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In the news…

By Brian | January 20, 2012 | Share on Facebook

I promised myself when I started blogging again that I’d stay away from overtly political posts, but I saw a couple of articles in the news lately that I found interesting in various ways, so I thought I’d share:

BP Makes Amends
When the oil spill first occurred back in April of 2010, environmentalists claimed the damage could last for years, if not decades. Economists predicted economic doom for the Gulf region, already damaged by past hurricanes and other natural disasters. But now, less than two years later, we read this in the New York Times:

BP has performed quite admirably in [the] aftermath. It has spared no expense in cleaning up the oil. It has set aside $1 billion to restore the environment and coastal ecosystem. It underwrote an advertising campaign to lure tourists back to the Gulf Coast. Today, less than two years after the spill, the beaches are sparkling, most fishermen are working and many of the hotels are full.

At the urging of President Obama, BP also agreed to set up a $20 billion fund to compensate anyone who could show that they’d been economically harmed by the accident. Ken Feinberg, the former administrator of the Sept. 11 victim compensation fund, was put in charge of the Gulf Coast Claims Facility, as it was named. Feinberg has since paid out $6.3 billion to nearly 200,000 claimants. Daniel Becnel, a lawyer who has settled thousands of claims, says that his clients often receive more money from Feinberg than they would have if they had gone to court. “You couldn’t have done a better job than Feinberg did,” says Becnel.

So kudos all around. BP, the corporate villain who was accused of caring more about profits than people, has done the right thing. Our government stepped in to help and actually made the process more effective and efficient than it otherwise would have been. And the people of the Gulf Coast worked hard, rebuilt, and are now reaping the benefits – despite a continuing tough economy.

The widening pay gap on Wall Street
We read all the time about big Wall Street bonuses and how those rich bankers take every opportunity to reward themselves with sky-high bonuses while “the 99%” suffer. But here’s a pretty clear depiction of how the financial crisis affected Wall Street firms:

Now, before everyone jumps all over me, I’m not suggesting that $128,000 is a small amount of money, or that the average Wall Street worker is suffering. But it is noteworthy that the average bonus dropped 44% when the crisis hit, and is still 28% below pre-crisis levels. And, according to the article, the 2011 bonuses will likely average $77,000-$90,000 (a 30-40% drop from 2010), or less than the immediate post-crisis figures of 2008. Again: my point is not to launch a telethon for the poor Wall Street bankers, or to suggest that someone making a base salary plus a $90,000 bonus deserves any kind of pity. Instead, I think it’s interesting to note that the industry does police itself pretty effectively when it comes to compensation, despite the lack of any major regulations requiring them to do so.

As an aside: the article attempts to call out Wall Street firms for paying their “top performers” higher bonuses than everyone else. Anyone who’s ever worked in a meritocracy realizes how hollow this criticism rings. Whatever the bonus pool – down 30-40% or up 30-40%, one should always expect the larger share to go to the strongest performers. That is, after all, why they call it “incentive compensation.” In a base+bonus pay model, a prominent reason for putting some portion of the pay “at risk” is to allow companies to reward strong performers relative to weaker ones. And, in a down year like 2011, I don’t think a reward of “same as last year” is overly excessive for those performing at the peak.

Topics: News and/or Media, Political Rantings | 2 Comments »

2 Responses to “In the news…”

  1. Jeff Porten says at January 21st, 2012 at 2:46 am :
    Now I suspect you’re trying to give me a headache.

    BP: it would be inaccurate to say that the environmentalists were wrong about “the damage would last for decades.” Those environmentalists who said, “The Gulf will be a dead zone for 20 years” were clearly (and thankfully) wrong. But the BP spill was essentially an uncontrolled experiment on the ecosystem of the Gulf, and the only information we have about its long-term effects is what we can predict now — better information than a year ago, but still not good.

    Last I heard, the ecosystem essentially lucked out in that there were natural petroleum phages that ate the hell out of the oil. These phages apparently bloomed when the petroleum was plentiful, and died out afterwards. That implies that their waste products and remains are now what’s more plentiful by an order of magnitude or so. Effects of that remain to be seen.

    Wall Street: my tongue is bleeding from biting it so hard, but I can’t resist one question. If you think that an average bonus of $100K is appropriate for 2008, under what circumstances should no bonus be paid?

  2. Brian says at January 21st, 2012 at 3:12 pm :
    @Jeff: my point really wasn’t whether or not the environmentalists were right or wrong (or why). It was that both the private and public sectors did the right things here and got a positive result. We tend to bury those stories, but put the failures of both on the front pages.

    As for Wall Street, no bonus should be paid when the employee is given his full compensation as salary. If you’re going to give 30-50% (I don’t have statistics, but that’s what I’ve seen over the years) of someone’s pay to them in a lump sum, then you should only cut that portion to zero if your intent is to only pay them 50-70% of their expected pay.

    Also of note: since 2008, there has been a significant increase in the number of people that get $0 bonus on Wall Street, particularly at the most senior levels. In 2008 itself, most senior management teams (CEOs and their direct reports) voluntarily set their bonuses to $0 (which reflected the standard factors that go into bonus calculation: performance of the industry, performance of their firm, and their own performance, but also reflected the immense political pressure of the presidential campaign at the time).

    Since then, the “meme” has been that after the crisis, Wall Street went right back to paying super-high bonuses, while the economy remained stagnant and unemployment remained high. I thought this was a clear & concise way of showing that this wasn’t (and isn’t) the case.