4 big myths about Wall Street bonuses

According to MarketWatch in the world of compensation, the Wall Street bonus resides somewhere between armed robbery and bullies taking a kindergarten kid’s lunch money. And yet for all of the public outrage, bonuses continue to be doled out the same way they have for most of the last two decades of industry excess.

Myth No. 1. Without big bonuses big banks and brokerages will lose top talent to rivals or hedge funds

The “retention” theory makes perfect sense in almost any other industry. We all know how technology whizzes are being courted by Facebook and Google Inc. GOOG +0.15% . Even among the blue-collar crowd there is ample demand for specific skill sets such as machinists, welders and other specialized trades. But on Wall Street, the trend during the last two decades hasn’t been as much about specialization as it has been about commoditization. Every bank and brokerage pretty much does things the same way. Sure, there are some stars, such as Morgan Stanley’s MS -3.07% Chuck Cory who returned to the firm’s Silicon Valley office just in time to land the Facebook initial public offering. For everyone else, however, the bad news is that everyone is replaceable.

Myth No. 2. Bonuses are incentive rewards This one doesn’t seem to get through to people who either have never worked on Wall Street or haven’t bothered to educate themselves. So, here’s the quick and dirty: When a banker or broker is hired, there is a stipulation right from the top that the primary form of compensation will be the bonus. A Wall Street salary is just the industry’s form of baby-sitting. It’s there so everyone has a steady income.

The real meat of pay on Wall Street is the bonus. Brokers and traders like the bonus because they can bet it all on a new house, car, pork bellies, weather futures — anything. Bankers, being more conservative in nature, get smaller bonuses anyway. But the idea that bonuses are somehow rewards for a job that’s beyond the call of duty or gravy isn’t right. Bonuses are there to provide employers flexibility...

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