Big Bank Bonuses Are the Wrong Thing to Worry About

Right now, there is much debate about how much banking executives should or shouldn’t make. Is $1 million too much? Is $500,000 fair? What about bonuses? One of the big concerns is that Washington will end up structuring compensation packages at banks (along with shareholder dividends and interest rates). Socialized banking here we come?

But these are the wrong kinds of things to be worrying about. It’s not about the decay of capitalist principles. It’s not about banking execs living the high life.

It’s about who is getting the big bucks, not how much. It’s also about principles like merit and accountability. That’s why people are so huffy about big bank bonuses this year — because they are being paid to the same people who screwed the financial industry up in the first place.

Reality Check: If a bank gets TARP money, it is probably screwed up somehow. People who screw up, or people who run screwed-up banks, shouldn’t get bonuses.

Win = bonus. Fail = no bonus. Right? The American Way? Getting paid a salary is one thing, even a handsome one. But earning anything above and beyond should be based on merit.

Financial institutions complain about how the government’s restrictions on compensation will affect their ability to “attract and retain top talent.” Attracting top talent is certainly a major concern; the industry needs the brightest and most capable leaders to get through this. But retaining talent?? Most of America (e.g., bank shareholders) is haggling over how much bankers should/shouldn’t make when many bankers probably shouldn’t even have jobs at all.

Bottom Line: You can’t attract qualified executives when the compensation is capped at $500,000. No one will get the job done for that amount. Especially not the current guy.

Reality Check: Thinking the same people who got us into this mess can get us out is like thinking more debt will fix our credit crisis.

The U.S. is (1) giving away money it doesn’t have (2) to the same bankers who created the problem so (3) banks can lend it (4) to people who don’t qualify so they can, in turn, (5) buy crap they don’t need and can’t afford. And we expect a different result?

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