Goldman Sachs and Wall Street Bonuses in General

[pianoman11686]

If you don't mind explaining, I'd like to know how exactly you came to seriously believe those things. For one, my mother has been in the public accounting business (now private) for more than 10 years, and she'd beg to differ.

Don't get me wrong - there are crooks out there that will make false claims during investor conferences and press releases and mislead individual investors. But I still believe that is the exception, not the rule - and there's a reason so many more people are now putting their money into stocks than into traditional outlets like savings accounts and gov't bonds.

As for profit forecasts: suffice it to say that any company, no matter how big or small, has to constantly readjust their expectations. That's hard enough as it is (any form of forecasting the future is, just ask meteorologists), but it's even harder when you have armies of financial analysts scrupulously examining your financial reports, on whose comments you can lose double-digit percentages of market capitalization within a few hours.

[BrooklynRider]

In public companies there is more pressure by upper management and executives to "make the numbers." To meet earnings expectations, accounting departments will often go to great lengths to move items around, understate expenses or reallocate them, back into numbers as opposed to putting a true number down, and footnote reports to death, in fact negating much of what is reported.

The pressure is too great on public companies to perform to the expectations of shareholders as opposed to performing to the measurements of the industry and the ridiculous executive compensation is part of the problem. I've seen companies earn record profits year after year and bemoan the sorry state of the company's finances, leading to minimal increases for employees and huge bonuses and raises for executives.

This is the real reason companies have trouble attracting the best and the brightest. Compensation sucks and the only thing willing to be cut is compensation and benefits.

I'm not calling your Mom a criminal and I'm not sure of her function. Does she work in a public company as an accountant or as a CPA who audits public books? If she works in a public company, ask her how often they are asked to back into a desired number as oppoesd to reporting real numbers.

[antinimby]

BR, I don't see how that blog you pulled off the web in response to my post, were in any way germaine to what we were discussing.

The economy goes through periodic fluctuations.

There's no dispute with that so I don't know what your point is.

[Luca]

Lemme tell ya...we're worth every penny of it

[Front_Porch]

Lemme tell ya...we're worth every penny of it

I think on these boards, you are worth it -- if you buy real estate by the crowd-approved architects. No using those bonus dollars to support POS buildings.

ali r.
{downtown broker}

[VVNYC]

There is no job on earth that justifies these hundred million dollars salaries and multi-million dollar bonuses- none.

Why not? I'm not exactly advocating the recent surge in CEO pay, as the disparity between them and average workers is certainly at least an issue worth analyzing to determine why it occured and just what negative, or positive effect it really has, and on whom. But seriously, I've run across numerous people arguing your point and no one has explained exactly why the surge in CEO (or others, like Wall Streeters) pay is a problem. I'm willing to accept that it is one, but I've not see any sufficient explanation as to why, including from some very smart and/or rich people on cable news debates and such. -- Correction, perhaps it would be better to say that while some may have an explanation as to why it's a problem, no one has proposed any solution that wouldn't be potentially just as problematic. --

CEO compensation is generally set by the Board of Directors, who get elected by shareholders, who are you and I. CEOs get paid what they get paid because they can. There's no 'perfect market', but if their jobs weren't as important or as demanding or as difficult, they simply wouldn't make what they do - the market would dictate otherwise, just like it determines a Investment Banker is generally worth X and a Cab driver Y. If CEO pay rose 186% recently, compared to just 7% to the average worker, can you prove that CEO positions aren't "186%" more important/demanding/difficult/etc. than before? I mean, they are paid what they are paid because that's what they are considered worth, just like any other job. Who are you to say they aren't worthy of their pay?

Since much of this seems to come down to specific situations (Enron, etc) or anctedotal evidence, I'll throw in some of my own. The CEO of my company already makes a ton and just got a huge raise, and I'm proud of him for it. Our company has grown by a % in the 100s since he's been here. In addition to that, he chairs the Board of a major non-profit organization (among others) and has helped that organization and its agencies raise more money and help tens of thousands of people in need who otherwise wouldn't have been. He works virtually 24/7 (as a CEO position demands) and has impacted our community in a positive way more than any other single individual has a hundred-fold. Which is why he is paid what he is paid, and deserves what he deserves. Contrary to popularly belief, I'm sure there are 100s of other CEOs like him - Just because you don't seem them on the news doesn't mean they don't exist or don't justify the "excessive" CEO pay numbers.

But maybe I'm just an optimist that believes in time, life generally works out in such a way that everyone receives the compensation and fate they deserve and earned. Whether it be Ken Lay, Bill Gates, Herald Ford, Saddam Hussain, you or I...

[BrooklynRider]

The surge in pay is a problem from my perspective, because I can think of no same individual who can argue that $25M, $50M, or $100M a year is NOT enough compensation. I am not talking about private companies, let me make that clear. If you own it, it is yours. I am talking about pubic companies. The argument that these compensation agreements are arranged by boards of directors is contentious. If you were to look at the boards of major corporations, you will see executives from other public companies serving. It is a relatively small group of people at the highest echelons of the business world rewarding each other with ridiculous compensation and arranging succession plans that keep the money flowing to these relatively few individuals and their hand-selected proteges.

Don't confuse a self-made Bill Gates with a hack like Ken Lay. These are two different animals.

I've no doubt that your CEO is busy and serving on boards everywhere. He better look busy for that amount of compensation. The proof is in his tax return. How much did he give away? How much of $300M in one year does a person need to keep, when he has a company car & driver, a company apartment, a company plane, all meals on expense accounts, etc.

There is no one I know who wouldn't like to make more money. Yet there are few that know when to say, "that is sufficient."

The compensation packages at public companies, to me, are proff that the Boards of Directors are not looking at the interest of investors, but rather at personal interests - and I believe stock manipulation.

[ZippyTheChimp]

They are called interlocking directorates, and are only illegal if the companies are in competition with each other.

So, GS and Exxon and AT&T can have board members in common.

I don't mind GS rewarding their employess with bonuses, but I wish they would have decreased it slightly, so I wouldn't have had to give them a bonus to build their headquarters.

The height of arrogance.

[Luca]

I think on these boards, you are worth it -- if you buy real estate by the crowd-approved architects. No using those bonus dollars to support POS buildings.

ali r.
{downtown broker}

If I ever get one of them fabulous bonuses (as opposed to my more pedestrian ones), it's pre-war all the way for me...
I thought that would have been clear from my anti-everything-built-after-1939 rants on teh architecture sub-forii....

As for no job beign wort xyz USD... If a guy makes a bank/sports team/movie say x mil regularly then he's got to be worth a certain percenmtage of that, surely... it ain't like these folks don't pay taxes or like they force anyone to pay them these amounts.

Ugly thing, envy.

[Punzie]

For one, my mother has been in the public accounting business (now private) for more than 10 years, and she'd beg to differ.

I'm not calling your Mom a criminal and I'm not sure of her function. Does she work in a public company as an accountant or as a CPA who audits public books? If she works in a public company, ask her how often they are asked to back into a desired number as oppoesd to reporting real numbers.

I wish that when people engage in debate, they would leave their relatives out of it. The reason: it's almost impossible to question the credibility of somebody's relative without looking bad.

When I first joined this site, somebody cited his relative in a debate. I was in the relative's profession, and something sounded a little fishy, so I questioned the argument. Long story short, I landed in such hot water, you just wouldn't believe...

[Ninjahedge]

Long story short, you ended up in a hairy situation?


While I agree that CEO's and other power players are entitled to bonuses dependent on their divisions performance, I think the %s are getting out-of-hand.

Add to it the fact that even in BAD years these guys get bonuses as well. It is like they do not have to suffer any loss, but will gain only less when times are bad. I know there are other considerations to be taken into account, but this is just a little off....

[pianoman11686]

For what it's worth, the aforementioned overpaid and apparently incompetent CEO of Home Depot was let go yesterday.

Interesting that, if you read the article, you'll see he previously worked for GE. His successor will also be arriving from GE. I wonder if good old General Electric owns some of the board seats of Home Despot...

I'll echo some VVNYC's sentiments in saying that there are plenty of people out there that are compensated way too much. People in the entertainment/sports/leisure are prime examples. But keep in mind that no one is forcing the powers-that-be to pay them this or that amount. Everything is determined by voluntary contracts. And if the paying parties aren't satisfied with the results, out go the superstars - be they aging athletes, no-longer-popular actors, or sleazy executives. I really don't see what the problem is with this arrangement. If you don't like the way a company pays its management, don't own the stock. If you don't like a certain actor because he/she is overpaid and not worth the money (IYO), don't pay to see their movies.

[Luca]

While I agree that CEO's and other power players are entitled to bonuses dependent on their divisions performance, I think the %s are getting out-of-hand.

I am aware of CEOs who do well even if the company doesn't but at least on the Street, if you mess up you get the boot and certainly you don't get a fat bonus. As for %...shouldn't that be entirely up to the owners? If you think Wall Street overcompensates...don't buy bank stock. Very simple.

In most 'talent' professions (i.e. where it is believed that exceptional individuals can make a dramatic difference to performance), the % payout has been rising. In the 1950s, world-famous athletes, musicians and actors were paid peanuts while presumably interchangeable managers did well. These days, if you want talent, you gotta pay for it. Whether people defined as talent are always in fact the genuine article is a different story. Certainly many 'stars' appear greatly diminished once they are no longer in a first-tier house... seen it with my own two beady eyes on many, many occasions.

[Ninjahedge]

1. Everyone has to stop comparing athletics and celebrity to buisness. They are two entirely different models and are not compansated in the same way.

2. What good is saying "dont invest in this or that" when MOST of teh money that is put into these firms is not directly controlable by the general masses?

We seem to think that we have the ability to change anything, which is partially true in that a concerted coordinated effort can make a difference, but in the world of big buisness, the rules are slightly different.

Example: Auto insurance. Since everyone is required, by law, to have auto insurance, it makes it a very dependable industry for a set base. Now, get NJ with the "no fault" clause and others into the mix. The profit margin is less, and the companies are not interested. For a while, I believe there were only 2, maybe 3 companies offering any kind of auto insurance in NJ.

Now we say "If you do not like them, do not use them, chose another", but this is where we were stuck paying for one overpriced plan or another without any direct collusion between the two companies.

Add to it that companies like that also had increases in profits every year despite the recession, 9-11 and Katrina and you get a difefrent picture about some things.

Now, over to GS.

These guys charge a fee for just holding your money. You put it into bonds or any money market and you are giving them license to use your weight as a tool for what they want. Add to it the charges for using them to buy or manage your funds, which has many implications as well (in that, better performance is good, but when presented with a choice between X and Y on a vested stock on a mutual fund, they have a LOT of buying power).

I guess the thing that bothers me is the disproportionate ammounts of monies that are awarded to the higher ups in an orginization that do not find their way down to the ones that actually DID most of the footwork or to the people whose money made it possible for them to do so.

Bonus is one thing, but when that bonus starts getting more than the GNP of a small nation, you have to start asking why.

[pianoman11686]

Ninja, I think your post is misleading in a few ways.

First of all, you brush off the entertainment/sports industry as inapplicable (a straw man, presumably) and yet you bring in an example like insurance companies, which are heavily tied to government regulation. This itself is a straw man - concentrate instead on the average company that doesn't depend on laws to generate consumer demand.

Furthermore, the entertainment/sports industry is perfectly applicable. As Luca breaks it down, "It's all about paying for the talent." When people decide who they want to pay big bucks for doing a job, be they studio execs looking for a talented director or actor, a sports franchise owner giving a $100 million contract to a gifted athlete, or a board of directors looking for a capable CEO, the bottom line is the same: they expect results. And the better the person coming in, the more they will pay.

And about the brokers: yes, people pay them "essentially" to hold their money. But that's not everything. You have to take into account the nature of the job, which requires looking for outlets for the money. It isn't the easiest thing in the world. I remember reading not too long ago about how companies like Goldman Sachs are increasingly channeling their company's and their clients' monies into very risky areas (up to 40% volatility), because traditional investments no longer generate the expected returns. How would you like to be in charge of someone else's retirement money, or college fund, or million dollar estate, and have to make the tough choice of finding a good investment?

In any case, I think society is too reactionary about topics like this. They take one look at the money issue, and forget about everything else, because "we're getting the short end of the stick." There's a reason companies like Goldman Sachs only recruit the top students from the top schools, and then pay top dollar for them. Similarly, there's a reason most CEOs hold MBAs from the top business schools. And it's not mindless overcompensation in most cases.