The Problem with Bankers’ Pay

By James Kwak

From today’s WSJ:

“At J.P. Morgan, the biggest U.S. bank by assets, directors are considering lower 2012 bonuses for Chief Executive James Dimon and other top executives in the wake of a multibillion-dollar trading disaster, said people close to the discussions. But they also are grappling with the question of how to do that without drastically reducing the executives’ take-home pay.”

Huh? Isn’t reducing their take-home pay the point?

11 thoughts on “The Problem with Bankers’ Pay”

  1. Aree bhaiya, why don’t you do some google searching yaar? you will understand the difference between Take Home Pay and Bonus.

    You get confused between Book Value and Tangible Book Value so I am not surprised you do not understand simple concepts.

    As professors, you and simon are guaranteed a job and a salary for your entire life + healthcare forever + free education for your family so it is very hard for you to understand simple incentive based compensation.

  2. OK, “simple incentive-based compensation”–such as, “We are reducing your take-home pay as an incentive to help you stop irresponsibly perpetrating multi-billion dollar trading fiascoes.” Stop doing that and your pay won’t be reduced. Incentive incentive incentive. Simple simple simple.

  3. Drastically reducing the takehomepay of the den of vipers and thieves on Wall Street still gives these sociopaths more income in one year than most Americans earn in a lifetime. The pay and incentives are absurdly perverse. If I fail in my job – I get fired. Why are these punks treated so well for failure and incompetence at best, and criminal behavior at worst. If there existed a real justice system where gross negligence, incompetence, or criminal behavior were punished equally through-out society, many of these vipers and thieves would be in jail, not crying about absurd takehomepay!

  4. @chikni: I am a professor in Spain. My salary has been reduced two years in a row, by a total of more than 15%. I have an annually renewable contract. My healthcare benefits are no more secure than those of anyone else in my society. “Free” public education for my children costs me 500 euros a month, which is more than a third of my “take home” pay (I suspect you cannot comprehend how low my “take home” pay is). You are right that there is no incentive based compensation available to me. The usual “complement”, approximately 1000 euros annually, awarded on a competitive basis, is not available this year (this is not a pay cut, and not included in the 15% mentioned above).

    I think your vision of the compensation of university professors is quite unrealistic.

    I also think the typical university professor contributes more to society than the typical bank executive, although the professor’s total annual take home compensation is one or two orders of magnitude lower than the executive’s. Such differences are certainly not justified by productivity or the value added to society. Rather they are evidence of terrible inefficiencies and the success of piracy.

  5. Well spoken Bobito. You and others like you shape the future by educating “the brilliant young minds of tomorrow”. The den of vipers and thieves in the finance oligarchs destroy the future of “brilliant young minds of tomorrow for imponderable profit.

  7. Translation: “We’re really looking for some way to punish them that _looks_ like punishment to the public, but actually isn’t.”

    It’s just a PR move, plain and simple.

  8. Let me explain one thing with banker bonuses that has been very much ignored in the debate.

    If a bank needs to hold substantial capital, then the bankers need to give substantial importance to the shareholders and the latter will keep through dividends a big chunk of the results.

    But, if regulators allow banks to have very little capital, like what they have done lately, then there is little need of the shareholders and the bankers an keep to themselves much more of the results… which is precisely why the last couple of decades we have heard of bonuses and bankers pay much larger than what used to be the case.

    If a European bank, let us say a German bank, lends to the German Government, it needs currently to hold zero capital… what shareholder does that bank need?

  9. Well if I could hold up my guns long enough to explain, I wouldn’t need this table to prop them up with. That’s the basis of holding zero capital, and poop load of consequences.

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