"With the job market like it is, Wall Street doesn't need to pay huge bonuses to retain key people."
Excuse the trollish appearance of this remark, but it's something that I've been wondering about for a long time...
The world to me seems to be brimming with talented people - more than enough to fill trading firms many times over.
What makes these individuals so special to warrant such huge salaries? If it's not survivorship bias, then what is it?
It could be that I just don't want to admit the reality, but if it is, please tell me why I'm wrong (preferably if you're impartial to the financial world).
Because unlike, say, rocket science, painting, music, or programming, banking is a largely unfulfilling, yet incredibly stressful job. Without the gigantic and absurd financial incentives there's really no reason to get into it.
I went to school in engineering and knew more than a few people who went to Wall Street because of the pay (and social status, since our society worships bankers and the ground upon which they tread). I'm not proud to admit it, but there was schadenfreude when the banking industry collapsed - most of these engineers-gone-Wall-Street are still as of yet unemployed. They spent their time dreaming about big money and not enough on, oh, being capable engineers... so now they're stuck up shit creek.
Lots of churn brings people in and out, and the potential for high salaries act as a beacon that draws many talented people to the industry who would otherwise have done something more fulfilling. They're much more about recruiting and marketing than rewarding performance.
See also Freakonomics about drug dealers and McDonalds for a more detailed explanation.
"Talent" in finance is not equal to raw skill and intelligence. A great deal of an bank employee's value is connections across the finance industry and access to inside information. While there are many highly intelligent people in the world, there are very few who have the requisite experience and domain expertise within different segments of the finance industry to attract millions (possibly billions) of dollars in new business to their company or make a similar amount trading.
While there a lot of talented people, there are few extremely talented people. It is these extremely talented people who make the huge salaries. I am at a top 5 business school now and you can definitely see the future millionaires.
Generally, there are a lot of people who go into finance and will make $65-70k and never get into the extreme. But there are people who are going to make $200k+ out of undergrad and likely earn millions someday. They are worth it, many already manage their own money in excess of half a mil.
In a class of 300 top students, I think there are 2-3 of these people.
The commenter's idea seems to sync with this notion, as the really talented people kind of group near the top of the curve. This would mean that they are all intelligent/talented enough to master eachother's job.
I bet there is a great deal of luck involved in the outlier cases... which you seem to be attributing to talent alone.
Excuse the trollish appearance of this remark, but it's something that I've been wondering about for a long time...
The world to me seems to be brimming with talented people - more than enough to fill trading firms many times over.
What makes these individuals so special to warrant such huge salaries? If it's not survivorship bias, then what is it?
It could be that I just don't want to admit the reality, but if it is, please tell me why I'm wrong (preferably if you're impartial to the financial world).