Friday, July 17, 2009

Where's That Goddamn Ringing Coming From?

Nobody listens to me.

Were I not a charter member of Ye Ancient and Hoary Order of Pompous, Arrogant, and Misogynistic Assholes—more commonly known in this day and age as investment bankers—I might take this state of affairs amiss. But my ego, like my checkbook, is constructed of seamless cast iron, so no little absence of sustained attention to my pearls of wisdom can disrupt my customary bonhomie, especially on such a pleasantly sweltering Summer Friday as today in New Jack City.

But this afternoon, as I surveyed the crater-strewn landscape outside my window that used to be the gleaming crossroads of international finance over the remnants of a particularly satisfying cigar, I became filled with magnanimous concern for those among my brethren who perhaps are not in as comfortable a situation or as equable a mood as I.

I speak, of course, about such friends and colleagues as those who man the 24-hour money spinning machines at Goldman Sachs and JPMorgan. Poor, sad, pitiful wretches. For surely, even as they labor valiantly over the swelling piles of filthy lucre in the engine rooms of the global economy, sweating buckets into their custom-made shoes and staining their $5,000 suits with unsightly streaks of salty perspiration, these poor creatures know that appreciation and admiration among the general populace for their selfless acts of daily heroism are nowhere to be found.

On the contrary, jibes, epithets, and scurrilous abuse are what they encounter. No "Thank you, Sir, for sacrificing your weekends in St. Barts and daily visits to the manicurist to shovel ever greater piles of gleaming coin into your shareholders' and senior executives' bank vaults, whence surely they will eventually trickle down to water the parched and thirsty lips of a grateful nation." No, instead they get called "vampire squid," and are castigated for having blood funnels.

As if that's a bad thing.

* * *

Apparently there is some small concern that, after having been thrown several government-issue lifejackets and buoyed upon a flood of free taxpayer money to preserve the illusion that they were no better off than perennial basket cases like Citigroup and Bank of America, Goldman et al. are displaying a striking tone deafness when it comes to the recompense of their toiling hordes. They are accruing bonuses according to the old "halfsies" rule, which history tells us was first formulated in the late Pleistocene when a natty Cro-Magnon investment banker promised to help acquire a particularly troublesome Mastodon for a gormless bunch of Neanderthal cubicle dwellers in exchange for half the choice steaks.

Sadly, tradition is no substitute for judgment in these troubled times. Accordingly, out of deep charity and the everlasting goodness of my heart, I am more than happy to share again some thoughts I transcribed on this very subject a mere 8 1/2 months ago, which the executives of the surviving investment banks might find useful. I will not take offense that my previous advice seems to have been ignored, since I am sure that last October Messrs. Blankfein and Dimon were far more concerned with swatting piranhas and alligators away from their submerged testicles than with fine-tuning the optics of a politically acceptable and competitively workable compensation model.

For any of you who are too lazy to click through to the original, plus those (like Lloyd) who have been charged by Timothy Geithner with itemizing every surplus hyperlink they have taken on the taxpayers' dime, I offer the core of my measured advice here:

Pace the structural changes in the industry, which all point toward a long-term decline in both the absolute and relative levels of investment banking compensation, the CEOs and Boards of Directors of major commercial and investment banks are under severe short-term political pressure to reduce pay. Because this is true for the entire industry, senior management at the leading banks may take this opportunity to cut their wage bill in tandem from, say, the traditional 50% of net revenues to 40%, or lower.

I can think of many senior executives who would love to stick it to their restive, pain-in-the-ass bankers and traders who are never happy with their pay, no matter how high it is. This crisis could provide the industry great air cover for a structural change in the level of pay to employees. "It's not us," they will cry, "Congress made us do it!"

Nevertheless, even at reduced payouts the absolute level of pay for the typical bog-standard Managing Director will still be plenty large enough for Henry Waxman to string him up with piano wire on the steps of Capitol Hill and be applauded for doing so. Panicky, resentful voters who can only dream of making enough money to break into Obama's higher tax bracket and who are worried about keeping their homes, their jobs, and their three large-screen plasma TVs will not look kindly on anyone making over $1,000,000 this year. Even in a shitty year like this one, there will be plenty of those to go around.

So i-bank management better start getting pretty clever about justifying, explaining, and structuring its compensation practices and payouts in the glare of public scrutiny. For what it is worth, I think most people could accept even high pay packages if it were shown that bankers were not walking away with the family silver after the public has saved their house from burning down. Limit maximum cash compensation for everyone to less than $1 million, and make up any excess in the form of long-dated options and long-vesting restricted stock. I imagine even Joe the Plumber could accept an MD earning $10 million this year if he knew that $9 million of it was in the form of company stock he cannot touch for five to 10 years. That way, the banker will thrive or suffer in tandem with his firm's other shareholders and the US taxpayers who have rescued his cookies, and Messrs. Waxman and Cuomo will take comfort in knowing that TARP's billions have not flown straight out the door to fund cocaine and hooker binges on St. Barts this Christmas.

There you have it. Put on the hair shirt, don the mucking boots, and just wade right into the Augean Stables. You have the best excuse in the world right now to screw over your employees. All you have to do is point out the window and show them the snarling crowds of Congressmen, auto machinists, and Rolling Stone readers waving pitchforks and torches on the sidewalk to persuade them that yes, perhaps just this once, they might forgo squealing like little girls if they receive less than half of the total, crisis-inflated dollars rolling in the front door and defer most of their cash compensation to another day.

As usual, you can soften the blow by reminding them that most citizens outside the charmed circle of investment banking have all the basic understanding of finance and accounting of Maxine Waters and frontal lobes which are easily distracted by the shenanigans of John and Kate or the Jonas Brothers. This too, as as our colleague and mentor the Devil himself has maintained from time immemorial, shall pass.

* * *

But Lloyd, Jamie ... Guys.

I'm a businessman, too, you know. I figure my advice will save you and your firms billions of dollars in current compensation, and, what is more, garner you a priceless trove of positive publicity and political capital that will just keep on giving into the future. (As long as you continue to water it with ongoing campaign contributions, of course.) I think I deserve to be compensated for my critical contributions to your firms' value creation, don't you?

Whaddya say we split the difference, and I take 5% of your combined 2009 annual revenue as a fee. That's fair, right?

Oh, and by the way, I want top billing on the deal tombstone. Tossers.

© 2009 The Epicurean Dealmaker. All rights reserved.