The results of a survey conducted by The Wall Street Journal and released today have sparked a firestorm of reaction over news that compensation at top Wall Street firms will hit $144 billion this year, rising to record levels for the second year in a row.
According to
the Journal, compensation will rise about 4% over 2009's payout of $139 billion while revenue will increase only 3%. actually rise more than revenue reach $144 billion this year at the top Wall Street firms, up $5 billion from 2009. Revenue is also rising, up 3 percent, according to the Journal's analysis.With continued high unemployment and a year after President Obama's pay czar being tasked with reviewing executive pay, Wall Street seems to be telling Washington that when it comes to compensation, "Drop dead. We'll take care of it."
This sentiment was reflected in the Wall Street Journal's own assessment that said the payout numbers show that firms, benefiting from low interest rates and strong international markets, continue to base their pay on economic and market conditions rather than the level of pressure coming from regulators in Washington and overseas.
Some analysts are saying some Wall Street firms may even give out bonuses in December instead of January or February in order to help employees avoid higher taxes if the Bush Tax cuts are allowed to expire on January 1, 2011.
'Outrageous'
One of the first to react was Charles Elson, director of the Weinberg Center for Corporate Governance. Elson told the Journal that "until focus of these institutions changes from revenue generation to long-term shareholder value, we will see these outrageous pay packages and compensation levels."
Meanwhile, the Wall Street firms while refusing to comment on the report are offering their now familiar defense that if they don't provide a high level of compensation, they'll lose their best talent.
What ever happened to pay for performance? According to the Journal, while revenue is seen falling at Goldman Sachs, pay will still be going up. Goldman's revenue is expected to decline by 13.5% this year while compensation remains projected higher than last year, up 3.7%, according to the Journal survey. A steep decline in trading activity is expected to weigh on profits for Goldman Sachs when it reports quarterly earnings next week.
Some analysts say that new rules about how much capital banks must hold could force Wall Street to cut back on compensation in an effort to preserve returns on equity for shareholders. While others believe firms will simply layoff lower level employees in order to continue paying to executives these record bonuses.
Not all big Wall Street firms, according to the Journal, will be increasing pay this year. Citigroup, which is still 12%-government-owned is expected to reduce pay by 8% even though revenue is expected to increase this year by about 4%.
At Morgan Stanley, the pay-to-revenue ratio is expected to drop this year. According to the Journal, James Gorman, Morgan Stanley's chief executive, told shareholders 2009's compensation was at a peak when compared with revenue. And he seemed sensitive to shareholder concerns. "We're extremely conscious of the comp-to-revenue ratio," he said, "There is nobody on my management team who will ever see again the kind of comp-to-revenue ratio as we had last year."
