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Meredith Whitney: Banker Pay Caps a Disaster

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February 06, 2009 – Comments (17)

[I still disagree with her, but she makes a good point.]

Meredith Whitney, the CIBC Oppenheimer bank analyst who has presciently called banks’ woes over the past 18 months, opposes pay caps for bank executives.

President Obama announced this week that financial companies receiving government aid in the future will have to limit compensation of top officials to $500,000 a year.

“No one goes onto Wall St. to save the world,” Whitney pointed out on Bloomberg TV.

“Compensation is the motivating factor. Wall Street attracts the best and the brightest because of its compensation structure.”

And what if you take that structure away?

“The best and brightest will still figure out a way to make money, and it may not be on Wall Street when those minds are needed the most.”

Wall Street has taken a lot of flack since news emerged last week that its executives received $18.4 billion in bonuses last year as the financial system went up in flames.

“There has to be an incentive structure for anyone who works,” Whitney says.

“I’m not talking about executives compensating themselves tens of millions of dollars while firing tens of thousands of people,” she explains. “That’s egregious.”

Meritocracy represents one of our country’s finest qualities, Whitney says.

“If you alter that course so dramatically, we’ll hurt the economy for a longer period of time.”

Obama, of course, feels differently.

“In order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street,” he said at the White House announcement.

© 2009 Newsmax. All rights reserved.

17 Comments – Post Your Own

#1) On February 06, 2009 at 1:26 PM, blake303 (29.88) wrote:

This is where she went wrong:  "Wall Street attracts the best and the brightest"

I know many people that work/worked on Wall Street and that statement applies to very few of them. In fact, the ones that left the quickest are the ones I consider the brightest. There is still plenty of incentive. I doubt Meredith will be pulling in less than half a million this year. If $500k/year is not enough motivation, quit and let someone without entitlement issues prove that your job can be performed by a lot of other people.

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#2) On February 06, 2009 at 1:26 PM, Tastylunch (29.93) wrote:

“The best and brightest will still figure out a way to make money, and it may not be on Wall Street when those minds are needed the most.

I think she's wrong about this.

One the people in there right now obviously aren't that smart/discplined enough to make responsible decisions. Chances are they will come up wtih even more self serving dangerous crap like suspending mark to market.

Two they have nowhere else to go.Seriously where are you going to make more money than Wall Street even under the new compensation schemes?

I think she's a little close to this. Wall Street shouldn't be this central to america.

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#3) On February 06, 2009 at 1:33 PM, RonChapmanJr (98.51) wrote:

i agree with the above comments - "best and brightest" does not describe wall street.  more and more the best and brightest are trying to make a difference and help people.  anybody can run a business into the ground. 

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#4) On February 06, 2009 at 1:38 PM, blake303 (29.88) wrote:

By the way - the best and brightest I know practice medicine, teach, or are entrepreneurs - all are areas where great minds are needed far more desperately than on Wall Street.

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#5) On February 06, 2009 at 1:44 PM, vtBrunson (60.26) wrote:

I disagree with the concept that money will motivate the best and the brightest.  Being in the IT industry, we had our share of googly-eyed money-hungry smart people enter into the field. But when it comes right down to doing the actual job, if you don't have a passion or motivation for the work itself, you produce an inferior product. 

I welcomed the "IT bubble burst", at the time, there were smart, highly paid professionals that could talk the talk, but not walk the walk... a correction was necessary to separate the wheat from the chaff.

The President of the United States makes $400,000/year, I'm sure the best and the brightest of Wall Street Bankers can scrape by on $500,000/year....

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#6) On February 06, 2009 at 1:47 PM, SteveTheInvestor (< 20) wrote:

"Compensation is the motivating factor"

 Another way to say that would be "Greed is what attracts these people".  It should be pretty clear to anyone by now that these people only care about their own wealth, with zero concern for how it affects other people or the economy.  If they see a chance to rake in more cash, they will do it even if it places their very company at risk.  Once they have their money in hand or guaranteed with absurd golden parachutes, what is their motivation to be prudent?  Pay needs to follow profit and losses.... period.  

 Any exec that thinks they are worth obscene amounts of money whether they do well or not is not an exec I want to invest in.  If they leave, I say good riddance.  

 

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#7) On February 06, 2009 at 2:47 PM, blake303 (29.88) wrote:

Despite her good calls on banks, I find it hard to take seriously anything said by a woman that would marry this jerk off. Worse. Even Worse, Worsest.

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#8) On February 06, 2009 at 2:55 PM, devoish (98.76) wrote:

I completely agree with comments 1 through 6. Well said, each of you.

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#9) On February 06, 2009 at 3:28 PM, carcassgrinder (46.15) wrote:

I completely agree w/ comment 7.  Total jerk-off. 

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#10) On February 06, 2009 at 5:40 PM, DemonDoug (98.84) wrote:

“The best and brightest will still figure out a way to make money, and it may not be on Wall Street when those minds are needed the most.”

If the best and the brightest go back to engineering, instead of siphoning off wealth from the productivity of workers around the world, I'd call that a net gain.

And I agree with all comments 1-9.

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#11) On February 06, 2009 at 6:45 PM, abitare (99.42) wrote:

“The best and brightest will still figure out a way to make money, and it may not be on Wall Street when those minds are needed the most.”

She is a history major... and that is an idiot statement. the best and brightest are not needed there, they can do something constructive, besides bankrupting their companies, getting rich and having tax payer pay for the "bail out"

Does she really think this would happened if the best and brightest were on Wall Street? Most of these guys would be selling used cars or would be in prision, if not for the inflation, leverage, weak regulation and infinate fiat currency that drove up their stocks etc....

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#12) On February 06, 2009 at 6:54 PM, VIS46 (26.68) wrote:

The best & brightest are needed in science.If you take away that enormous compensation in wall street and increase the copensation in science and education the country will be better served.

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#13) On February 07, 2009 at 9:22 AM, kankankan (< 20) wrote:

I went to an ivy league engineering school in early 80s and a few the most annoying (read: full of themselves, did not work on team projects well, kinda gamed the system whenever they could types) bailed from engineering interviews and got Wall Street jobs. I would not have described those as "the best and the brightest" althougth they were reasonably well-educated, smart and discplined, but that applied to everyone of us. The ones that went to Wall Street generally seemed the more the frat boy types, more selfish than the rest of use, more connected to other people with money (a lot of us had pretty humble family backgrounds).

While all my classmates I know have had good upper middle class careers as engineers, developers, managers, from my view "the smartest" (quick learners, good at analysis, pratical problem solvers) who also happened to work well in a team , who were also the hardest workers/students did not go to Wall Street, rather they succeeded in very nuts and bolts economically helpful ventures.

One of my classmates who was crazy smart, and everyone would say was the smartest of us, got a graduate degree in mathy optimization stuff and uses it today to analyze complicated business operations to find what is the truly must efficeint way do something like manufacturing, warehousing, transportation, etc. She makes a good living doing this, but certainly not over 500k. When she was a a graduate teaching assitant, she taught MBA students who were smart but much less so than her class-mates, and these MBA grad with little to no experience were making 150k right out of school, not something she had to look forward to even with her good engineering expereince before returning to grad school and the stright up techincal value of her education.

So the guys that bailed for Wall Street were the smartest with their careers if you judge simply by money, in that they are all wealthy now (early eighties til last year was good times) but they weren't the best and the brightest. And the best and the brightest, even at my expenisve ivy league school (certainly not the only place to find smart people) went on to happily to do careers that did not make them a fortune in a few years, but rather careers that paid them decently and required them to offer value to the economy and to work diligently their whole life if they wanted a comfortable retirement.

I know so many other  scientists, engineers and technology people that are extremely smart, (run circles around me) and also who work well with people and are motivated to work long hours, so I am sure could have done very well on Wall Street if they had a way in there or had wanted to do such work, but instead they toil at very intellectually difficult jobs for simply middle class to upper middle class livings. I even know someone that got a "financial engineering" degree at my ivy league school who is now running a company that does the messy job of recycling waste hydrogen from some companies and sells it to others who need power, in a medium size company niche that is not served by big power providers. Again, he is doing well, but not Wall Steet 2006 well. And his work sounds a bit more useful than securtizing fraud and producing formulas that prove crap is AAA.

The working class/middle class neighborhood I grew up in was populated by chemist with PhDs that ran major labs at local fortune 500 manufacturing firm, a guy with an advanced degree that ran our large city's public works department, engineers and managers at other local manufacturing firms, teachers, a janitor, and line manufacturing workers at the same manufacturing firms, cops, and a park worker that worked for the Public works guy. All these workers, including the most educated and accomplished  ones to the high school grad who was just a crusty old mediocre worker all lived in the same darn naighborhood. The best and birghtest did not have to make millions to encourage accomplishment and success in their jobs.

Moral: Money does attract smart and talented people, but if the very best paid jobs are  work of no real value to general society (or at least of the value they are obscenely paid at) you tend to get the more selfish, want-to-get-over types and to get the truly best, the brightest, and best-educated ones consistently working on one sector, you really only need to pay them just good, solid upper-middle class salaries and give something of meaning and value to do. The rest is a waste of economic resources, and frankly, parasitic.

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#14) On February 07, 2009 at 9:30 AM, camistocks (< 20) wrote:

As far as I know only CEOs and other executives from companies/banks that seek government help will receive $500'000. But above that they will also receive stock in the company. So once it's turned around and they pay back the obligations they are free to sell their shares at a benefit and then set their new pay.

And true bright executives don't look forward just a few weeks, they look forward a few years. They do it "for the challenge".

 

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#15) On February 07, 2009 at 9:41 AM, kankankan (< 20) wrote:

 As one of the world's best and brightest said:

"We are all nourished and housed by the work of our fellow men and we have to pay honestly for it not only by the work we have chosen for the sake of our inner satisfaction but by work which,
according to general opinion, serves them. Otherwise we become parasites, however modest our needs may be."

Einstein

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#16) On February 07, 2009 at 9:58 AM, kankankan (< 20) wrote:

The other thing missing from Whitney's conclusion is that by some of her own analysis, many of the banks that are taking TARP money would be bankrupt and gone just like Lehman if the government had not saved them. Why should we have to pay big bucks to draw talent to a sector and companies that have failed or at least are major-league shrinking to much smaller, boring old traditional banks. If they are so best and bright, figure out a way to make your company successful so it doesn't need welfare from govt to survive, then you can pay yourself whatever you want. But I'm sorry, if your company is insolvent, none of upper management should have a job, let alone obscene salaries. If there is strong market for your skills, then leave and get more money, but remember the supply of expereinced, unemployed, upper management Wall Street types is as abundant as condos in Miami, so the price of your services should plummet in a free market. Instead  yo still have a job and company because we the taxpayers are giving you welfare ,supposedly for the good of society...sorry if that comes with strings attached. Don't like goverment pay scales, go find a job in the private sector that is profitable and doing somethign people are paying for...or that looks rough too, welcome to the real world.

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#17) On February 12, 2009 at 7:57 PM, vriguy (80.61) wrote:

What talent is she talking about ???????

I refuse to pay my employees (and as a taxpayer I am now their employer) more than they are worth.  As it is I will pay, and pay, and pay for these Wall Street bankers' pathetic performance.  Let them resign if 500K is too little. Bet you we can find plenty of competent replacements for 250K.

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