As Citigroup lobbies Washington for more money to pay bonuses and big banks set aside an additional $36 billion for compensation, one of Wall Street's top psychological coaches explains why, no matter the outcry, Masters of the Universe will always think they're worth it.
I have a Ph.D. in psychology and make my living coaching Wall Street traders on how to keep their mental edge. Before you immediately clump me into the problem by assuming I'm not part of the solution, let me share a perspective from behind the golden-laced curtain most have come to think of as Wall Street Greed. Specifically, what goes on in the heads of the Wall Street elite (and not so elite) when it comes to bonuses?
The American public resents that Wall Street professionals act as if they're entitled to these princely year-end kickers, even if the bank loses money. Having counseled thousands of traders, I can confirm that this feeling of entitlement is real, and it boils down to two factors, neither of which has much to do about earning a great living.
In their minds, Wall Street is their life's tormenter, and all those zeroes justify, or at least offset, the missed school plays, the finalized divorce, the ruined vacation, and in fact keep them coming back for more. They feel they have earned it.
First, know that most on Wall Street consider their bonuses as the ultimate form of payback for sacrifices they feel they've made along the way. Of course, their sacrifices pale compared to, say, our troops who spend their entire year away from their families, in harm's way, but in Wall Street's collective mind, it's very real. Working on Wall Street means continual stress, long days, political games and the volatility inherent in the world markets. Not just some of the time—24/7, 365 days a year. If you want to survive and thrive on Wall Street, you have to be willing to put in the hours—sometimes up to 100 or more per week. And even when you are not in the office, you're always, always "on call." The global economy does not stop just because you took vacation with your family to Disney World. On Wall Street, disconnecting from the world is not an option—ever—at least not an option if you want to move up the ladder.
I've seen countless good, smart, well-adjusted men and women burn themselves out in a few short years. I have seen some fall prey to substance abuse in their efforts to "unwind" each night from the daily grind on Wall Street. I have seen loving marriages disintegrate because the demands of the Wall Street job overwhelmed the lines of communication and severely impeded personal time. I have listened to clients tell me how they only had dinner with their family one day this week. How they missed their daughter's school play because they had to be at a client's event out of state. And that five days a week, since the day their kids were born, they have left their home before the kids wake up and most of the time, get home when they are already asleep.
Is this level of sacrifice worth it? In hindsight, most people on Wall Street will answer, "It depends on my bonus." In their minds, Wall Street is their life's tormenter, and all those zeroes justify, or at least offset, the missed school plays, the finalized divorce, the ruined vacation, and in fact keep them coming back for more. They feel they have earned it.
In short, they act like addicts. I will never forget my client who had three young children and three nannies. His idea of spending time with the family was bringing his laptop to the side of the pool while his kids played in the water and nannies watched. Did I admire him as a talented trader? Yes. Did I feel he was making a poor choice with his time? Yes. When I would ask him about it, did he understand, realize, and even regret the choice he was making? Yes, he did. To the point where he would almost come to tears about it. But he didn't stop. He played a game where the only rule is kill or be killed and the stakes are repeatable. He couldn't walk away from all those zeroes, and the recognition and rewards that came with them. Taking away his bonus, in short, would be like denying an gambler a seat at the card table.
Second, top traders and bankers begin to view themselves the way professional athletes do (there's a reason I specialized in sports psychology while getting my doctorate). They don't think they're overpaid any more than an NBA All-Star does. Part of the reason football, baseball, and basketball players command such large signing bonuses, salaries and incentive bonuses, is because their average career is only a few years. That means they need to make sure they earn life-lasting money in the few years that he is able to play at the top of his game. They are essentially getting paid to sacrifice their bodies. Guess what? There are precious few traders who last much past 40.
Also like professional athletes, they are paid for performance. Wall Street is about numbers. Those who generate the most tend to make the most. It is the ultimate meritocracy (although most outside Wall Street have soured on the rules of their game). The upside earning potential is almost unlimited and largely up to you as an individual. I've often been surprised by the tremendous psychological grip this belief has. What these traders and bankers are saying is, "I want to be in control of my future. I want to get rewarded handsomely when I perform and I want everyone around me to know it."
So yes, there is a feeling of entitlement that when a trader makes money—even if the firm is being rescued by the taxpayers—in the same way a star player on a cellar-dwelling team still has his hand out. And like that star athlete, proven Wall Street stars also expect to be paid very well even when they've had a subpar year—they know that their future potential makes them valuable to their company. Bonuses are payments for the option to keep a person on the team.
The term Master of the Universe was created for a reason. The economic rewards, the peer recognition, the ego-feeding elements all combine to cause good people to make bad personal decisions, and expect things that seem outrageous to the rest of us. But can we blame them? They are human, after all.
Dr. Doug Hirschhorn is one of the premier trading coaches on Wall Street, whose client list includes Deutsche Bank, Schonfeld Securities, and numerous billion-dollar hedge funds. The co-author of The Trading Athlete and the forthcoming 8 Ways to Great , he is a former columnist for Trader Monthly, and a regular commentator on CNBC.