As Bank Profits Plunge, Wall Street Bonuses Fall Modestly

    This article is from NY Times called "As Bank Profits Plunge, Wall Street Bonuses Fall Modestly." In the article, it discusses the payroll and annual bonuses of Wall Street employees and executives during this recovery period. In comparison, the profits for this year will be estimated to be about 51 percent less than 2011 in the finance industry. But what this article notes explicitly is that the total payouts to these employees will drop approximately 14 percent during this bonus season. The article states, "Stymied by regulatory requirements, the European debt crisis and a sluggish economic environment at home, the nation’s largest banks suffered in 2011."Despite this economic hardship large firms, such as Goldman Sachs, Bank of America and JPMorgan Chase, continue to keep their payroll at high levels.

     At first glance, any economist would say this is not the wisest decision. When a company or individual is facing huge losses in profit, there is less incentive to spend money. However, many of these firms defend their decision making to pay out relatively the same amounts of money to their employees because they feel it is crucial to drawing in new experienced workers and rewarding the ones they already have. This is true because if the wages a firm pays is high enough, then more people enter the labor force due to that incentive; thus allowing the firms to attract more potential employees. As Jamie Dimon, the CEO of JPMorgan Chase stated, “We need top talent. You cannot run these businesses with second-rate talent.”

     While this explanation is somewhat self explanatory, it does not outweigh the cons of this decision. While attracting potential employees will bring the company future benefits, the current situation these firms are in will only worsen by spending relatively the same amount on payroll while profits are diminishing greatly. Keeping in mind these are multi-billion dollar industries, 50 percent of their profits are relatively still large amounts of money. However, when the amount of money you generate is cutting in half for the second consecutive year, then it gives the decision makers of these Wall Street firms incentive to try and cut spending. These firms should be cutting their payroll slightly more to cover some of these losses; for if these losses are not paid for internally by the suppliers, some of the expense will fall on the consumers.


Source: http://dealbook.nytimes.com/2012/02/29/as-bank-profits-plunge-wall-street-bonuses-fall-modestly/?ref=business