According to analyst estimates that the Wall Street Journal has been examining, Wall Street bankers may be getting ready to party like it’s 2007 when it comes to compensation:
Based on analysts’ earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007…Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year. [...] [T]he comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits.
Meanwhile, over at Tech Ticker, House of Cards author and former investment banker William Cohan said “there’s been a lot of talk” from the Obama administration about compensation, “but little or no action.” “There’s a lot of nice words in the 85-page re-regulation proposal…[about] making sure compensation is tied to behavior and accountability,” he said. “But there’s not much action going on.”
There may not have been much action yet, but the administration has taken some steps toward altering compensation practices. Yesterday, the Securities and Exchange Commission proposed rule changes that would “require companies to disclose more about their use of compensation consultants and bolster reporting of stock and option awards.” And ultimately, I think the real problem is not with the administration’s lack of action, but with Congress’.
The administration has explicitly called for legislation that would enact “say on pay,” giving shareholders the ability to vote on their company’s compensation packages. The SEC is already putting this in place for companies receiving TARP money, but it would take an act of Congress to make it the law of the land.
Say on pay would not be a panacea for all that is wrong with Wall Street’s compensation practices, but it seems to have had a positive effect on CEO pay in both Great Britain and Australia. And as Cohan and Nouriel Roubini have suggested, more needs to be done to align compensation with long-term corporate outcomes. But if Congress isn’t willing to move — and most signs point to financial regulation taking a back seat to other legislative matters — there’s little that the administration can do.