Does the average taxpayer really understand what it means to be a shareholder?
August 13th, 2009 | 
Author: The U.S. Treasury’s TARP program has essentially made the average taxpayer a shareholder of a number of the country’s largest corporations including General Motors, Bank of America, and Citigroup. With all of the public outcry concerning pay at Wall Street firms, particularly aimed at the receivers of TARP funds, it makes me wonder if the average taxpayer understands what’s at stake here. Recruiting top talent has always been an extremely competitive aspect of doing business in financial services, and it is a large determinant of how profitable a Wall Street firm will be. It has long been a well accepted axiom on the Street that a financial firm’s most valuable assets go up and down its elevators every day.
Yet the average taxpayer seems determined to place the companies that they hold an ownership interest in at a competitive disadvantage by hamstringing their ability to hire top talent by limiting their compensation options. A number of firms, including Goldman Sachs and J.P. Morgan have repaid their TARP money (at a significant profit to taxpayers) in order to regain their ability to keep and attract top talent.
I have long believed that many Wall Street salaries are too high and I am against the concept of guaranteed bonuses, but as long as there are firms willing to pay up for top performers, firms that cannot do so will be at a distinct disadvantage. Granted financial services firms sometimes get it wrong and overpay employees of dubious value, but most of the time the most talented traders and managers represent a good return on investment- just look at Goldman Sachs’ record profits.
The average American wage earner has a hard time relating to the kind of pay that many bankers earn, and I can understand the anger at an industry that had a significant role in the economic crisis, but shareholders should act rationally, not emotionally.
While I would never recommend shareholders to turn a blind eye to compensation, I would urge them to accept the economic realities of their industry and refrain from hampering their company’s ability to compete. Free markets thrive on economic self-interest, not anger.
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