The common argument in favour of paying out performance and retention bonuses at bailed-out banks is that even bailed-out banks have to compete for talent.
The response is usually along the lines of: People are getting laid off everywhere, how much of a competition for talent could there be?
A Clusterstock reader, who goes pseudonymously as Hari Seldon, proposes a solution.
One of the recurring claims justifying the payment of bonuses is that no one else is better qualified to pull these institutions out of trouble than the employees that are already with them. Everyone else, it seems, lacks the technical capability to deal with the problems.
Given the growing number of qualified people who are finding themselves in the unemployment line, this claim is dubious at best. With tens of thousands of bankers laid off, I’m sure most of you know someone who has the intelligence to fill a position at any of these firms, but no longer is employed.
Just the other day, I was talking with a principal at a mid-sized private equity firm. He is lucky enough to have recently raised a new fund and as a result has plenty of capital to invest in what looks to be a great market. As a result, he told me about his onging efforts to fill a role in the organisation for a Director level Business Development position. Typically, he would have used a headhunter and paid a small fortune to attract this employee. However, given the circumstances, he thought that the market was on his side and was interested to see how bad things where on the outside. He posted a listing on the internet and received in excess of 200 resumes over a two day period. These were people with premier educations, relevant experience but no job. He said he thought that half of them would be qualified and capable to do what he needed and would have no problem filling the position. This, I think, is what you would call a buyer’s market.
While the position is different than many within a large bank, are we really to believe that the only people who can deal with the problems are the ones that are still working there? One could make the case that the employees who remain could actually be inferior to those on the outside. We just don’t know. Those who thought outside the box and asked the questions that no one wanted to answer were likely the first to be let go. This happened to anyone who questioned the continuation of securitization originations at multiple bulge bracket firms. You can’t have someone questioning authority when things are in near free fall and you need to protect yourself. Loyalty, rather than intelligence or ability, becomes the most valued trait. The question you should ask yourself is isn’t independent thinking exactly what we need?
After the tech bubble burst, many of the large firms in the space had people re-apply and interview for their own jobs. The engineers and programmers were quaking in their shoes and more than willing to take 20% plus pay cuts and accepted a bonus and profit sharing moratorium given the alternative of the unemployment line. They recognised the need sacrifice to maintain a base level of income and the viability of the firm.
Maybe this approach should be taken when the banks take the next round of TARP funding. Everyone earning more than $250,000 must re-apply for their job and interview alongside competition. If someone of similar calibre is willing to do the job for half the price, then the current employee can either take a pay cut or take their skills elsewhere. It has been done before with great success in technology, why not apply it here?