Posts filed under “Wages & Income”

Wall Street Pay Hits Record Highs (and . . . ?)

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.

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Source:
On Street, Pay Vaults to Record Altitude
AARON LUCCHETTI And STEPHEN GROCER
WSJ, FEBRUARY 2, 2011   
http://online.wsj.com/article/SB10001424052748704124504576118421859347048.html

Category: Bailout Nation, Bailouts, Wages & Income

LI Home Affordability: Bad, and Getting Worse

A report prepared by the Regional Plan Association confirms that local house prices on Long Island are increasingly elevated relative to incomes. And, residents are nervous about what this means for them: Long Islanders are ever more anxious about how they can maintain their lifestyle, the report found. An affordable home — defined as costing…Read More

Category: Employment, Real Estate, Wages & Income

Census: Household Income & Changes

A pair of fascinating NYT/Census/Google map mash ups from the NYT  this morning. Using US Census  data, they look at a variety of data points: Race & Ethnicity, Income, Housing and Families, Education. Click the link, then select View More Maps, choose topic: click for full interactive versions > Median Household Income Change in Median…Read More

Category: Data Analysis, Wages & Income

Tight Employers: Frugal or Counter-Productive?

Have a quick look at yesterday’s post: Wedbush: Cheap as a Fox. There was a robust discussion in comments — and the general take that resonated with me was summed up thusly: Being judicious about expenses is one thing, but being ultra cheap can be counter-productive and myopic when you figure in the opportunity costs….Read More

Category: Analysts, Corporate Management, Wages & Income

Will the “Thundering Herd” Thunder Out the Door?

Back in October, a friend at Merrill told me about an arbitration award that could rock Bank of America. It was circulating via email from desk to desk, and was causing some consternation amongst the troops. It seemed that two former Merrill Lynch brokers had bolted for Morgan Stanley after the Bank of America acquisition…Read More

Category: Legal, Wages & Income

Big Money on Wall Street

Want to pull down the big bucks? Floyd Norris advises you to get a job on the street of dreams: “Wall Street incomes are surging back. The government reported this week that the real wage and salary income of finance industry employees based in Manhattan rose nearly 20 percent in the first quarter of this…Read More

Category: Wages & Income

The U.S. Economy’s Lost Decade

We interrupt the George Bush reputation rehabilitation tour for this brief reminder: “For most of the past 70 years, the U.S. economy has grown at a steady clip, generating perpetually higher incomes and wealth for American households. But since 2000, the story is starkly different. The past decade was the worst for the U.S. economy…Read More

Category: Employment, Really, really bad calls, Wages & Income

Household Net Worth (as % of Disposable Income)

Interesting chart that Macro Market Musings calls “The Revenge of the Balance Sheets.” Each of our double peak in assets — dot com stocks and housing — sent the ratio to unsustainable levels and back again. You may recall at each of these peaks, some idiot was invariably trotted out to discuss how the debt…Read More

Category: Consumer Spending, Credit, Real Estate, Wages & Income

Analyzing 2008 Tax Returns

Floyd Norris digs up the dirt on US income, via the SOI Tax Stats of the IRS: – In 2008, Americans reported $8.4 trillion in total income, down 4.6% 2007. – Inflation adjusted, that is down 8.4% — the sharpest decline in total income since 1990. – Biggest source of decline: Falls in Investment Income…Read More

Category: Data Analysis, Wages & Income

The Old Pay System of Wall Street

> Last weekend, we discussed issues of Wall Street compensation and liability in placing a natural limit to excessive risk-taking: Delay Pay? Try Partnership Liability. This week, Floyd Norris received an email from a retired investment banker regarding what Wall Street compensation used to look like, and why that curtailed excessive behavior, and private gains,…Read More

Category: Bailouts, Legal, Regulation, Wages & Income