Gimme My Money!

I've just read that the House of Representatives has overwhelmingly passed a new law levying a 90% tax on bonuses paid out at rescued firms. It seems an easy end to the furor that has been generated by AIG wanting to pay upwards of $160 million in bonuses to certain employees that have met or exceeded performance targets as decided last year. One could leave aside how unethical those bonuses may be as enough has been said and written on it. The people wanted their pound of flesh (literally: Senator Grassley of Iowa preferred they commit suicide though he has retracted that now, half a pound will do) and seemingly they will get some of it.

The issue with this form of compensation is that the finance world has long viewed bonuses as the key component of their take home salary. It lent an entrepreneurial and competitive touch and was supposed to be a great incentive for individuals to maximize the profits of the company and thus themselves. Its painfully obvious now that it was all misaligned because the individual traders aren't paying out millions to cover the losses their trading positions made. To be without a bonus though, is for a banker to be reduced to the earthworm level of the masses. How will they be able to differentiate themselves with the same basic salary (still a good deal higher) as that of an accountant or a marketing executive? How will they pay for cases of Grey Goose and all those cocaine fueled binges? For over twenty years, the bonus has been accepted as the reason for entering finance and for working 20 hour days. If they let go of it, they might as well move back to Iowa and watch the cows graze.

Hence the rush of chief executives down to Washington to protest in feeble voices against this bill. Some Republicans remember that their party motto is "No Taxes, No Abortion" and have voted against it but most have turned traitors to the cause. They cry out loud, "Give our employees incentive to work or they shall leave us for other better banks or worse yet sit around and mope!". Except there are no other banks left to accept employees. And as for the incentivization, if the bank manages to pay bailout money back and owes less than $5 billion, the bonus tax goes down considerably. Hooray for a long term incentive that binds the bank and the employee to a very clear target. Of course, the bill could well be illegal as it is applied retroactively and may get stuck in court or repealed. But it'll sure shake up Wall Street. Bankers everywhere must be saying, "Toto, I've a feeling we're not in Kansas anymore."