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Why Wall Street Bonuses Aren’t All That

On Wednesday, CNN Money, in conjunction with Fortune, talked about end-of-the-year Wall Street bonuses. Guess what? CNN Money is referring to the bonuses as “golden shackles,” with good reason. According to their report:

…bonus pay this year is going to come with a hitch: more stocks, less cash. The bigger the bonus, the more of it will be given in equity, say compensation experts at Armstrong International. The reason? Banks desperately need to hold on to their people; stock makes it tougher for their stars to take the money and run to, say, Goldman Sachs.

It’s ironic that as stocks are being doled out as holiday bonuses, Jim Rogers, legendary investor and founder of the Quantum Hedge Fund with billionaire George Soros, is betting hard against the sector.

Back on October 31, Rogers told Bloomberg that he was increasing his bets against U.S. securities firms because of salary “excesses” and money-losing investments. He increased his year-old short positions in U.S. investment banks in the 6 weeks prior to the interview.

Regarding salary excesses, Rogers told Bloomberg that:

You see 29-year-olds on Wall Street making $10 million to $20 million a year, and they think it’s normal. There have been lots of excesses.

The chairman of Beeland Interests also talked about the money-losing investments by the firms. Rogers said, “Who knows how bad the balance sheets are. They took on gigantic amounts of bad paper.” In a follow-up interview with Bloomberg on November 2, he added:

I am short the investment banks, as you know. I added more not too long ago. There’s a lot of phony bank bookkeeping going on. You should learn the word level 3 accounting, level 3 assets, because you’re going to hear a lot about it in the next 6 months.

In a bear market, the famous commodities investor predicted that stocks of U.S. investment banks could fall as much as 70%. So much for those bonuses…