Banking Compensation

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Imagine that you were the king and you were starting a new society.  One of the issues that you would have to decide is what jobs need to be created and how much you would need to pay everyone.  Imagine for simplicity that you were looking at the following jobs:

1. military — requires people to protect your kingdom at the risk of losing their own life

2. doctor — requires someone to study for years in order to keep people in your kingdom healthy

3. banker / trader — requires someone to help businesses raise capital, do transactions, etc.

Which position should be the most highly paid?  If you were going to take one of these jobs, which position would you demand the most money for?  I can tell you for sure that I would much rather be a banker than be in Afghanistan.

Banker compensation has been big news for the past few years.  This week, Goldman Sachs announced changes in the way that their top 30 people would be compensated.  This got me thinking about the fundamental question…why do bankers / traders make such large salaries?   I pulled a few papers to get some ideas about the subject.  This isn’t intended to be a treatise, but rather to get you thinking about some reasons that bankers make the money that they do.

Reasons to Justify Pay

excessive hours

high risk