The Sordid Affair of Banker "Talent" and Compensation

By on October 24, 2009

Abnormal Returns has linked to a couple of interesting articles speculating as to whether bank heads deserve the pay they receive. This is a nice quote from Rick Bookstaber, “Indeed, I think the invocations of talent for money producers in finance are akin to those that, in times past, were set aside for the mystical powers of saints and witches.” Bookstaber believes it is difficult in the finance business to discern talent from plain old good luck.

In a humorous article posted at Slate’s “The Big Money,” Daniel Gross chimes in cleverly, “At most companies, bonuses are paid out of profits. No end-of-year profits, no bonuses. But on the island nation of Wall Street, they’re paid out of revenues,” and “bankers must be evaluated the way Margaret Mead approached the cultures she studied—as an insular tribe with its own mores, a society with long-accepted conventions might strike outsiders as bizarre.” Finally, “Just as chickens can run around with their heads cut off, financial firms can pay bonuses even when they’ve essentially failed (AIG) or clocked massive losses (Merrill Lynch).”


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