Bonus question

Here’s a puzzle to test the brainpower of even the mightiest intellects in investment banking: How are you going to justify the massive bonuses you pay your staff this year?

The issue is certainly pressing. Goldman Sachs Group Inc has reported a tripling in third-quarter net income, and the firm has set aside $16.7bn to pay employees so far this year. JPMorgan Chase & Co said earlier this month that earnings had risen to the highest level since the subprime-mortgage market collapsed in 2007. The investment bank raised the amount earmarked for compensation to $8.79bn.

After the credit crunch, nothing has really changed. Bonuses this Christmas will be as big as ever. There is one big difference: The bankers will need to find a new way to justify those big payments.

Bankers used to say their wages were set by a free market, and that always produced the right result. It’s hard to stick to that line when you went bust a year ago. If market forces always get things right, how come you are still in business?

Then they claimed they were the best and brightest of their generation, so it was hardly surprising they made so much money. But it’s hard to stick to that line when you have flirted with bankruptcy after lending lots of money to poor people so they can buy overvalued houses.

Banks also used to point out how much tax they paid. Dozens of schools and hospitals were built from their year-end tax bills. But it’s hard to argue that as well when you needed billions in state support, far more than financial institutions ever paid in corporate taxes.

So, to help out all those people scratching their heads in the public-relations department, and the Corporate Social Responsibility office, here are six strategies you might want to try when you have to admit that even the trainees in the subprime-bond unit took home an extra $200,000 this year.

One: A massive charitable donation. Give away at least a billion dollars to charity at the same time as announcing the bonuses. Preferably something that comes with lots of good picture opportunities: saving small, fluffy animals from extinction, for example. Goldman Sachs is already on to charitable ideas. And, let’s face it; those boys don’t give away any cash without knowing they are getting value for money.

Two: Make a huge contribution to a financial-stability fund. Each bank could give a billion dollars to a fund to bail out the banks next time there is a crash. And you could always wangle its tax-free status, then use it as a cheap source of finance for your next private-equity deal.

Three: Turn yourself into ‘the bank that fights climate change’. Abolish all flights to business meetings. Build a wind-farm to power the office. After all, nobody will quibble about some bonuses when you are busy saving the planet?

Four: Commit yourself to eradicating a disease. Cut a deal with a drug company to provide unlimited vaccines at a bulk rate. That way it shouldn’t cost too much. Heck, it worked for Bill Gates. Every time Microsoft Corp brings out a new version of Windows that is even worse than the old one, we shrug and think, “Hey, Bill’s a nice guy, probably too busy eradicating malaria to fix this stupid software.”

Five: Make Bono the chairman and Mandela his deputy. The U2 singer hangs out with just about every world leader, so he can’t be too fussy or too expensive.

If he takes some persuading, get the tax department to come up with some exciting offshore arrangement for the band.

Six: Buy a small Caribbean island, and relocate the entire office there in the middle of the night. Then put up a big neon sign over your old New York, London and Tokyo offices saying “eat dirt, suckers.” OK, that might not be great PR. But at least people will have a grudging respect for your honesty.

These strategies may or may not work. And you have to expect a bit of flak for going straight back to your bad old ways only a year after the financial system went into meltdown. But if they manage to buy you some time while you bank that bonus, the effort will have been well worth it.

Matthew Lynn is a Bloomberg News columnist. The opinions expressed are his own.

Print | Email | Discuss this article

| Share |

READERS' COMMENTS

Click here to post a comment

Add your Comment All posts are sent to the administrator for review and are published only after approval. ArabianBusiness.com reserves the right to remove any comment at any time for any reason. Please keep your responses appropriate and on topic. Arabian Business would like to point out that only comments relevant to the story will be published. Any containing personal insults or inappropriate language will not be approved.
Name *
Remember me on this computer
Email *	(Your email address will not be published)
City
Country
Subject *
Comment *
Notify me of further comments
Enter the words above *
Please click post only once - your comment will not be published immediately.

MORE FROM ARABIANBUSINESS.COM