Posts Tagged ‘money’


April 9, 2010

People misunderstand bonuses. They resent them, too, but there again I resent Ant and Dec, I don’t think they should be banned (although perhaps taxed out of existence?)

I think the best way to tackle this subject is with some numbers, since facts always seem to be a bit lacking in the bonus debate. My salary is just under £75,000 per year. As long as I stay employed I can count on that, and that is the number I would be appraised on for credit-worthiness and so on. It is, I think, very high and is almost £30,000 higher than the average London salary for someone of my age and qualifications. I am always flabbergasted when I see it written down. I have never really overcome my childhood sense of money, when £1,000 seemed unimaginable. Given that when I grew up my parents were poor, money has become something which is both special and yet strangely unreal. Money, most of all, means freedom from worry.

One of the bizarre ironies of the credit crunch is that my salary was a lot less a year ago. Yup, you got it, banking is one of the few (perhaps only) industry to increase salaries in the face of the global downturn. There are a number of reasons for this.

First, some banks have been trying to take advantage of the situation and have been hiring aggressively. Barclays Capital and Nomura are the most commonly mentioned names here, but there are others. Meanwhile, organisations such as RBS and UBS have been desperately been trying to keep hold of their staff.

This has forced those organisations on the defence to increase salaries in order to keep people, and those who are poaching to offer above-market salaries. This doesn’t just apply to the superstars, but to everyone. Need a good replacement for that person who has just departed from your team? Try RBS. In turn, those organisations that are losing people will probably do a salary review and decide they need to increase salaries across the board. Those that have been poaching people will need to do the same thing – it’s not good to poach someone and then have them paid more than their peers.

Second, banks have pre-empted bonus taxes by increasing base salary. The idea is they will pay less bonus but keep people’s total compensation at the same level. So bonus taxes may well decrease bonuses, but they do cause wage inflation.

Combined, some people have done very nicely from the credit crunch; and in the light of honesty I have to number myself amongst them. Others, though, have lost their jobs (employment within the industry is still much lower) or been largely unaffected, so the love has not been shared as equally as some may indicate.

Finally, people have grown much more wary of stock options (typically forming a large portion of the bonus) since stock options in Bear Stearns and Lehman turned to dust.

On top of that base salary, my employer may choose to pay me a bonus. While no doubt I am extremely loveable, this is not a present. Nor is it a performance bonus in the traditional sense, i.e. something which is correlated to pre-agreed targets. If I do well, my department does well, my division does well and the entire business does well, then the bonus will be at its maximum. However, the employer also has a certain amount of discretion: they may not pay a bonus at all if the organisation needs to conserve cash, or they may prefer one person if their individual performance demands it, or if it is felt they may leave. There is no strict formula. Plus, the firm pays by accumulating a bonus pot over the course of the year (i.e. stashing away money from their revenue), so the pot is shared – one person gets more, then logically another gets less. Typically a zero (a donut) is a polite indication that you are no longer welcome and should consider employment elsewhere, unless the firm is doing badly, in which case everyone gets a zero.

My bonus is in the 20% to 30% of my base salary. For senior people, their bonuses will be many times their base salary.

Base+bonus = total compensation. Banks never speak in terms of the two separately. Nor does the taxman. An increase in base may even mean a decrease in bonus in order to prevent the total compensation increasing too sharply.

Put it this way: bonuses allow my employer to cut my salary. One year I may be paid one amount, the next that could be cut dramatically, the year after it may increase dramatically. The more senior the individual, the greater the proportion of their salary is in the form of a bonus, which in turn means more flexibility an employer has to trim their compensation down to the minimum.

Amongst junior employees (i.e. the vast majority) bonuses are typically viewed with some mistrust. Not that people turn them down, but no mortgage lender or credit rating agency looks at your bonus. Plus, banks will avoid increasing base salary unless they’re forced to and prefer to give salary increases within the bonus – typically so they have the option of taking it away again next year. Anyone who is smart stashes their bonus away until they have saved enough to live without a job for a few months … redundancy is a pretty sure thing in this industry. My own base salary once stayed fixed for three years in a row, although my bonus suggested very real pay rises. The fourth year my employer did badly and I got zero bonus, and the fifth, so after five years of employment I was essentially on a graduate’s salary.

This explains why RBS was so defensive of handing out bonuses to its over-performing investment bank division. To hand out a zero was both an open invitation to leave, but also would have been seen by its employees as a salary cut.

I would never argue that bankers are worth what they are paid (“worth” is such a difficult term to pin down), in the same way I wouldn’t argue about footballers’ salaries. What I would say is that the bonus is part of an unspoken deal: when times are bad we take pay cuts, when times are good then pay increases compensate for the flexibility and the previous down times. It is, in effect, an open agreement to accept unilateral compensation cuts. Perhaps we need a union?

On the other hand, perhaps it just further reflects the risk-and-reward culture of the city?

The hours

February 12, 2010

“The Hours” was a charming little film about Virgina Woolf, a dramatisation of a (in my opinion) less charming book. That is not what I am talking about.

Banks tend to invest a lot in individual employees (or, if you prefer, give them disgusting perks and pay, flying in the face of common sense and public opinion and assuredly ushering-in the end of civilisation as we know it), but with it, many would assume, comes some nasty hours. There is an element of truth to this: European markets open at 8am, so getting in between 7am and 8am is sensible. Ending work at 6pm means a bare minimum 50 hour week, with 55 hours seeming more likely. For the past week my working day has got to a rather silly 13hrs, which would make a 65 hour week (assuming 8 hrs of sleep, that’s a rather depressing 87.5% of time spent in the office).

There is a temptation to see this in a “long hours for big rewards” sense, but I doubt it is that simple. It’s not as if we’re paid by the hour.

Nor is it about being a young person’s game: I am the oldest in my team and the others were out of the door at 6pm on the dot (albeit, this could be about them having a life and me being a sad, old git).

So what is it about?

Christ, if only I knew then I could isolate it, find it somewhere else and leave everything else behind.

I strongly suspect it’s about a job well done. But that is nowhere near evil enough. So perhaps its about my plans to take over the world (possibly starting with Belgium).

Goldman staff have the last laugh on bonuses

January 27, 2010

» Goldman staff have the last laugh on bonuses

They’ve called it the $30bn speech – that’s the value wiped off shares in top US companies in the minutes after President Obama announced on Thursday that he was to introduce measures to reduce the size of financial institutions and limit their ability to take on risk.

Almost without exception, big bank shares headed south on the news, with stock in Goldman falling some 8% Thursday and Friday. But Goldman staff are doubtless delighted at the effect Obama’s statement had on the firm’s shares, as the award price used for calculating the number of shares that go into individual bonus packages (as deferred equity) is thought to have been based on Friday’s close. In other words, thanks to the President’s obsession with bankers and their bonuses, Goldman staff will actually receive around 8% more stock in their bonus sacks than they would have before he opened his mouth. Such is The Law of Unintended Consequences.

It seems too neat to be true – which probably means that it isn’t. It’s a sign of our obsession with Goldman that a speech which implies the end of its business model, has its stock fall significantly and put its very future in doubt is seen as being in its favour.

Goldman says reports of CEO testimony improper

January 17, 2010

» Goldman says reports of CEO testimony improper

There are two ways to interpret Goldman Sachs’ activity here:

  • They ruthlessly and unpleasantly sold products they knew were going south
  • They hedged their position

Personally, I believe the latter. Mostly because, as a broker, Goldman’s main job is to help its clients buy or sell the assets the client wishes to buy and sell. Deciding an investment strategy is the client’s job (or their adviser, or asset manager, or whatever). Judging the quality of the assets is the job of a credit ratings agency. Obtaining the assets is Goldman’s job.

If you go to a fishmonger and want to buy salmon – and the fishmonger tells you he thinks salmon is disgusting and you’d be better off going for cod – then you may be wondering when you invited the fishmonger to lunch or asked him for advice on your menu (you may do many other things, from follow his advice or, if you are a serial killer, batter him to death [batter – food pun, ha ha] with a lump of fish, but you get my point). You want salmon, he sells you salmon. He then buys more salmon from his supplier to restock – and his activities of buying and then selling at the same time are unlikely to lead to him being denounced by, well, everybody.

The fact is, investment banking is not a commune. Some hedge fund wants to go long CDOs or the latest cool stocks? Let them. Just don’t expect the broker to do the same thing. We don’t expect our doctors to get our illness, lawyers to become a party to our contracts, estate agents to move in with us. Brokers are risk averse. They’re not going to pin their entire profits on their clients’ investment strategies or even ask them what they are. Many businesses are the same – they are there to help you buy and sell, they are not there to share your tastes. It is when those riskless businesses screw-up, like Lehman, that things get very fishy indeed.

Sorry is the hardest word to say (at least, meaningfully)

January 15, 2010

I am, apparently, overpaid. My employer does not think so, I am less certain, the public is really rabidly, absolutely, 100% doubt-free need-no-truth-drug call-me-a-liar-if-an-atom-of-doubt-crosses-my-mind certain. This is odd, because they do not know me and most people find my job difficult to describe. However, their basic assumption that I am not saving the world is safe, so this is hardly a Batman-esque public anger at the anti-hero ironic situation; other assumptions that I am as evil as a James Bond super-villain probably need further scrutiny in the court of public opinion.

It has been a tough week to be a banker. Well, no. It’s been a tough week to be a solider, or a Haitian, but bankers? I appreciate the public isn’t exactly in love with the banks (which is a shame because they used to be soooooo close) but it has been tough in the same way that the coffee shop running out of your favourite syrup has been tough. The investment banks are outraged but are not saying so for fear of being lynched (an unusually self-aware move): the world, strangely, did not tremble.

The rest of the script is supposed to work this way: I express remorse at mistakes made, look awkward on the subject of bonuses but insist they are necessary, try not to be too obnoxious and hope it all goes away.

Except I am not sorry. I did not take the government’s dollar. I am happy with the salary I am paid (although to be fair, I still have the mental age of a teenager so find being paid at all is a somewhat perplexing experience) and my employer is happy to pay it (as are others would-be employers). I did not create a housing bubble, encourage mortgage dealers to lend money they would never, ever get back. I did not gave credit ratings to unsound securities. I did not take out a mortgage I would never repay. I did not speculate on house prices (either by buying personally, or trading). I did not create regulators who are too proud to admit they do not understand the markets. I did not change how I viewed risk dependent upon my salary (or my bonus). I did not put my money in Icesave accounts. I spend some of my salary and when I do I try to benefit others. I pay tax. I try to do the right thing. I am not sorry.

Goldman Sachs teams could quit the city over taxes and regulations

January 4, 2010

» Goldman Sachs teams could quit the city over taxes and regulations

Would anyone miss them?

Alongside its results last year Goldman highlighted that it paid £1.1bn in UK corporation tax, the biggest contribution from the UK financial sector. Its 5,000 London employees had also contributed hundreds of millions of pounds in income tax.

Well, yes, apart from that. The news is less serious than it seems: the organisation appears to be thinking aloud, and rather than making idle threats is wondering if it is viable to move (Switzerland is the most likely candidate) and if so, whether or not to do so. Hmmm, that’s actually a lot less comforting than an idle threat. Still, even Goldman appear unconvinced about the idea of moving, which means London may be safe – or, if that is your view, burdened – for a while yet.

With bigger bonuses, another upside for banks

January 2, 2010

» With bigger bonuses, another upside for banks

It’s a strange news story

For all banks and Wall Street firms, “I’m sure we’re talking $200 billion total compensation, which would create a tax savings for the firms of $80 billion,” said Robert Willens, an accounting and tax analyst in New York who runs a consulting firm, Robert Willens LLC. The figure does not include bonus plans by hedge funds, which are likely to reduce their payouts after a down year.

The tax deductions, which will increase the bottom line of the banks, are perfectly legal and not new. They come as compensation for 2009 has roared back after the largest banks paid back billions of dollars in federal aid, an outlay still fresh in the minds of taxpayers. As pay goes up, so do the deductions.

Its category as news is questionable – there is nothing new here – but it is an interesting example of outrage. The more companies pay people, the more tax-deductable costs that they have. This, though, is presented as an extremely sly tax fiddle. (One would think that paying out more costs is generally seen as a negative when it comes to the profit-hungry vampiric organisation that is an investment bank, but perhaps not.)

The most likely culprits are a slow news day or a self-publicist, or possibly both in a thrilling combination. Still, we all have to make our money somehow.

That’s money honey

January 1, 2010

I didn’t even want to be a banker. Not that there’s a pin-striped press gang wandering the streets of London, forcing people into a life of international finance against their will, coshing people with a stock portfolio before leaving them, possibly brain-damaged, in a marble foyer with a blackberry and a Charles Tyrwhitt loyalty card.  It’s just I sort of drifted into it.

They were handing out free beer. I didn’t even know who they were – they weren’t in disguise, it’s just my interest in banking was limited to my student overdraft – and as a student a free anything, especially beer, was of interest. I gave them my CV, and, not thinking I was their type I thought it was a pretty reasonable deal. When I returned from two interviews in London, the second of which made me absolutely certain I was not their type, I forgot about the first interview and did a rather good impression of a sour grape, swearing I was never going to work there even if they paid me, which does seem to imply I had misunderstood the basic premise of a summer internship.

At the time my views were social democratic / liberal. I could just short-cut that awkward phrase and describe myself as a lefty, but like so many labels it keeps bad company: Arthur Scargill, Harriet Harman … Stalin. It’s like describing yourself as a euro-sceptic, which, let’s face it, however sceptical you are about the European Union, is also shorthand for “I’m a right-wing xenophobic nut-job who dislikes foreigners”.

I did the internship for the money. I was a student and I needed it. Then I went back the following summer. Then they offered me a full time job.

So perhaps it was the money after all, but I prefer to think it’s more complicated than that. I used to have a manager who said “money only demotivates people, I’ve never met a person whose performance was improved by the prospect of more money“, and I suspect he is right. When it comes to remuneration people either seem to feel that they have got the right level or not enough, and that other people have too much. I have yet to meet anyone who feels they are overpaid. Money is like freedom: it’s always good to have more and it’s awfully easy to take it for granted when you have it.

I stayed for the work. I get bored easily and every day people would bring me new, intriguing, fiendish puzzles to solve – which brings forth a strange mental image of someone dumping a stack of “Puzzler Monthly” on my desk every day.

“More puzzlers, boss?”
[Through a cigar poking from one corner of his mouth] “‘Fraid so, Ninja.”
“This just ain’t right, boss.”
“This is a bank, Ninja, not a holiday camp. I should have hauled you have the coals for that wordsearch you did yesterday, dammit man.”
“Sorry boss.”
“We’re all sorry, Ninja, but it don’t get the puzzles done.”

What I’m really trying to say is that I’m not greedy, that there’s reasons other than the money. Greed may be good, but it is a surprisingly shy character trait.