This might explain everything
Big salaries can lead to psychological damage
Fri, 03 Dec, 01:00 PM
By Alice Uribe, ninemsn Money
The financial service industry practice of paying young traders huge salaries could be psychologically damaging, an Australian academic says.
"Most traders are young because they burn out and some of them are paid considerably more than $350,000 per year," said UTS Centre for Corporate Governance director Thomas Clarke.
"It is a constant danger that when people are heavily incentivised towards performance, the consequences can be very serious ... and are bound to lead to actions which could lead to potentially fraudulent behavior."
Mr Clarke's comments followed yesterday’s sentencing of 25-year-old fund manager John Joseph Hartman to a minimum of three years in jail on 25 charges of insider trading.
The former Sydney private schoolboy was earning $350,000 a year as a share dealer by the time he was 21, entering a world that "corrupted his values", Supreme Court Justice Peter McClennan said.
"Paying $350,000 to a recent graduate of 21 years of age carrying out a task of modest responsibility underlines the extent to which the values which underpin our society can be compromised," Justice McClennan said.
Mr Clarke said because traders were very young, they were often not prepared to deal with the pressures that came with their highly paid jobs.
Companies should take part of the blame for cases such as Hartman’s, Mr Clarke said.
"The financial industry needs to look at performance indicators and devise ones that encourage honesty rather than recklessness and if the traders are inclined towards recklessness, I would blame the companies as much as the trader," he said.
Financial recruiter Thomas Hancock said that while salaries varied from a standard of $60,000 per year to a high of $100,000 for “sought after” new grads, salaries could rise very quickly once bonuses were added.
"In some organisations there is a bonus structure of 50 percent of base salary," he said.
"If someone is trading well, they are going to get paid a good salary. And if they are doing well, banks are going to want to keep them or else someone else will pay them more."
Tim Samway, a fund manager at Hyperion Asset Management, said that in his early days as a broker he saw young brokers getting paid $1 million dollars year.
"It's a real drought and flood type scenario, but when it’s good, it’s very very good. But with the GFC the flash has definitely gone out of the industry," he said.
Mr Samway said that it was “obscene and unreasonable” that a 21-year-old would get that kind of salary.
"I’ve been exposed to individuals who have defrauded companies, and they often start by dabbling and then it becomes a slippery path. Young people don’t always have the emotional maturity to deal with that amount of money," he said.
Mr Hancock said that due to competition in the industry it was unlikely that this practice would change, but financial institutions needed to take more responsibility for mentoring young staff.
"You really have to look at the values of the person when it comes to insider trading and it is the responsibility of the organisation to monitor this," he said.
Giving evidence during the trial, Hartman's father Keith, a prominent obstetrician, described the lifestyle his son had as "plastic".
Justice McClennan referenced the description when handing down his sentence.
"Overseas holidays and gambling trips to Las Vegas and other casinos, together with an expensive luxury motor vehicle, became part of his life."
Hartman was found guilty of passing on information to a close friend about the purchase and disposal of stocks.