Show me your wallet and I will tell you your future.

compensation fell only by 17% compared with same quarter 2009During the financial downturn the public spotlight caught the issue of banker’s payments and generally excessive management benefit packages. Though, governments only managed to set restricting to a limited extend. The before/after comparison.

It is not long ago when especially investment banks committed reputational suicide when the media uncovered what they where paid. Whether the figures named where really accurate and whether these amount crossed all levels of the bank’s employees, can be discussed on own initiative – fact is governments tried to calm the angry crowds, yet regulations where only materialised quietly, if at all.

Merely, stricter regulators include Britain covering a one-off tax on bonuses and the States restriction on banks with TARP bail-out fund informes The Economist.  Since bank’s wage bills sum up to a fourth to half of their core capital, this will not change the future with impact.

But wait a moment: the EU announced the enforcement of rules implying to take the incentives for employees to “blow up their firms“. We will be awaiting the next episode of reality.

1:0 for investment banks: 39% of their bonus pools is already in form of deferred compensations. Still, bonuses are solely a part of these massive management earnings. The question about how much should been paid as not been touched up till now, at least not by regulators.

Referring to our recent blog update about alterations in the Basel III world, this increase of regulatory capital could maybe even have a effect on the profit share able to be paid out. Further, simply worse economic conditions will possibly reduce the profit and payments. This though seemingly didn’t touch the UBS, that slipped into negative figures by still booking horrendous amounts, due to bad experience with lower payments in 2008, as they state (The Economist).

Investment banks are still following the tactic to please staff rather than shareholders. Since, banks are relying more and more on client business and less on “trading on their own account” the profit will fluctuate more. An advanced cost control is sensible at this point than ever.

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2 Responses to Show me your wallet and I will tell you your future.

  1. bravenewloock says:

    Wow, indeed it seems as if some can tell my future by looking at my wallet…In addition, I found those two aspects:

    Clever as they are, investment banks found a loophole in the “trading in their own account”-rule: They now focus on medium-term investments like stocks instead of the “forbidden” short-term products, which also fluctuate a lot and promise a lot of bonuses, as Danny King from “Daily Finance” says.

    A big role in the still very high investment banking recompensations plays, according to Stephen Gandel from “The Curious Economist”, the shift from predominantly profit-related pay to high guaranteed salaries.

  2. olexa5 says:

    For a more recent link on my issue above, go to the input on the website of the University in Mainz. Here, the title ‘Current management payment structures reward willingness to take extreme risks’ contains some interesting new facts.

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