It’s true. Earlier this year, based on last year’s performance, I received a bonus amounting to about $38,000. I didn’t receive it in cash. Instead, I received the bonus (as always) in the form of restricted company stock. That is, I am not allowed to take ownership of the shares for two years. If the company stock appreciates, naturally I will make more when I am in constructive receipt of the shares. Until then, I wait. I work hard. And I try and help my clients navigate this difficult economy.
As I’ve mentioned in these diaries before, I am a financial advisor. I work for one of the major Wall Street companies. In the most crude sense, my company pays me to bring other people’s investments to my company. It’s a sales job. Subsequently, I get compensated for how well I bring in new money and retain the old. To put it mildly, 2008 was a very rough year. My salary is 100% dependent on the state of the markets. If the markets are off 40%, so is my income. The math is not difficult.
Back to the bonus. I agree with most of the anger out there reflected at the Wall Street bonuses. People who were directly responsible for increasing investment risk through complicated derivative products should not only not receive a bonus, they should not be allowed to retain their jobs. At my company, that was the case. An entire division was fired. Months ago.
The industry served out about $18B in bonuses for last year. According to the Bureau of Labor Statistics, there are about 250,000 financial advisors in the US. That works out to about $72,000 per financial advisor. This, of course, is a nonsensical number. Most financial advisors don’t receive a bonus (at all), and if they do, it’s definitely not that large. We can then conclude that people whose jobs are NOT related directly to generating revenue for the firm (as is my job) received bonuses. In most years, this is not a big deal. Last year, it was. Some executives (at this company at least) definitely deserve their bonus. They saved the jobs of tens of thousands of people world wide. They did so by partnership, lobbying the Fed, the Treasury, the SEC, and even taking some TARP money (the least handed out to all the companies that received it). Indeed, many old and establish firms are simply gone from the face of the planet or are a shell of their former selves. My firm is still standing and in a good position to weather the storm. I guess I got lucky for being here rather than (by happenstance) almost anywhere else. But the human beings who pulled this off deserve praise. As the financial industry was sinking into the abyss, some people were able to salvage their firms. Those executives at competing firms who are still bleeding...they should agree not to take bonuses whether they received TARP funds or not. They don’t deserve it. Their revenue producers do deserve their bonuses...as we went about doing our jobs as the situation around them deteriorated.
My bonus plan, explained:
Every year, my firm comes out with a bonus plan that is applicable for the next 12 months. In general, it says that if you produce between A and B dollars (revenue), then you are eligible for a X% bonus, if you produce between C and D dollars, then you are eligible for a Y% bonus, etc. Assume that the fiscal year is over and you produced, say $500,000 for the firm. It would be an untenable situation if the firm backed off the bonuses that it promised you over a year ago. You held up your end of the deal...you were a money maker for the firm. Based on the policies, then you get a bonus of X%.
Market conditions have made it so that NEXT year's bonuses will be less than this year's bonuses...as a percentage. So management is being sensitive to market conditions. But from where I sit, if the firm reneged on their obligation, I could simply leave to go to another firm. Believe me when I say to you, that banks and investment houses are currently paying top dollar for an Advisor's book of business. I get phone calls nearly daily from branch managers at other firms to tempt me to go elsewhere. The cash incentives right now are insanely high. In short, investment firms (and banks) are attempting to buy market share in this rapidly consolidating industry.
Reward Trips
Other concerns lately revolve around business trips to fancy resorts. How can a company that took government money justify these trips? From a public relations perspective, they can’t. But the reality on the ground is quite different. For a revenue producer, like me, these trips are not the golf excursion they’re portrayed to be. We spend most of our time in windowless conference rooms learning about practice management, new ideas, updates on the computer systems, and generally networking with the executives of our firm. Don’t get me wrong: having the trip in Miami is a treat and ensures that more people actually attend. Having a reward trip in February in downtown Chicago will guarantee about 50% fewer participants.
These are "reward" trips in that not everyone at the firm gets to go...only those with production levels above a certain threshold. And more than half the cost to these meetings is paid for by outside vendors. Accusing the firm of wrongdoing by keeping their sales force up to date is simply ridiculous. Having said that, for PR reasons, my firm canceled all trips for this year. It simply isn’t worth it to have our name dragged through the mud. I do find it interesting that other industries have not curtailed their sales force reward trips.
My plea to the masses is this: don’t lump us all together. The financial mess was caused for many intertwined reasons, and there is a fair amount of truth to almost any angle of discussion about this topic. I work very hard for my clients and I am valiantly trying to keep them all afloat. For this, I am rewarded with referrals for a good job. That brings in new money. That leads to a bonus for next year for a job well done.