The Finance sector is back to record revenue, and of course, record bonuses and pay. I was surprised to see how much greater the Commercial Bank revenue and comp was versus Wall Street totals. When you think about it, they have many more assets, transactions and commercial activity than Wall Street does, so it makes sense.

One of the things I think people misunderstand about Wall Street pay: In finance, people are paid commission or fees or both (there are some salaried employees as well, but they are not the big bonuses getters). If you are a sales trader, for instance, you are paid based on the total volume of activity. If you did well for your clients, you may catch a bonus from them, which shows up as extra commission, year end. Some folks who are fee based are paid based on Assets Under Management (AUM), while others receive performance pay (or both).

This isn’t popular to say, but its true: There is nothing wrong with most of the compensation that is paid to Wall Street. It was the insanely misaligned compensation — getting paid huge bucks to sell things people knew were likely to blow up — that helped create the crisis. Remember, Wall Street and the Banks employ millions of people; it was much less than 1% of these people who blew the economic world up.

At AIG, the Financial Products division that brought down the firm (the intenral derivatives hedge fund that generated 32% of AIG’s profits)  were less than 400 people out of a firm that once employed 116,000 people.

Its ironic that of all people, I am defending Street pay, given how vociferously I criticized Wall Street in Bailout Nation. But there is a huge between merit pay for work done and misaligned compensation.

And given that these firms were not allowed to die when they became insolvent, the outsized proportion of revenue they garner is still in effect. But for the bailouts, the definacialization of America would have proceeded. It was halted by trillions of taxpayer and Federal Reserve largesse.

Here is the WSJ:

“When it comes to paychecks, Wall Street’s law of gravity is back in full force: What goes down must come back up.

In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009.

The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror. At 25 large financial firms that have reported full-year results, revenue rose to $417 billion, another all-time high, even though last year’s 1% increase was just a fraction of the industry’s revenue jolt from 2008 to 2009 as trading and investment banking sprang back to life.”

There are some additional elements at work:

-deferred compensation made up as much as half of total pay, up from about a third peviously

-increased base salaries, rather than Smash & Grab bonuses. (to “encourage employees to focus on longer-term”)

-Employees who boosted the bottom line got much of the gains in pay — the “star system” is very much in effect.



click for interactive version


On Street, Pay Vaults to Record Altitude

Category: Bailout Nation, Bailouts, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Wall Street Pay Hits Record Highs (and . . . ?)”

  1. swag says:

    I haz a sad.

  2. “…these firms were not allowed to die when they became insolvent…”

    just, to be clear, many of these ‘Firms’ are, still, insolvent, yes?


    as a aside, maybe, if we had ‘gone Swedish’, with our Educational System, We would have seen fit to ‘go Swedish’, even ‘Icelandic’, with these Insolvent financial intermediaries..(?)
    Peje Emilsson, Sweden’s Education Voucher Pioneer
    Frontier Centre: When did the Swedish government first implement its system of school vouchers and why?

    Peje Emilsson: The decision was taken in 1992. The reason was to provide freedom of choice, letting parents and students pick a school of their choice.

  3. KT9 says:

    If it were not for the FED and lame accounting rules, those revenues and profits would be far different….

  4. profoundlogic says:

    “There is nothing wrong with most of the compensation that is paid to Wall Street”.

    Truth is relative to the context of the discussion. Your statement is neither true or false, merely an opinion. If we are to believe there is nothing wrong with most of the compensation paid to Wall Street, then we must also believe that what is currently taking place in our economy is truly the best course of action for the continued benefit of our society as a whole. I for one whole-heartedly disagree. Our culture has been bastardized for the sake of the profit motive, and to insinuate that most of the compensation paid to Wall Street is creating value to our society as a whole is a pretty hard sell.


    BR: Pretty much everything on the blog is my opinion —

    but the broader point I am making is that the extremely egregious, world shattering compensation is a tiny oercentage of what goes on.

  5. b_thunder says:

    1. Ben Bernanke should borrow Bush’s “Mission Accomplished” banner and make a speech to acknowledge that fact the steps of the Federal Hall, with Jamie, Vikram and Lloyd cheering him on.

    b. “There is nothing wrong with most of the compensation that is paid to Wall Street.” – well, there is just one small thing that’s wrong: most financial industry “professionals” have an extra zero or two zeros in the total amount of their bonus. Yes, and that’s considering that they “work” 80 hours a week.

  6. b_thunder says:

    Considering how the Street captured the US Government, considering that just like in Egypt 80% of the country didn’t get almost any benefits front he economic growth, considering that most 2010 wages are below 1976 wages, considering that you will get a jail term measured in years for stealing 100 bucks, but the Wall streeters get to pay a fine without “admitting” to anything for stealing billions – there’s more reasons to have ‘Egypt” in the United States than in Egypt!

  7. Robespierre says:

    “It was the insanely misaligned compensation — getting paid huge bucks to sell things people knew were likely to blow up ”

    And you know this is not happening now because????

  8. davver1 says:

    There is nothing wrong with most of the compensation that is paid to Wall Street.

    The word “most” is certainly debatable. Let’s start with the first straw man: the # of employees argument. You cite AIGs 116,000 employees, but almost none of them were big time financial dealers making outrageous bonuses. Nobody is going after some lucky insurance salesmen who manages to make 100k one year, or some IT guy with a few degrees getting 120K to set up the trading systems. We are talking about those in financial front office positions making incredibly large (often 7 figure) bonuses of dubious value. Of people making that kind of money its certainly debatable whether “most” of it is deserved.

    Veering away from AIG to wall street proper, I find a great volume of its business has low social value. I worked in derivatives, and I can tell you I don’t see how the growth of the derivatives market helps capital markets function better or helps raise funds for businesses. I’ve seen the garbage of the theoretical arguments for myself firsthand. For your assertion to be true most of the growth in Wall Street compensation would have to have come from bread and butter financial functions like IPOs and bond placements to raise capital for business to put to work, better financial research and guidance, and value positive investment banking services. Putting aside whether any of those things has gotten better (and I can make convincing arguments it hasn’t) most of the growth on Wall Street has come from more exotic financial products that I don’t see as valuable to society. Thus, such compensation is undeserved, even if there is no wrong acting on the part of participants ( in my time, I witnessed plenty of wrong acting, but leave that aside).

    Properly regulated so as to eliminate finance activities that can generate revenue, but are harmful to society, many on Wall Street would be out of a job, even relatively honest players. Thus, on can conclude that there is something wrong with most compensation on Wall Street, because the product its producing is not improving society. Its ok to value a consumer products value based on its sale price where the seller and buyer have very clear information and motives. I’m not here to question the pricing mechanism of capitalism across the board. However, financial markets are littered with asymmetric information and principal/agent problems that make use of the pricing mechanism as the sole determinate of the value of financial products questionable, and thus calls the outsized compensation of most of Wall Street into question.

  9. b_thunder says:

    Devil’s Bargain, the latest from Bill Gross:

  10. super_trooper says:

    I look at Wall street in a similar way as I do for NBA. A few excellent stars that make big bucks. The average salary is $5M (most are mediocre at best) and then you got lousy players making more than a million. Why? Cause they can.

  11. Robespierre says:

    @super_trooper Says:
    February 2nd, 2011 at 8:46 am

    “I look at Wall street in a similar way as I do for NBA. A few excellent stars that make big bucks.”

    They are completely different. Professional players make big bucks because there is a willing public that pays for tickets and watches their games. As soon as the fans stop watching the big bucks will stop. WS makes money by extracting it from the taxpayers without their consent via government complexity. Their big bucks never stop. BTW your analogy was also used by our puppet in chief to explain away the corruption axis government-FIRE

  12. number2son says:

    From that Gross article linked above:

    One of this country’s premier investment banks paid each of its 26,000 employees an average of $370,000 in 2010, nearly ten times the take-home pay of other American workers.

    But I’ll bet Gross is getting gimmicky with “average” here, using those out-sized salaries of the few to inflate the average for all.

    That said, the argument that the size and influence of the finance industry on our economy is way, way out of whack is unassailable.

  13. call me ahab says:

    interesting that Edmundo Braverman from Wall Street Oasis had this to say this morning:

    Walking away from banking isn’t common by any means. Let’s face it: it’s hard to get paid this much anywhere else, especially when you consider what it really is a banker does for a living. But sometimes the grind just gets to be too much, and some people just quit. I know, because I was one of them. Sure, things worked out for me in a big way before I bailed, but I’d promised myself before any of that happened that I’d pump gas for a living before I spent another year of my life trading.

  14. Petey Wheatstraw says:

    That this “industry” is publicly-financed gambling, pure and simple, and that it produces nothing but dreck, suffering, misallocation of resources and debt enslavement on a global scale (through blatantly criminal and governmentally sanctioned activities, no less), is evidence enough that the participants in it are all grossly overpaid. That it is insolvent, in spite of deregulation and no oversight or law enforcement, is even more evidence of criminality.

    There are not criminal and non-criminal elements involved — it is a criminal enterprise, top to bottom. Being a loyal foot soldier, one office removed, is no excuse (Meyer Lansky might have tried to make such a distinction).

    Take away the criminality, and the industry fails because it is no longer profitable.

  15. Lets take an Institutional Sales Desk.

    These sales guy sell recommendations to Mutual Funds, Hedge funds, etc., at 3 or 6 cents a share. The buyers are willing and knowledgable, their investors are also.

    You and I think that most of this is pure gambling, but thats or opinion. Stevie Cohen and John Paulson dont.

    The top sales guys, the stars, make $500k per month. They could have sold Toyotas or carpeting, but they chose a high stress, eat what you kill industry, selling shares to willing buyers.

    The good sales guys make $100k to $200k per month; the bottom third makes $15-50k.

    I know this is lots of money, but it is perfectly legitimate.

  16. call me ahab says:


    I would venture to say Meyer Lansky was a step up (or two or three) from a foot soldier . . .but I do like your thought regarding modern banking: “misallocation of resources and debt enslavement on a global scale”

    no doubt . . .I was thinking for a while that the big fix regarding mortgages would be to extend everyone’s mortgage to 50 years to lower payments (but retain current mortgage balances) . . .

    didn’t happen- but I’m sure it was on the table as a discussion point

  17. Mannwich says:

    Speaking of “corporate welfare queens”. The problem is their pay never goes down in any considerable way, even in the times that it clearly deserves to. Heads AND Tails, they win. And the big banks that have gov’t-backing have no business paying big salaries to basically anyone at these firms since they now have this backing. The biggest unofficial PUBLIC UNION (yes, Lou Mish, I’m looking at YOU) in the world.

  18. Mannwich says:

    And many still pretend to wonder why salaries for the rest of the Sheeple are stagnating, at best. If one group continues to take more and more, the others are going to get less. This isn’t that hard to figure out. Yet, We the Sheeple continue to worship the very people that are, many instances, robbing us blind. Talk about insanity.

  19. I didn’t want to, but I am going to have to do a full DEFENDING WALL STREET column soon.

    Don’t be overbroad, identify the criminals, and punish them. There are 1000s of legitimate hard working people in Finance.

    If you adopt the approach of BURN HER, SHES A WITCH — nothing will get accomplished, except a few women will be burned.


  20. DeDude says:

    The problem with incentive pay, where the annual income directly mirrors the annual profit produced, is that it really incite short-term thinking and associated risk taking. Just pump it up for a few years, then use your “success” to get into something new to pump (and get the heck out of the old thing before it dumps). It is a great model for the individual doing it but bad for society, bad for the company, and bad for the investor (unless (s)he moves with the vulture to the next pump and dump scheme). Just look at AIG the only people who came out ahead were the 400 vulture employees who had harvested fat bonuses on their scheme before it brought everybody else down. It really doesn’t matter whether the companies die or not, the scammers had their fill and will move on to another target.

    The other problem is the absurd levels of compensation for doing something that is mostly a destructive and subversive activity, draining money out of the productive economy by taxing constructive financial activities with high fees. We are giving the smartest and most creative young minds a huge incentive to use their talents to invent destructive financial instruments rather than to get into science and engineering and build something useful for society.

  21. Dan B says:

    Yves is sometimes fun to read, but she is a crank. Never happy, always whining. Former Goldman/McKinsey gal made her money, now she just moans at everyone else.

  22. AGG says:

    This is what is wrong with most of those commenting here.

    You don’t understand American history because you were always taught a sanitized version. Learn the truth and then you will truly understand Wall Street and why all that money is there. I.E. it’s ALL DIRTY.

  23. Greg0658 says:

    Robespierre @8:52am .. “players make big bucks because there is a willing public that pays for tickets ….. WS makes money by extracting it from the taxpayers without their consent via government complexity” .. a couple thread posts today are opening an avenue to pursue the advertising kickback scheme in our world .. this is another – thanks

  24. gregh says:

    these graphics don’t bother me, but if you begin them at 1975 I get peeved

  25. 1) I am hardly rich, dont make anywhere near 7 figures. I drive a Honda, and live in a middle class neighborhood.

    2) I have no problem with Capitalism or Free markets. If Steve Jobs or John Paulson earn a billion dollars legitimately, that’s fine by me.

    3) My beef is with the Nardellis and O’Neals who ransacked their companies with the aid of their crony boards. (This should be your beef too, as its a)true, and 2) fixable)
    Or, you can keep going on, tilting at windmills, accomplishing nothing.

    4) I have repeatedly stated the Financial sector became WAY too large over the past decades. I have repeatedly written that one of the evils of the bailouts is that they stopped the process of DEFINACIALIZATION of the USA from moving forward.

    5) Income inequality is a legitimate issue and often leads to civil unrest (Ask Marie Antoinette or Herbert Hoover). But that is a different issue than legitimate pay for Traders, Asset managers, and iBankers.

    The BURN HER, SHES A WITCH approach has been tried previously and was proven ineffective.

    Please disprove this: The vast majority of people who work on Wall Street did not cause the crisis, and are not a problem currently.

    Sorry if that’s not populist, but I write what I believe, and have no interest in ignorant but populist rants against everything.

    Its pretty funny that I of all people — I lambasted wall street in my book — have to say this stuff.

  26. PDS says:

    Ok…defending Wall St column…..interesting…can hardly wait to hear your defence of soft dollars and prime brokerage

  27. davver1 says:


    It all depends on what they are doing. Its interesting that you choose institutional sales of fairly common financial products as your example, its the simplest and most straightforward sort of work with clearly defined real world social purpose (pricing the financial products n the primary or secondary markets, stocks an bonds, that most companies use to make money). Leaving aside the fact that many of the best salesmen may not necessarily be adding value (its very easy for a slick talking person with a high IQ to dub a mediocre mutual fund manager, and the numbers prove it) your taking the easiest thing on Wall Street to defend. Its obvious that “there are 1000s of legitimate hard working people in finance”. It seems equally obvious that there are 1000s more whose work is not legitimate, and that even among the legitimate compensation may be outsize based on the spillover from the activities of the illegitimate (bailouts raise all boats).

    In my post earlier I talked about increasingly esoteric markets that are growing exponentially and accounting for a huge portion of Wall Street revenue. Try defending the social value of having PHD quants trying to squeeze value out of the 3rd derivative of some financial instrument. I look at what a lot of desks on Wall Street do, and leaving aside the rampant and obvious immoralities, even if they function as intended I’m not sure what they are doing is really doing anyone any good. The pricing mechanism is a good way to assess value under certain given conditions. However, if those conditions are not met, which they often aren’t in the financial world, then simply having a seller and buyer agree on a price does not mean the transaction is a net positive. Thus, revenue generation from certain activities can be a net negative for society, even if one feels they are on the up and up.

    It is the responsibility of regulators to forbid such transactions, but in the absence of such action immoral action should be judged as such even if it is legal. Since such a void will be filled regardless of the moral persuasion of those filling it, I don’t mind people of sound moral fiber trying their best to tame a bad sector, but one should recognize that much of their income comes from immoral conditions, and thus try to give back much of it rather then pat oneself on the back and surround themselves with luxury items.

  28. Chad says:

    BR, I agree with you that most finance professionals weren’t involved with the recent debacle. However, the public hasn’t gotten its appropriate pound of flesh, so now the public is more than willing to take whatever Wall Street flesh it can get its hands on. The public won’t care if the Wall Streeters getting punished are the cause or not. They just want someone to feel their pain. This is just one more negative consequence from not using a more appropriate bailout model.

    Are the other professionals really that clean?
    Though, not directly responsible, an argument could be made that the finance professionals who weren’t part of the debacle turned a blind eye to what was going on. Sure, not all 116k AIG employees were making those bad decisions, but I bet a good portion of management not connected to that 400 knew what was going on. At least it seems that way in other financial institutions in the book Chasing Goldman.

    At the very least the other financial professionals should have been more forceful in demanding a more appropriate bailout. I don’t mean in public. I mean in their respective companies. Of course, this would have put their jobs in jeopardy, but in my view it is part of their job to protect the financial system. If they don’t then they are no better than the Vampire Squids.

    I’m not suggesting the other 90% of finance professionals not directly responsible for the mess should be punished, but they aren’t quite as clean as you suggest.

  29. davver1 says:

    “2) I have no problem with Capitalism or Free markets. If Steve Jobs or John Paulson earn a billion dollars legitimately, that’s fine by me.”

    How do you judge legitimacy? In a consumer market where products are straightforward and the consumer has most of the information to make an informed judgment with their own money, the pricing mechanism is a great way of judging value and giving compensation legitimacy.

    However, the preconditions surrounding the setting of value based on price are not necessarily present in much of the financial markets. Asymmetric information, principle/agent problems, etc. Thus the price of a willing buyer and seller (often using OPM) of a financial product is not necessarily all that good of a price, so the legitimacy of the argument that revenue creation = value creation for many Wall Street activities is in question. Thus there is a huge difference between Jobs and Paulson.

    “Please disprove this: The vast majority of people who work on Wall Street did not cause the crisis, and are not a problem currently.”

    1) One didn’t have to be directly involved in mortgages to cause the crisis. I could, for instance, have been a derivatives dealer whose deals led to a complicated web of engagements between different banks that gave the “too big to fail” argument legitimacy. My individual transactions may not have seemed so bad, but taken together they added systematic risk to the markets and reduced transparency, while the gains to “liquidity” and “risk sharing” seem all too fictional especially in crisis. I could think of a lot of other examples.

    2) Even if you aren’t involved in the crisis, I can guarantee if you work in the financial sector some of the money sloshing around from the actions of criminals made its way into your hands. I’m not saying people necessarily should abandon the sector (I did), but if your going to stay and fight the good fight one should at least acknowledge that they may be passively benefiting from the sectors largess and try to live more frugally and give some back.
    note: Keeping a few mil and then giving back seems like a pretty disingenuous half measure, though I can certainly understand it as being poor and needing a job for the money sucks. It is incumbent upon each person to decide just how righteous they want to be, but don’t act all surprised if people judge you for whatever actions you take.

  30. profoundlogic says:

    To BR:
    “but the broader point I am making is that the extremely egregious, world shattering compensation is a tiny oercentage of what goes on”.

    With all due respect, the world shattering compensation mis-alignment goes to the very core of the problem here in America. That tiny percentage you speak of is the broader point. It’s the reason we have 43 million Americans on food stamps and even more who are either uninsured or under-insured. The greed of that “tiny percentage” permeates the entire financial community with an infection so absolute as to corrupt the entire system.

  31. Vergennes - VT says:

    I agree with BR on this. The big pay many people in finance make is not important. I dont really care how much bankers make (and they make a lot more than I do). It just needs earned legally and ethically and be taxed progressively.

  32. CentralIowaFarmer says:


    I agree that most (I’ll go w/ 95%) of the employees on Wall Street didn’t have anything to do with the meltdown. I’m going to argue a broader point, which is:

    All across US and the World, we’ve got main street putting money into stocks where they don’t really belong. I once was a college employee (librarian), and put 10% of my salary back into TIAA-CREF, where they put it in a portfolio of stocks. I would have been much better off taking that 10%, getting together with another 100 people in that local community, and all of us putting that $$ into a coffee shop, or grocery store, or something that the community needed, rather than sending that money to the stock market.

    Capital in the United States is getting sucked (or pushed) to Wall Street. Little to nothing is staying in local communities. Wall Street money goes to lobbyists, which then help companies not pay taxes, and encourages companies to find cheaper employees overseas. Profits are privatized, and bailouts are government supplied. Not trying to blame, but that is how I see things and understand things.

    Re-read this post and tell me it doesn’t belong on the Big Picture! ;)

  33. Petey Wheatstraw says:

    The banks are insolvent yet their officers collect record incomes. How is that possible? More importantly, how can anyone — even a humble Wall St. admin assistant — derive an honest income of any amount from an insolvent source? Regardless of the function of any subordinate in the pecking order, they are part of an inefficient and largely predatory enterprise that would immediately fail if forced to come clean on its balance sheets (not to mention the related criminality of how their shit got all fucked up in the first place). Of course, the employees are working hard for the money, and everybody has to make a living — especially in New York city — but that doesn’t change the fact that Wall St. — all of Wall St. — is being propped up by the Fed. Industry specific Trickle Down.

  34. [...] A Contrarian View Barry Ritholtz: “There is nothing wrong with most of the compensation that is paid to Wall Street. It was the insanely misaligned compensation – getting paid huge bucks to sell things people knew were likely to blow up – that helped create the crisis. Remember, Wall Street and the Banks employ millions of people; it was much less than 1 percent of these people who blew the economic world up.” The Big Picture [...]

  35. mattern says:

    barry: you’re playing with words. 1% is an acronym for wall street. if 1% almost took down the world, it’s wall street doing it.


    BR: No, I am being precise — 1% of Wall Street nearly took the world down. That is 1% of 1%, and it is a huge difference than what the squishy thinkers are claiming

  36. Jim67545 says:

    Ironic. I made the same argument – that there are 5,000 banks in the USA and what the goliaths did (or do) is not characteristic of the rest. Got blasted.
    The problem is that top management, with the acquiescence or cooperation of the Boards (and compensation committees) has ratcheted up their compensation. There is now a near total disconnect between compensation and the best interests of the stockholder. This comfy and self-interested club which exists at the top of most larger corporations is causing compensation to pull away from that of those below the line – think starship Enterprise disappearing into warp.
    So, how can they afford this and still maintain ever-record profits? Productivity is one way = fewer jobs, offshoring and outsourcing. Build by acquisition = stagnating innovation. Stretch margins = squeeze suppliers and maneuver for pricing power = fewer supplers and near monopolies.
    It is hard to see how this trend will change barring a huge black swan. It is a ever narrowing dead end. Someone will write a fascinating book about this after the fact.

  37. V says:

    What I want to know is why some of these ‘products’ are on a commission basis in the first place. If a bond purchase is $100,000 or $10,000,000 makes no real difference to the operator(seller), it’s just numbers on the computer. But why is there then a fee for the transaction that is a % of the total ‘value’.

    Seems about as logical as paying a checkout operator a % of your grocery/walmart bill.

    Is the difference because the banking system operates as a cartel and therefore although there is the appearance of competition, in reality no such thing exists. There was a similar reference to this in that UK Banking system review that was posted the other day.

  38. DeDude says:


    I agree the pay as % of deal rather than per deal is a huge rip-off and completely unjustified. The only reason the big customers don’t attack it is the fact that most of them have similar rip-off deals so they don’t want to rock the boat.

  39. Greg0658 says:

    high5 ya there V .. all Wal*Mart sales Associates collect % of all sales (yes choir that would include U’s :-)

  40. patient renter says:

    The whole topic of pay for performance brings to mind this TED talk, which argues that tasks that require creativity are performed better when not incentivized: