A Simple Desultory Philippic

It’s the last work week of the year, and Macro Man is feeling the strain. After a skein of lunches, dinners, and assorted Christmas treats, he’s begun to feel the inevitable expansion of the waistline despite his best efforts at the gym.

Yesterday he had lunch at Nobu with a couple of friends from a well-known (and, shall we say, “underperforming” bank.) It was an interesting afternoon, to say the least- not least because at least a quarter of the tables at the restaurant were empty. Long gone are the days of requiring several weeks’ notice to secure a table…the reality of the recession is indeed beginning to bite.

But what stirred Macro Man’s blood was the discussion around the current environment and the compensation expectations of staff in the financial industry. Without disclosing any details about the institution in question (so as to protect the innocent), it is fair to say that 2008 has not been a profitable year for his friends’ institution.

Macro Man’s friend in management has, for the past year or two, been fairly realistic about the environment that he’s been living and working in- that is to say, he’s been consistently downbeat. For the past month or two, he has consistently been attempting to talk down the bonus expectations of his staff.

Now, it is safe to say that the performance of this institution has been sufficiently poor that shareholders can legitimately question why bonuses are being paid at all. So Macro Man naturally assumed that “managing expectations” involved telling people that “your job is your bonus….if you actually get to keep it.”

And yet there is, evidently, a small bonus pool, which has generated an unseemly political scramble to secure as much as of the scraps as possible. To call the scenario “Machiavellian” is an insult to the whole concept of political philosophy. None of this should come as a surprise, of course; bankers should always wear a stab-proof Kevlar vest at the best of times.

But what really got Macro Man’s goat was the (unhappy) explanation that one mediocre performer will be awarded a disproportionately large share of the team bonus pool because, as his friend’s boss’s boos explained “so-and-so got a seven figure bonus two years ago and will be disappointed with anything less this year.”

DISAPPOINTED? DISAPPOINTED? Are you effing kidding me? One of the reasons why bankers get paid so much in the good times is because of “the volatility of the cycle”. Well guess what, the cycle has swung, and it’s time to pay the piper (rather than the banker.)

To claim that you deserve a bonus because “we had a good year” on the desk blithely ignores the act that “you” collectively have become a watchword for incompetence and/or malfeasance.

Now, Macro Man’s views here a coloured by his own experience. At the beginning of the decade he joined a start-up asset management company, where he worked for three years. Despite decent performance the firm never attained critical mass during his time there, so he went three years with no bonus, because there was no money with which to pay one. Indeed, the only change to his compensation during his time there was a partners’ salary haircut.

So when he hears people complaining about getting paid “only” 40-50% of last year’s bonus, he wonders what it will take for reality to bite. Particularly galling are the satisfied comments from staff at one UK bank that they “expect to get paid” this year. This is an institution that was arguably hours away from going bust earlier this year, and would have done so but for the injection of public funds (which we’ll all be paying for in years to come.) So why the hell are employees getting any sort of bonus?

Listen, Macro Man knows it’s been a tough year, and has plenty of sympathy for people like his friend yesterday that have been put through the wringer this year. But his three years with no bonus at the beginning of the year were hardly a walk in the park- quite the contrary!

Macro Man isn’t trying to hop up on some sort of populist, “bankers are evil” soapbox- quite the contrary. He’s merely disgusted by “heads I win, tails you lose” set-ups, or the complete denial of responsibility for one’s mistakes- whether they come in finance, government, or private life.

It would be nice to see people who are handsomely rewarded when they do well (or even manage a year of mediocrity) voluntarily put their hand up and accept responsibility when the worm turns. Banks are hardly alone in this regard, as plenty of hedge funds have been exposed as corrupt, incompetent, or merely unbelievably venal.

Nobu MenuBy the end of yesterday’s lunch, however, it finally started to appear like market pros are owning up to their true lot in life.

It’s often said that bankers and fund managers are tarts because they’ll do anything for money. So it’s perhaps fitting that “financier” now appears on the dessert menu at Nobu!

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About Macro Man 245 Articles

In real life, Macro Man is a global financial market trader at a London-based hedge fund. The Macro Man blog is a repository of his views, concerns, rants, and, on occasion, poetic stylings.

His primary motivation for writing is to hone his own views and thus improve his investment performance; however, he welcomes interaction with informed readers.

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