Monthly Archives: June 2011

Layoffs vs Pay cuts. How Wall Street May Trim Comp

Some folks are saying investment bankers are due for a round of major pay cuts.

Return on common equity has fallen at big banks like Goldman Sachs and Morgan Stanley, but compensation-to-revenue ratios haven’t budged by much.

If finance executives are going to trim comp, however, odds are good they will do so with layoffs. Bosses have historically preferred to cut jobs, which arguably is less harmful to morale and productivity.

Even in the darkest days of the recent crisis, the companies that trimmed checks had a bit of a one-for-all culture, like FedEx, which gave a 5% haircut to 36,000 workers. Finance, a business where there is often a loser on the other side of every winner, is a bit of a different animal.

And the key to making a pay cut work most efficiently is having it perceived by workers as equal and unilateral. In a recent study on people selling membership cards to German nightclubs, an across-the-board wage cut was met with a 15% reduction in productivity. However, a wage cut to only one worker in a two-person team prompted a 31% to 34% decline in productivity for that unlucky individual while their partner’s productivity was unchanged.

In investment banking, a business marked by layers of seniority and a largely fluid practice of doling out the bonus pool, the appearance of even-handedness would be hard to achieve.

In other words, Wall Street may well get the axe out for shareholders, but don’t look for it to swing at compensation packages, one of the industry’s last sacred cows.

Advertise Yourself on Facebook (FINS)
Some job candidates are buying ads pitching their services directly to prospective employers on Facebook and other social networking sites. Creative or creepy?

Is HBS Cooling on Wall Street? (WSJ)
The share of Harvard Business School entrants with finance experience dropped to 25% from 32% last year. Harvard says it’s getting more strong applicants from other industries.

No Experience Necessary (Registered Rep)
With 14% of financial advisors over age 60, Wells Fargo Advisor is trying to lure career changers to the business. Almost two-thirds of the firm’s January hires were rookies.

Featured Job
Associate Manager – Financial Analysis
Novo Nordisk, Princeton, NJ Posted 6/13/2011

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Obama’s Street Strategy (NetNet)
NetNet has a playbook on how Obama can mend ties with Wall Street donors. Among other things, it suggests dropping the “fat cats” label and wooing young staffers.

How to Raise an Entrepreneur (WSJ)
Apparently, it goes beyond the lemonade stand. A wide range of experts weigh in on how to cultivate a curious mind (there’s a great anecdote about a young Sam Zell peddling Playboys).

…however (Forbes)
Entrepreneurship isn’t for everyone. A career coach makes a case for traditional jobs; they don’t require as much selling and they often provide a better work/life balance.

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Posted by on June 14, 2011 in Career Changes


What The New Tax Law Deal Means To You.

Despite objections raised by Democrats, and a lengthy delay of the final vote until late Thursday, the House of Representatives has passed an extension of the Bush-era tax cuts, keeping payroll tax rates for all wage earners at current levels. President Barack Obama signed the bill into law Friday afternoon.

The $858 billion legislation, a product of negotiations between Obama and Republican lawmakers in the Senate, also continues a cut in Social Security taxes. That means you’ll continue to bring home more in your paycheck.

The deal extends through 2012 the Bush-era reductions on income, capital gains and dividends taxes. The bill also extends unemployment insurance benefits through 2011, providing relief to thousands of jobless Americans who stopped receiving unemployment checks as of Dec. 1.

Among other ways the extension of the Bush tax cuts affects you:
• Your tax rates will remain at their current levels — 10%; 15%; 25%; 28%; 33%; and 35%, based on your income. It also maintains lower tax rates on your investments for the next two years.
• If you make less than $90,000 a year, the bill provides an extension of the $2,500 credit you’ve been receiving to help pay for college tuition, which was begun under last year’s economic stimulus bill.
• It will be easier for you to provide for your children. Under the Bush bill, you got a child tax credit of $500. That has now increased to $1,000.
The legislation also allows businesses to completely write off any capital investment made from Sept. 9 through the end of 2011.

House Democrats bristled at the agreement Obama reached with Republicans on Dec. 6, saying it gave too much to the rich. In addition to eliminating a tax break for households making $250,000 a year or more, Democrats wanted to raise the top rate on estate taxes to 45% on inheritances of more than $3.5 million.

The Senate bill contains a provision that would exempt as much as $5 million from the inheritance tax and subject estates in excess of that amount to a 35% tax.

Procedural Objections

Whether the bill would be considered for a vote in the House on Thursday was in doubt for a while after the measure was abruptly pulled from the chamber’s schedule. But a quickly implemented rules change allowed the measure to be debated and voted upon, with the final tally coming at nearly midnight.

Democratic members of the House had raised objections to the change because it would have required those who wanted to increase the rate for estate taxes to simultaneously approve the entire tax-cut measure.

Many Democrats objected, as Bloomberg News reported, because it “would not give them a clean yes or no vote on the Senate bill,” said Peter Welch (D-Vt.), who opposed the legislation.

The Senate passed the measure Wednesday by an overwhelmingly margin of 81-19.

Despite the confusion caused by the rules change, which would have allowed House to amend the bill to include a higher estate tax, the legislation was largely seen as passing. Ultimately, however, not enough Democrats singed on to support the higher estate-tax proposal.

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Posted by on June 9, 2011 in Tax Relief