The financial meltdown of 2008 spurred lawmakers to crackdown on the notorious pay packages that characterized Wall Street largess. Seeking to limit the spending sprees, Congress enacted direct restrictions on compensation in the Wall Street reform law to ensure firms were responsible to taxpayers and their shareholders.
However, while excessive compensation underpinned the “irrational risk” taken by financial employees to “focus on short-term results at the cost of long-term success,” it appears that nothing has changed. According to a new Wall Street Journal survey, Wall Street firms are continuing their rapid return to pre-crisis revenue levels. In celebrating their taxpayer-assisted comeback, firms are on pace to spend $144 billion in compensation this year, setting a new record high in pay for the second consecutive year:
About three dozen of the top publicly held securities and investment-services firms—which include banks, investment banks, hedge funds, money-management firms and securities exchanges—are set to pay $144 billion in compensation and benefits this year, a 4% increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms[…]
Overall, Wall Street is expected to pay 32.1% of its revenue to employees, the same as last year, but below the 36% in 2007. Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis. But the estimated 2010 profit of $61.3 billion for the firms surveyed still falls about 20% short from the record $82 billion in 2006. Over that same period, compensation across the firms in the survey increased 23%.
It is important to note that the methodology of the survey was not published and this year’s compensation may not constitute a record if you aren’t comparing that sum to total Wall Street pay in 2007. However, the study does highlight that, while Wall Street profits are down 20 percent from pre-crisis levels, firms have actually increased pay by 23 percent. And, in surveying bankers and finance professionals’ expectations for bonuses, 50% expect an increase in bonus pay from last year. Banks may also skirt the Bush tax cut expiration to ensure employees can still take home a large compensation.
As CBS’s Jill Schlesinger points out, this pay scheme “will no doubt drive folks on Main Street crazy because they will rightly feel banks” are “back on track, while the rest of the country is left grappling with sagging home prices and retirement accounts that are far from their pre-crisis highs.”
Indeed, while Wall Street bonuses alone “run to millions of dollars for top staff,” the average income for the American worker is $68,914. And, according to a recent survey, 43% of American workers now have less than $10,000 in retirement savings and only 16% percent said “they have confidence in their ability to save enough for a comfortable retirement.” Despite the advice of most financial experts, a record number of people are also making hardship withdrawals from their retirement accounts because “taking loans and hardship withdrawals from their company-sponsored retirement accounts may be the only source of savings they have to bridge the growing gap between their earnings and the cost of living during the economic downturn.” On top of retirement trouble, Americans are facing record numbers of foreclosures and harassment at the hands of the same banks that engineered the housing crisis.
But, according to Wall Street firms, the average American worker and the executive “top talent” have very different worth. “The pay scale for Wall Street is different [from] the pay scale for America,” said one financial lobbyist. “I don’t think the issue is a dollar amount. It’s being paid what you’re worth.”