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Five Things You Need to Know: Getting Paid


What you need to know (and what it means)!


Minyanville's Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Humble Pie?

Ha ha ha, no thank you, not for us, but we'll gladly serve up our employees a hearty slice or two. A Financial Times article this morning cites government figures showing US companies have increased their share of the "economic pie" at a faster rate over the past five years than at any time since the second world war.

  • Profits from current production as a share of national income have risen from 7% in mid-2001 to 12.2% at the beginning of 2006, an unprecedented rate of growth since 1947 when collection of the figures began.
  • Profits have climbed by 123% over the same period.
  • Of course, emerging from an economic downturn has an effect on the growth rate of profitability. There were faster rates of profit growth in the 1930s following the Great Depression, the Financial Times noted.
  • But let's carve up a slice of humble pie for the employees (they seem... on edge) and look at how much of this profit growth has "trickled down" the food chain.
  • Interestingly, while corporate profits have grown at an unprecedented rate, the return going to workers has fallen from 58.6% in mid-2001 to 56.2% in Q1 2006.
  • Some economists suggest that globalization and outsourcing have given companies the upper hand in salary and benefits negotiations.
  • Speaking of outsourcing...

2. Outsourcing Wall Street

Wall Street firms are increasingly shifting analyst jobs to India where the cost of research is lower, according to Bloomberg.

  • JP Morgan now has 80 analysts in India, accounting for more than 14% of their New York-based research staff.
  • According to the CFA Institute, the number of people taking CFA tests in India climbed fivefold since 2002.
  • The number of analysts working for the 10 biggest firms has declined 21% since 2001, according to Thomson Financial figures
  • Institutional customers are balking at paying the inflated trading commissions that for years have subsidized Wall Street analysts compensation.
  • As well, Bloomberg notes that Wall Street's 2003 settlement with U.S. regulators cut off research departments from revenue they used to get from their investment banking arms.
  • Bottom Line? One analyst's salary = one customer's "POS" stock portfolio, according to litigation arising from the "good old days", hence, outsourcing.

3. The Cost of Employment and the Phillips Curve

Speaking, again, of compensation, and outsourcing, what is the big deal with the cost of employment?

  • First, there is the Employment Cost Index (ECI), a quarterly measure of changes in labor costs.
  • The Federal Reserve keeps a close eye on the ECI to monitor inflationary pressures arising from a tightening labor market.
  • A tight labor market is generally defined as a condition when the unemployment rate falls below "full employment."
  • Because you are most likely not an economist, you might think "full employment" is when everybody is employed, as suggested by the connotations of the words "full" and "employment." Good guess, but let us tell you about the "Phillips Curve."
  • The Phillips Curve depicts what is believed by some economists (and Fed Chairman Ben Bernanke according to some of his speeches) to be the inverse relationship between inflation and unemployment.
  • It is a relative relationship between the expected rate of inflation and the "natural" rate of unemployment. But, doesn't that mean that as inflation expectations shift up or down and the "natural" rate of unemployment shifts up or down that the Phillips Curve can shift up or down too?
  • And if the Phillips Curve is moving around all over the place (not to mention other inflation data points) then how can the Fed effectively predict inflation and therefore know when to hike, pause or ease short-term rates? Ok, now you're beginning to think like a non-economist again.

4. Five Things YHOO CEO Terry Semel Can Afford to Buy This Year

Yahoo has cut the annual salary of its chairman and chief executive Terry Semel to one (1) dollar per year. Clearly, just like the rest of us, times are going to be tight for Semel going forward. We put ourselves in Semel's shoes to see what exactly he might be able to buy with that kind of salary this year.

After an exhaustive 2-3 minutes of research, we believe YHOO CEO Terry Semel will be able to afford any one of the following this year:

5. Five Things YHOO CEO Terry Semel Could Afford to Buy Last Year

Yahoo CEO Terry Semel only makes 1 (one) dollar per year now. But he used to make $600,000! And, in 2005, SEC filings show he exercised options on 7 million shares of YHOO stock totalling $173.6 million. Times may be tough now, but what could he have afforded with that kind of mad bank? We took a look.

With last year's windfall (whew, just in time after the salary cut), you can afford all of the following:

  • A trip to the moon with Russian astronauts: $100 million.
  • Penthouse publisher Bob Guccione's former New York house at 67th St. between Madison and Park: $45 million.
  • US 10-Year Treasury Notes at 5% : $15,000,000.
  • Used 2001 Lear Jet 60: $9,000,000.
  • 23,000 bottles of Cristal champagne: $4,600,000.
No positions in stocks mentioned.

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