Dear Mr. President, A Bonus Isn't A Bonus
Posted By: Cliff Mason
Cliff Mason is Senior Editor for Cramer's Mad Money
A bonus by any other name would smell just as sweet.
The fury over the fact that Wall Street paid out $18.4 billion in bonuses in 2008, the "sixth largest" amount in history, is about words and nothing else. This isn't a compensation issue, it's a diction issue.
Outside of lower Manhattan, a "bonus" is a special, one-off reward for performance above and beyond what's expected of an employee. And if investment bankers had gotten $18.4 billion worth of bonuses in that traditional sense of the word, then of course it would be truly outrageous.
But on Wall Street, and at many law firms as well, a bonus is simply part, often the greater part, of your regular compensation. It may vary from year to year, but when you take one of these jobs, the understanding is that you'll be paid a base-salary and once a year you'll also get a "bonus."
The bonus varies in size from year to year, but it's not actually a "bonus" in the way most people think of the word. It's an expected part of your salary, delivered in a lump- sum near Christmastime. Historically, for many people on Wall Street, the base salary is much less than they could be earning elsewhere, but because they know they're getting a sizable "bonus," it makes sense for them to stay at their jobs.
So a bonus isn't a bonus.
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Is writer Cliff Mason a moron or does he simply play one at CNBC? Only someone who recently graduated in 2007 could write such a ridiculous article justifying bonuses. Of course they are bonuses. If they weren't bonuses they would be called salaries from the very beginning. They are bonuses because they allow the banks to reward employees if the banks do well, without also locking them into paying them when profits are down or nonexistent.
ReplyDeleteAbsent such an arrangement the bank would be responsible for the entire amount Mason claims is merely a salary. I have seen quite a few of Wall Street employment agreements and it was shocking to see the base salaries and generous bonuses being offered to fresh out of school graduates. Even more surprising was the incremental amounts offered to lateral hires. It was not uncommon to see such hires offered $100,000 to $200,000 above the base salary they made at their firm of department. And this amount did not include the additional bonus. And these were mainstream, unexceptional employees.
Further, the argument that banks have to pay so much to retain the best and the brightest should be put to rest. If these were truly the best and brightest how did so many get so much wrong in this fiasco? Were any of them predicting this implosion? A few lone voices at various banks did sound a warning, but their cries of alarm were extinguished by the greed and incompetency of the best and the brightest.
And why haven't the best and the brightest of Wall Street, flush with their undeserved bonuses, stepped forward to provide solutions to the mess they created? These were the ones closest to ground zero. They were the ones who directly contributed to the crisis. And yet, now, their bravado rings as hollow and as silent as their remedies. So much for paying a premium for the best and the brightest.
One can only hope that the economic tsunami that swept away billions in retirement accounts and pension funds and housing values, also swept away the false justification for paying so much to so many for so little.
TS