Thursday, March 12, 2009

Pay Consultant Opines About Future of Wall Street Comp

According to Alan Johnson, who runs a compensation consulting firm and clearly has a great PR agent, Wall Street employees' base salaries may double as bonuses shrink.  I agree with half of that assertion.  Bonuses are definitely going to shrink, since banks are posting gargantuan losses, and are dependent on government guarantees on bank debt and TARP funds to stay afloat, but I'm not so sure about the part where he thinks base salaries will double and triple.  Mr. Johnson, whose own compensation is dependent on Wall Street continuing to collect fat paychecks, appears to be having a hard time accepting reality.  Wall Street's compensation system of miserable six-figure salaries coupled with bonuses delivered at the end of the year, was designed to be flexible for a very important reason; because the industry is cyclical and employee compensation is the largest expense for the firms.  Raising salaries significantly doesn't make any sense from a business perspective, and is likely to greatly irritate shareholders and regulators.  However, according to Mr. Johnson "Regulators are either requiring it or imploring people to do it.  Their belief is that part of the reason that firms got in trouble was they had an excessive focus on bonuses because salaries were too low to live on."  I'd love to hear which regulator Mr. Alan is attributing that quote to because Barney Frank or Andrew Cuomo would love to have a conversation with that guy.  In the real world, as Wall Street firms continue to cut costs, they will have little incentive to pay outsized salaries to anyone, since it will be very easy to hire from a wide range of unemployed bankers desperate for a job.  In Mr. Johnson's fantasy world "If you've made millions, to have a $250,000 salary is kind of silly."  I suppose it's almost as silly as losing billions, needing government guarantees and capital injections, and still expecting a paycheck. 

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