

Do Wall Street payouts need to be reined in? Share your thoughts below in the comments section.

Comments

I have worked at two different major brokerage firms and currently work as an advisor at one of them. I think it is one thing to pay a six figure retention bonus to someone if your company has the money. However, borrowing tax payer dollars to fund this is absurd. I do not know why there is not more media attention to to this. Taking tax payer dollars to give six figure bonuses to those in the top 5% or higher of income is unconscionable. This needs to be brought to light immediately. I am starting a petition to stop this.

Posted by Ryan | Report as abusive
 

Too easy to say, its ‘not right’ for bankers to get large bonus pay outs on the back of bail outs. It has to be relative to the individuals contribution in terms of revenue to bank. The banks have loaned money, that is what all companies do in tough times, the government reached out and held up the main banks because they were fearful of a total collapse and confidence panic in the market. If the money was not given in contract where it was stipulated there are constraints on bonus pay-outs to employees because we have loaned out the money then fine but it is not the case, therefore the banks are free to run their business as they see fit. Couple of points are to retain the best people in the market, one has to pay top bonuses. The money if not loaned then the government gets a stake at a rock bottom price which makes for an excellent investment correct? If so then when the share price rockets at whatever point in the future, then the government stand to make a healthy profit, makes perfect sense to me – there are no favours here, the governments will cash in at some point – not that the tax payer will benefit! Tough job making money for these guys, very bright, very sharp, top of their game and the bonus is relative to how much money they have made for the bank so why should they not get paid what they signed upto – because the government used tax payers money? One investment bank who is paying out excellent bonuses have already paid back the bail out money and made enough to pay its employees good bonuses. It is wrong in a sense, but wrong of the governement not to have managed it better rather than the banks for paying well. Tax payers should be compensated according to share price increase of the ‘investments’ (rather than bail-outs) that the government has made, let’s see some money flowing back into our pockets in terms of rate cuts and benefits to the public off the back of the hefty profits the governments of the world will make when things turn around.

Posted by paul | Report as abusive
 

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