John Thain of Merrill Lynch (MER) and John Mack of Morgan Stanley (MS) looked like men in hostage video tapes with guns held to their heads as they were forced to forgo their 2008 bonuses. It made for good theater. It made shareholders and regulators feel that they have leverage. But, over the long haul it sabotaged the financial industry.
A lot of sports teams claim that they pay players ludicrous salaries because otherwise they would go to competing teams. The argument has an elemental logic to it. Rich franchises get the best players. The best talent gets rich. It is a sort of free market analog to what goes on in the business world.
Shareholders are always hard pressed to understand why public company CEOs make tens of millions of dollars. Corporate boards argue that there is a limited pool of skilled people who went to the Harvard Business School but did not go on to become consultants at McKinsey or Bain.