A Better View

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Expert Perspective by Grahall’s OmniMedia Editorial Board

expert perspective telescopeThe November 19, 2009 column in DealBook ran an article entitled Another View: Unintended Consequences on Wall St. by Peter J. Solomon, the chairman of the Peter J. Solomon Company.  Solomon says: “… let’s face a couple of facts. First, there are no absolute standards for determining compensation, particularly in finance…  Second, Wall Street compensation — relative to value added — is fundamentally inequitable… Third, the compensation brouhaha is not constructive…”

Are these the facts?  Well maybe or maybe not.

There may be no “absolute standard for determining compensation” but there are standard processes used to do this.  Traditionally the process used for asset managers and investment bankers to determine compensation is to do benchmarking and competitive analysis.  If you reflect about what the outcomes of competitive analysis are you find that firms who rely on this are always pegging themselves above the median. (I mean who wants to be “average” or God forbid “below average”).  So what happens as these firms set pay at the 50% percentile or more?  The median is driven up year over year.  Firms hire consultants to perform the competitive analysis, justify a 5% to 15% increase, then come back and do it all over again next year.   

On its surface it does seem that Wall Street pay is inequitable.  But we don’t think that most Americans on Main Street begrudge high pay to “financial manipulators, movie stars and guys who hit three-run homers”.  We understand that certain skills and capabilities and certain jobs are “better paying”.  What Americans don’t want is to be “taken”.  Americans weren’t angry that Wall Street executives were highly paid until those same executives almost bankrupted the world and many Americans lost their jobs.  Now they are angry to hear that those same executives are getting mega bonuses paid in part by tax dollars (at TARP companies) while they wait in line at the unemployment office. That is inequitable.

The furor over compensation has certainly used up a lot of ink (and virtual ink) in the media, the talking heads of right, left and center leaning outlets all have something to say. It might not make for smooth sailing toward “achieving a new regulatory landscape” but that is the democratic process.  It can be ugly and difficult and time consuming but it’s the best one we have.  

So gentle reader we recommend that you consider the facts.  In fact, consider them all.

Contact Grahall’s OmniMedia Editorial Board at edie.kingston@grahall.com

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