8 - The Financial Institution as a Male, Profit-Making Club: Glass v. Coastal Bank

Summary

Our last case involves Coastal Bank, a pseudonym for a major financial institution located in an international money center. As institutions built on financial analysis, one might expect banks (and their pay systems) to embody principles of economic rationality. Yet banking traditionally occupied a distinctive place in American commerce. Before deregulation in the 1980s, bankers were at the center of commerce but also somehow above it. They kept “bankers' hours”; the architecture of their buildings made their places of business the temples of capitalism; and reserve requirements and government regulation underscored the fact that banks made up the institutional framework for the economy and were not ordinary actors in the marketplace. As such, the internal management of banks before the most recent era might have reflected customs that could not be reduced to means-ends calculations.

In the mid-1970s, Coastal Bank's pay system reflected both tendencies. On the one hand, it clearly bore the imprint of bureaucratic administration. The bank retained compensation consultants to evaluate and revamp its pay structure. It adopted a new set of job evaluation techniques. It collected and analyzed pay data from the banking industry generally and local competitors in particular. Compensation for senior managers in large measure was provided through a management fund that granted substantial bonuses based on the bank's overall profits. Such an incentive program would seem to guarantee the aggressive pursuit of profits and discourage discrimination in pay because, presumably, it eats into the potential profits of top officers and shareholders.