[Mb-civic] An article for you from an Economist.com reader.

Wed Jan 4 11:00:39 PST 2006

- AN ARTICLE FOR YOU, FROM ECONOMIST.COM -

Dear civic,

Michael Butler (michael at intrafi.com) wants you to see this article on Economist.com.

(Note: the sender's e-mail address above has not been verified.)

Subscribe to The Economist print edition, get great savings and FREE full access to Economist.com.  Click here to subscribe:  http://www.economist.com/subscriptions/email.cfm 

Alternatively subscribe to online only version by clicking on the link below and save 25%:

http://www.economist.com/subscriptions/offer.cfm?campaign=168-XLMT

EXECUTIVE PAY
Jan 3rd 2006  

The bonus season on Wall Street is big but quiet

AS 2005 ended, it did not appear to be a particularly good year in
America's financial markets. Returns on equities were modest, returns
on debt (broadly measured) almost negligible. For people working in the
investment business, it has been quite another story. The American
economy was strong and its companies hugely profitable; and the
benefits from both were magnified in the results of financial firms and
their most fortunate employees. In the fourth quarter of last year
compensation costs at Goldman Sachs rose by 52%, compared with 2004, at
Morgan Stanley by 45% and at Lehman Brothers by 28%, according to an
analyst at Merrill Lynch. Bonuses, often the biggest component of
compensation, were announced over the holidays and have been huge. But
unlike the last time things were this good, at the end of the last
decade, the celebrations have either been tiny or very private.

Before providing a rationale for this, Buttonwood would like to be
frank about his disappointment. If the rest of the world cannot receive
the outsized earnings received by a lucky few, it should at least have
enough examples of grossly conspicuous consumption to be either
inspired or self-righteously disgusted. This was so in the late 1990s,
when work was supposed to be fun and the most successful investment
banks constantly worried that all their employees, from the mailroom
up, might depart at any moment for even more lucrative careers tied to
the internet and thus should be lavishly coddled and rewarded.

Certainly, the fact that the 1990s turned out to be a gigantic fraud
contributed to a new ZEITGEIST on Wall Street. No one is quite so
insanely optimistic any more, which inevitably puts a pale on revelry,
and there is no longer much interest in indiscriminate coddling. If
Goldman Sachs is any example, the biggest returns, in not only absolute
but also percentage terms, float towards the top. Just before the
Christmas holiday, filings showed that Hank Paulson, Goldman's chief
executive, received what is likely to be the Street's largest disclosed
pay packet: a $37.4m bonus atop a $600,000 salary. That is up from
total compensation of $30m last year. This may, if anything,
underestimate the true divergence between winners and losers. At the
same time as bonuses are distributed, Wall Street firms have made it a
habit of notifying several per cent of their staff that they should
pursue other careers. As anyone with a shred of perspective has come to
learn, this year's lavishly rewarded star might be part of next year's
purge. Who can celebrate that?

There are sound political reasons to be more restrained as well. The
various investigations into Wall Street may not have revealed many
crimes, but they have shown how easily prosecutors can be roused when
investors are feeling aggrieved. Evidence of lavish spending played a
large role in the prosecution of Dennis Kozlowski, the former chief
executive of Tyco. Presidential campaigns (albeit unsuccessful ones)
have been based on demonising the rich. An executive arriving to work
today at a top investment bank in a Rolls Royce, Bentley or Ferrari
would risk being fired (these ought to be kept at second homes). The
role model at the moment for visible spending in New York is the city's
mayor, Michael Bloomberg, a former trader who earned a fortune
providing financial information. In the past year he spent almost $100m
of his own money to win the thankless (and unpaid) job of trying to
keep an ongoing municipal disaster from toppling over. His name
routinely pops up as a huge contributor to innumerable charities and
there is a pervasive assumption that he makes huge anonymous
contributions as well. He dresses in nondescript suits, fiercely
resists efforts of the press to pry into his private life, and comes
off as serious and effective rather than flashy. While it is highly
unlikely that a similarly driven person will succeed him, his tenure
has almost four years to go.

People are, of course, spending their bonuses, but often in ways that
are hard to see. It may have never been more difficult to find a
contractor to do a renovation in New York or to get a child into a
private school. Dolly Lenz, an estate agent at Prudential Douglas
Elliman, says the evidence that bonuses would be strong this year
emerged as early as November. Notwithstanding some evidence of a
slowing housing market, every beachfront property in the Hamptons was
scooped up by Christmas, whereas the buying season usually starts in
February. In the past five weeks, five apartments were put up for sale
in a sought-after building across from the Metropolitan Museum of Art.
Three are already gone, each for between $15m and $20m.

Across from where our namesake buttonwood tree once stood on Wall
Street, a building that once served as Citibank's headquarters has been
converted into apartments. It has attracted "baby bankers", meaning
those in their twenties and thirties, who have been scooping up small
but elegant apartments, costing between $900,000 (for a studio) and $5m
(for a three bedroom), says Ms Lenz. Older clients, she adds, are now
in their early forties, a sharp drop from just a few years ago.

The shift in age no doubt reflects another change: most of the
beneficiaries of the current boom are not the same people as those who
prospered during the last boom. In short order, observes Charles
Bralver, a consultant at Mercer Oliver Wyman, the investment banks and
the markets have transformed how they make money, from equity
underwriting to the more speculative corners of the debt market,
derivatives, and servicing hedge funds and private-equity firms.

And that may be the final reason why the celebrations may be modest.
Any business that could change so quickly in the past can easily change
again. Perhaps this year's beneficiaries are, quite reasonably, saving
while they can. How dull. How clever.

- - - - - Send comments on this article to Buttonwood (Please state
whether you are happy for your comments to be published)

Read more Buttonwood columns at www.economist.com/buttonwood[1]

-----
[1]
http://www.economist.com/research/articlesBySubject/display.cfm?id=2512631

See this article with graphics and related items at http://www.economist.com/agenda/displaystory.cfm?story_id=5352836&fsrc=nwl

Go to http://www.economist.com for more global news, views and analysis from the Economist Group.

- ABOUT ECONOMIST.COM -

Economist.com is the online version of The Economist newspaper, an independent weekly international news and business publication offering clear reporting, commentary and analysis on world politics, business, finance, science & technology, culture, society and the arts.
Economist.com also offers exclusive content online, including additional articles throughout the week in the Global Agenda section.

-	SUBSCRIBE NOW AND SAVE 25% -

Click here: http://www.economist.com/subscriptions/offer.cfm?campaign=168-XLMT

Subscribe now with 25% off and receive full access to:

* all the articles published in The Economist newspaper
* the online archive - allowing you to search and retrieve over 33,000 articles published in The Economist since 1997
* The World in  - The Economist's outlook on the year
* Business encyclopedia - allows you to find a definition and explanation for any business term

- ABOUT THIS E-MAIL -

This e-mail was sent to you by the person at the e-mail address listed
above through a link found on Economist.com.  We will not send you any
future messages as a result of your being the recipient of this e-mail.

- COPYRIGHT -

Economist.com privacy policy: http://www.economist.com/about/privacy.cfm