The federal government’s theory seems to be that capping the pay of the most talented people on Wall St. will not cause them to march out the doors to better jobs at small firms or foreign banks. Maybe the Treasury and the Fed believe that there are not enough high-paid jobs to go around. Talent will be forced to stay where it is.
UBS (UBS) seems to believe that the government’s view of the future of Wall St.’s talent pool is flawed. According to Reuters, it will pay its best bankers 50% more in base salary than they made last year. Whether they will also move up bonuses is not clear.
UBS is one of the largest banks in the world and is almost among the most troubled. It losses on mortgage-backed securities have been unusually high compared with most other banks. It will have to count on its investment banking and trading desk operations to offset losses. It cannot afford to have the people who will produce this revenue leave in one relatively quick exodus.
US banks will use the UBS decision as proof that underpaying critical employees is the best way to keep financial firms from recovering from losses. A banker who brings in $50 billion in profitable business is worth $10 million.
By the time the argument over the importance of bankers is proved or disproved, the debate may be academic. Traders and investment professions will go where they are paid best. They have no incentive to do otherwise.
Douglas A. McIntyre