by Jerome a Paris
Thu Aug 4th, 2005 at 05:19:58 AM EST
Or so says the Financial Times...
A serious question for all the overpaid bankers
Although bankers generally are a conservative lot, they actually could be poster boys for the left, as well as for the labour movement. No other industry asks shareholders to take on the bulk of risks, while it gives half of all revenues to employees. Indeed, no other industry serves employees better, at the expense of shareholders.
Good for the FT to publish that (there's more below). It goes to the heart of the debate about unions, and workers' rights.
:::::: More below ::::::
A serious question for all the overpaid bankers
I would like to put a serious question to bankers, one that I frequently asked my former colleagues at Morgan Stanley (but never received a good answer to): why do you make so much money? The most common response might go something like: "I make so much money because I add so much value. I generated $50m for the bank last year, so I deserve at least $5m. If I didn't get it, I'd quit - a competitor would pay me even more."
Perhaps. But managers in other industries are more sceptical of employees claiming credit for revenue. A scientist who invents a new drug typically does not receive a share of sales. Nor does an oil executive who negotiates a new contract.
Of course, many employees are paid commissions, but banking bonuses are different: they are purely discretionary and come from a pool based on the bank's revenues.
A more plausible answer is that bankers do so well because they keep money that other companies would give to shareholders.
The battle between shareholders and employees reflects the separation between ownership and control of companies. In general, shareholders, not employees, have the residual claim to a company's income. But that notion is reversed in banking: employees decide how much shareholders will receive, and then keep the residual. Although bankers generally are a conservative lot, they actually could be poster boys for the left, as well as for the labour movement. No other industry asks shareholders to take on the bulk of risks, while it gives half of all revenues to employees. Indeed, no other industry serves employees better, at the expense of shareholders.
So when you hear bankers complaining about unions being too strong in another industry, or workers' rights being too comfortable, remember that they can afford not to have unions, because they control the taps. Like the French train conductors who can paralyse a vital infrastructure, bankers have privileged information and control on YOUR money and they decide how much you can be happy with. It's just a favorable power play for them. But do note that this does not apply to all categories of bank employees, only those that can take decisions on where the money goes.
Good for them of course; the problem is that as they also control other people's money, they are the ones that will have an opinion about how these people/companies uses their money, including to pay wages - and there, they are obviously on the other side of the table. Their "we don't need unions, we are just valued for our work, and so should you", becomes really disingenuous - and dangerous for everybody else, i.e. those that do not control the world's money taps or some similarly vital choke point of our civilisation.
As an investment banker myself, I know how easy it is to claim that I "made" x million for my bank, when I am just one - visible - cog in a big machinery that has decided that it was willing to rent the resource it plays with (money) in a given sector or to certain kinds of clients. So my claim to value viz. the client is that I have the ability to convince my employer to provide large chunks of that resource to such client, and when dealing with such large discrete bits of the resource (say 50 million at a time), the corresponding remuneration that I can claim responsibility for, as the tip of the machinery in contact with the client (say 1%) appears very large, and it's easy to say that a small piece of it should really go to me.
And it's true that I have some leeway with the client. I don't create value (well, I do, but maybe not that much), but I can allocate a lot of it between the client and the bank very easily, in ways that are very hard for anybody else to control, and the best way for the bank to make sure that it gets a fair chunk of it is to give me some incentive to do so. So I benefit from (i) dealing with large amounts (anything below a million is chump change), (ii) being very specialised (and thus harder to replace), (iii) being on the front line with the client (thus able to influence outcomes and claim credit) and (iv) actually getting deals done (hey, give us a little bit of credit!).
But these are fairly unique circumstances that do not apply to most jobs, and thus most workers should not be forced to negotiate as if they had the same assets up their sleeves.
So yes, investment bankers are coddled parasites. They have for themselves the outcome desired for all by the left, but they refuse that others have the instruments to get closer to the same thing.