In the past I’ve said that the reason that wages in the financial industry are so high is that it’s like a room filled with money and the people who work in it are covered with glue. There’s actually a term for that, “efficiency wages”, and Tim Worstall mentions it in his recent Forbes piece that uses ex-CEO of CalPERS, Fred Buenrostro’s guilty plea on charges of corruption as a jumping-off point.
I do not believe in efficiency wages for a simple reason: they rely on a flawed theory of human nature. The reason that avarice is listed as one of the 7 Deadly Sins is that it’s not self-limiting. There is no wage, salary, inducement, or reward that is high enough to discourage someone who would otherwise steal from you from doing so. I think it’s almost exactly the opposite. If your love of money is great enough, you’ll do anything to get it. If you’re hiring risk-takers, the risk you’re assuming increases.
The reason to pay high wages is that the employees are worth it. No other reason.