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Suckers That Own Businesses
An article written by Eric Dash from the New York Times recently broke down the level of bonuses that US firms paid their staff in the last year. Once you look at the figures it will demonstrate why President Obama is livid about the current situation given the US Government requirement to bail out most of these institutions in the last couple of years.
Across the board about 90 cents of each dollar of revenue earned by the banks is going towards employee salaries, bonuses and benefits. Analysis of the figures show that not only “performers” are taking home bonuses but also “underachievers”.
Citigroup paid a staggering $27 Billion in staff payments which wiped out every dollar of profit. The bank also had to pay back bail out dollars, so they could pay the bonuses, which left shareholders with an annual loss of $2 Billion. The reason given for such generous payments was to keep up with heavyweights of Wall Street such as Goldman Sachs. However, Goldman Sachs paid out only 45 cents of each dollar of revenue which is far more acceptable to shareholders and an equitable split of the profits. Interestingly, Warren Buffet now owns about $8 Billion of stock in Goldman Sachs so you know that these types of arrangements will need to be fair otherwise he will most definitely step in.
The notion of reward for performance seems to be getting lost and the owners of these business are the ones that cop losses but then in turn miss out on the spoils due to these obscene practices.
Wall Street big 5 banks last year collectively earned US$147 Billion before wages and tax. They then paid employees US$114 Billion, reinvested US $31 Billion back into their companies leaving a paltry US$2.1 Billion for their shareholders.
I grew up wanting to own a business, now I want to work in one of these institutions where you take no risk, get handsomely rewarded whether times are good or bad. Unfortunately, this is not a scenario specific to the US, it is a global phenomenon among all companies. Shareholders, especially institutional shareholders need to sort management out and have acceptable remuneration practices. After all if they don’t like it they can always take the risk and expense of running their own business which is a far cry from their current arrangement.
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