Monday, May 18, 2015

The sickness is spreading, and the disease is serious: Wife bonuses

The sickness is spreading, and the disease is serious: Wife bonuses

I’ve been in and around the money management business for a long time.  I’ve known hundreds of hedge fund and private equity managers.  I did not know that it’s fairly common practices for alternative managers and investment bankers to pay bonuses to their wives.  Wednesday Martin is about to publish a memoir “Primates on Park Avenue” in which she details the lives of the wives of the Wall Street elite.  In an opinion piece in The New York Times,[1] Ms. Martin describes the financial incentives that drive private equity and hedge fund households:

A wife bonus, I was told, might be hammered out in a pre-nup or post-nup, and distributed on the basis of not only how well her husband’s fund had done but her own performance — how well she managed the home budget, whether the kids got into a “good” school — the same way their husbands were rewarded at investment banks. In turn these bonuses were a ticket to a modicum of financial independence and participation in a social sphere where you don’t just go to lunch, you buy a $10,000 table at the benefit luncheon a friend is hosting.

As this blog has detailed over the years, much is wrong on Wall Street and in the offices of money managers.  Ms. Martin’s book tells us that the cultural sickness of the industry is being brought into the private lives of financial titans by running homes like hedge funds or investment banks.  According to Ms. Martin’s reporting, the women who run their households on the bonus system are highly educated, and many have worked in professional roles on Wall Street.  They are not being exploited or forced into these arrangements.  Apparently, they share their husbands’ belief that financial incentives and bonuses are the best way to run anything from a portfolio to a home.

When it comes to the workplace, the vast majority of the bonus systems reward luck rather than performance.  The measuring periods are almost always too short to reward persistent outstanding performance.  Instead, these incentive programs reward investment professionals for happening to be on the right side of a set of trades or deals.  They are a way of cloaking the unconscionable pay packages of Wall Street’s elite in the aura of merit.

Naively, I assumed that money managers and bankers left their amoral values and financial alchemy at the office.  I was wrong. The children of the financial elite are going to grow up with some very bizarre values if their homes are run on Wall Street’s financial system.   The sickness is spreading, and the disease is serious. 

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