Last week in this space I blogged about compensation and a possible “class war” in the offing.
Sadly, within days my prediction came true.
The State of New York reported that Wall Street Banks were handing out $18 billion in bonus payments for 2008 performance – and all hell broke loose. Main Street America – not to mention Pennsylvania Avenue – doesn’t understand how executives and traders and brokers (oh my!) can get “rewarded” for performance during a year when their financial companies were requiring massive government bailouts to stay afloat and keep the entire system from crashing. Wall Street’s Masters of the Universe don’t understand why their critics don’t realize that their compensation is based on a “low base” with high rewards for driving profits in their area of responsibility, regardless how the company as a whole is doing.
Both sides have a point, but for the first time in a couple decades, Wall Street denizens are going to lose this one.
The “eat what you kill” compensation system has been in place so long, it’s become an “entitlement.”
The majority of Wall Street bankers are under 45 and this is the only world they’ve ever known. They consider their base pay “a joke” – even though the average Wall Street base is considerably higher than the average American’s all-in salary. Several young bankers have been quoted the past couple days deriding the recently received 2008 bonus payments with descriptions such as: “I feel like I got a doorman’s tip, compared to what I got in previous years.” At the possibility of not getting a bonus this time around, I heard one sentiment that went something like this: “If there’s no bonus, then I put in all those hours last year for nothing.” Again, “nothing” is defined as approximately $200,000.
President Barack Obama Thursday called the compensation practices on Wall Street “shameful.” Already one lawmaker in D.C. has proposed that annual compensation be capped at $400,000 for execs at companies receiving federal bailout assistance. Another proposal suggest that bailed-out companies give future bonuses in stock only with the condition that the stock cannot be converted to cash until all taxpayer-supported bailout money is repaid. And the government and taxpayers are just getting warmed up.
It’s going to be a fascinating culture clash.
A generation of bankers and execs accustomed to high pay, high rewards and luxurious perks squaring off against a White House, a Congress and millions of taxpayers who are deeply worried about the future and mightily p***ed off about the past. Interestingly there are thousands of executives (and former execs) – many of whom visit this blog section – who share the worry and the anger. Some call these folks HENRY’s (high earner, not rich yet.) These are folks who have worked hard, climbed the corporate ladder, paid their dues and only get bonuses when their company has a good year, and only if they have had one too. Most of these folks have watched their bonus payments shrink or vanish in the past year or two; have had their base comp frozen or cut, are doing more work than a year ago because of headcount reductions around them; and have watched their benefits shrivel as their company cuts back on health care and 401k support. And speaking of 401k’s, they ain’t what they used to be either thanks in large part to the aforementioned collapse of the financial system.
So here’s the question for career execs like us: are we going to become collateral damage in the emerging class war in America?
Are we going to get dragged (or thrown) under the bus with the Wall Street entitlement addicts whose firms caused this crisis in the first place?
I don’t know about you, but I’m going to try to stand away from the curb and look both ways before crossing. It’s going to be a bumpy ride for all of us.
Erik Sorenson is chief executive officer of Vault.com, Inc. Mr. Sorenson, 52, oversees the strategic direction of the global, New York-based media company. He is widely regarded as an expert on media strategy and industry trends, with experience spanning radio, local and network broadcast television, cable and syndicated TV, and the Internet. From 1998 through 2004, Mr. Sorenson served as president of the MSNBC cable news channel. He has won more than twenty Emmy awards as a writer, producer, and television executive.
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