There are millions of reasons for fat bonuses
Sunday 19 December 1999
"Mayfair and Manhattan - I spend two weeks every month in each," he boasted.
"Don't you get fed up with all the commuting?" I asked. "Six/seven hours each way?"
I was pinched sharply by a friend on my left, who whispered in my ear: "Three hours, stupid. His Christmas bonus this year was worth millions."
I was playing with the Big Boys.
Christmas is a time for giving, and no more so than in the City. Christmas bonuses are reaching life-changing proportions, all part of the Americanisation of business I have written about previously in this column. Wall Street banks brought over their system of "compensation" some years ago, and the London houses have been forced to compete. For many, this can mean relatively restrained salaries and Brobdingnagian bonuses.
Not surprisingly, this is all attracting a lot of press comment. Goldman Sachs has been widely publicised as having pounds 100m to give away to its 2,500 "senior staff". However, I can report worrying rumours that this story is rather understated.
As one of the Goldman boys said to me recently, "Jeez, Chris, do the math: pounds 100m divided by 2,500 is pounds 40k each. That's what we'll be giving the janitor."
Does all of this excess have a purpose? Is it in the client's interest? It may stick in the throats of those of us who don't get the million-dollar cheques but I fear the answer is yes. Like it or not, this is overwhelmingly a people business. The owners of Wall Street are not running charities. They realised long ago that someone in charge of billions can make a difference of millions. If you make a few hundred million out of someone being just that little bit better than the guy round the block, why not throw them a percentage to keep performing?
These professionals use increasingly specialised, and demanding, skills. Some dealing desks have fast-talking traders who speak four or five languages, operate more technology than Cape Canaveral, and still don't get to have breakfast with their partners.
When it comes to the tribe of analysts, the rocket scientists of the City, you can multiply this. These stars also compete directly with each other and with the best the opposition can muster. It's a bit like athletes. Anyone running the 100m race would knock the spots off the man in the street, but put them head to head with another athlete and the real class emerges.
Bonuses are in the client's interest. In this competitive business it is vital for the clients that you hang on to your talent. It's a global financial community out there, and we all have to compete globally. That means keeping up with the Americans and stopping them from poaching your stars. Many sensible firms will pay key staff two bonuses: one in cash now and one deferred for three or even five years, dependent on employees remaining with the company. Not many people would give up five years' worth of these bonuses easily.
This is not to deny that all of this can lead to a slight flavour of the last days of the Roman Empire. One trading friend went out last year and bought a vintage car for cash. His wife was not amused - it cost more than their house. Worse, the security garaging meant they would have to move house to accommodate it. She smiled wanly: "The boys must have their toys - it makes up for all those 5am mornings." She might also have said that the other side of the high salaries is the insecurity that goes with them. On Wall Street this is why those bonuses are quickly turned into investments. Some people will never see 40 at their desks.
As ever, American imports can prove to be double-edged swords. But there is one aspect of the Wall Street system that, I believe, we should emulate.
Giving is the other side to the big bonus coin and in New York it has reached massive proportions. Go to almost any party at this time of year and you'll find your hostess passing round the velvet bag for cheques. We could do with a bit more of this in London.
Let's hope that charities will get a good slice of the action around the Millennium, and that we'll see a little of that trickle-down economics. Come on, it's Christmas.
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