JLP posted this morning and asked “Should Bankers Get Bonuses This Year?” His answer is apparently “no” based on the premise that “when the results arenâ€™t there, the bonuses shouldnâ€™t be either.” And since banks have had a bad year, bonuses shouldn’t go with that.
That makes perfect sense, but the problem comes in defining a “bad year,” which is means different things to different bank employees. Sure, if the CEO is compensated based on stock performance (which many if not most are, at least partially), then he or she should not – and probably will not – get that bonus this year. But the vast majority of bonuses in the financial (read: sales) industry ARE based directly on performance, and the employees are paid only if they accomplish the goals that were laid out for them for the year.
For example, I am a Private Banker. My bonus depends on my own personal portfolio and the net interest revenue it generates (i.e how many fees I charge, how many loans I close, how many deposits I hold). If I meet certain explicit goals (increase my net interest revenue by X in 2008), I get a bonus of 20% of my salary each year; if I exceed my goal I can get 10 cents on every extra dollar of net interest revenue, with no limit (which has yet to happen I might add)!
Many of my colleagues in fact WON’T be getting bonuses or will be getting much smaller ones than usual because they had loans go bad or were unable to get enough new loans approved in this economy to reach their 2008 goal.
Bonuses are a very large part of most bankers’ overall compensation, and remember how many different employees exist in “banks” these days:
- Tellers get bonuses based on how many checking accounts they open.
- Branch managers get bonuses based on fee revenue and how low they can keep expenses.
- Portfolio Managers get bonuses based on the performance of their funds and/or the amount of fee revenue they generate.
- Special assets managers get bonuses based on the per cent of bad debts they recover.
- Mortgage lenders get paid based on the volume of loans they get approved.
- Financial Advisors get paid a percentage of their fee revenue or by bringing in a certain number of new clients.
- Hell, the mail delivery folks might even get bonuses based on accuracy and punctuality goals.
- Also consider the portion of that allotment that goes to signing bonuses and moving bonuses.
- Some employees get bonuses for passing certain tests (actuaries, for example).
I could go on and on; the bottom line is that bankers are given bonuses based on fee income to the bank – whether in the form of mergers and aquisitions, interest rate swaps they set up, loans they underwrite, deposits they manage, letters of credit they issue, or whatever else they do at the bank. Sure, altogether the bank may not be performing well; but millions of bank employees are doing their job and meeting the goals that were laid out for them. Taking away their bonuses is akin to just cutting their salary.
Now maybe those goals were bad goals – and that’s management’s fault. Somewhere up the ladder somebody’s bonus should be suffering when banks are losing money (the CEO, for example). But when you are talking about millions of lower level bank employees who don’t chart the bank’s course, it’s not really fair to say “they shouldn’t get bonuses” just because the stock price tanked or because it would look bad in the media.
I’m not saying that some exectuves are not way overpaid, largely in the form of bonuses. But for 2008 the bonus promises have been made, they are largely based on measurable goals, and for the most part they should be kept.
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