The Unemployed Life

Out on the Street: The Bucks Are Back

So extravagant pay packages are a thing of the past? The political rhetoric suggests so. Last week the Obama administration started to work on curbing “excesses” on Wall Street.  The compensation structure for all financial services firms—even those who didn’t accept TARP money—is under review. The private sector is also rethinking pay big time.  Earlier this year, JP Morgan C.E.O. Jamie Dimon told employees at a town hall meeting that many should be prepared to have zero bonus payments in 2009. “Get over it,” was his message.

So you can imagine my surprise when I heard the other day that a trader had been offered several million dollars to jump to another bank, guaranteed for a couple of years. That’s right: several million dollars. At first I thought I’d heard wrong. It’s 2009, not 2006.

When the story was confirmed, I was straight-up pissed off. I worked with this trader. I have been a client as well, and I have lots of respect. But how is it possible in this environment to be guaranteed millions before even producing a penny for the firm?

You’d think that after the AIG scandal, the Merrill Lynch plundering, the public outcries, the grillings on Capital Hill, the Wall Street tools would have realized that the gilded days are over. No more eight-figure pay packages, no more million-dollar office renovations, no insanely priced commodes.

Think again. This trader left a bulge bracket bank for a smaller foreign firm, one free from U.S. regulations.  This bank can pay its employees whatever it wants—and it’s the shareholders’ money, not the taxpayers.

It amazes me how a career or pay can skyrocket because of perceived value. But as a Yankees fan I have seen hundreds of millions splashed around before getting any tangible results. And the truth is, I was also relieved. If a bank is willing to pay that much for one person, maybe there’s hope for me. I don’t need a guarantee. I don’t need the millions (not that I would turn them down). I just want a job.

So once again, I find myself chewing over the matter of Wall Street pay.  You might think I am just another money-obsessed banker. I cop to that in part, but it’s not jealousy.  I’d like to think that the real reason I am mulling this over is that financial sector pay is central to the current economic crisis. It encouraged the excessive risk taking that got the banks in trouble. It drove the culture of excess that took over our country. And it’s central to bridging the political chasm between Wall Street and Main Street. This trader’s pay package brings to the front many of the thorny issues that are impacting both Wall Street and broader policy—issues that I am torn about.

We have all heard bank C.E.O.s cry that curbing executive pay will lead to a brain drain and that they need to retain talent. My feelings on the “best and brightest” have been pretty clear—a lot of them got us into this mess, not to mention into other quagmires, and there are plenty of bright people on the sidelines who want to get back into the game. People much like…me.

So here is a healthy bank scooping up talent from a weaker one, just as the C.E.O.’s have warned. And it’s not an isolated example—there has been a flood of people from troubled investment banks to smaller boutiques.  This past week even the beleaguered Swiss bank UBS announced 50% salary increases for all employees to stop the tide of departures.  It’s clear why any bank would want to keep good employees from leaving, but is talent migration really a broader policy issue? Should the government care if the “best” people leave Citi or Bank of America to go work at Small Bank X?

Then again, if all domestic financial firms are subject to compensation caps, could this lead to an exodus to foreign firms? In our globalized world the difference to an employee’s life is pretty small. They might work across the street from their old job, maybe their ultimate bosses will speak French, Spanish or even Chinese. But that won’t keep them from jumping.

If the goal of more sensible compensation plans is to make the system stronger, I’m all for it.  But I worry that the changes may be a backhanded way for government to systematically shrink the size of the U.S. finance industry.  It’s one thing if that occurs through natural deleveraging and attrition (and trust me, it will). But it makes me uncomfortable if it’s being done by decree.

The irony is, from a policy standpoint my acquaintance’s contract shouldn’t raise an eyebrow. Despite its magnitude there’s none of the short-term reward for long-term risk that got the banks in so much trouble.

So as a job hunter, this story gives me hope that people are hiring. But as a citizen I’m concerned about the culture of excess that Wall Street played a role in. I don’t believe that the market will always determine correct value. So I want a pay structure for financial executives that supports the long-term health of the industry. But I don’t want the government to cock it up. It’s not for regulators to tell private parties how much to pay people. I basically remain confused on many fronts.

But one thing I do know is where I’m sending my next resume.

Joe the Trader spent 11 years as a proprietary trader at a major U.S. bank. He has three children and currently lives in Brooklyn. You can read more of his columns here.

Tags: bailout, banks, job-hunting, Out on the Street, politics, salary, The Working World, Wall Street