Wall Street pay going back up, no matter how much we wish otherwise

Posted by Marc Hodak on April 27, 2009 under Reporting on pay | Be the First to Comment

And partly because we wish it otherwise so much.  The NYT lead is, “The rest of the nation may be getting back to basics, but on Wall Street, paychecks still come with a golden promise.  Some highlights:

“I just haven’t seen huge changes in the way people are talking about compensation,” said Sandy Gross, managing partner of Pinetum Partners, a financial recruiting firm. “Wall Street is being realistic. You have to retain your human capital.”

Gross apparently trades in that human capital, so what he says may be taken with a grain of salt.  What does a buyer of human capital have to say?

“We need to be able to pay our people,” said Lucas van Praag, a spokesman for Goldman, adding that the rest of the year might not prove as profitable, and so the first-quarter reserves might simply be “sensible husbandry.”

The press continues to work off of overall reported compensation expense, a very high level, messy number that includes benefits for the secretaries as well as bonuses for the honchos, and everything else compensation related.   This high level number stays fairly constant as a percentage of revenue, but gets regularly misinterpreted as a harbinger of top level pay.

Still, the compensation expense is the only publicly disclosed figure related to pay at the banks, and it is the best figure for calculating pay per worker.

And, not a terribly useful one.  Using “compensation expense” to discern projected executive bonus levels is like using the “gross revenue” line to predict sales of a small product line.

To try to blunt criticism of high pay, some banks have introduced reforms to take back bonuses from individual workers whose bets later lose money.

Your welcome.  That would be our handiwork.  Our method has other benefits besides blunting criticism, but, hey, whatever brings the clients to bright.

Compensation is among the most cited causes of the financial crisis because bonuses were often tied to short-term gains, even if those gains disappeared later on. Still, as profits return, banks do not appear to be changing the absolute level of worker pay — or the share of revenue dedicated to compensation.

Not saying either of these sentences is wrong, but can you see the contradiction in how they were put together?  (Not even counting the foolishness of using  conjectures about aggregates in order to comment on specific behaviors.)

But every dollar paid to workers is a dollar that cannot be used to expand the business or increase lending. Some of that revenue, too, could be used by bailed-out banks to pay back taxpayers.

…or support PBS, or buy me a Mojito on a Hilton Head beach… And therein is the premise behind the whole article:  these dollars are arbitrarily allocated from a fixed pie among various stakeholders, with managers clearly stealing more than their “fair share,” which appears to be $1.

“The money should go to shareholders,” said Frederick E. Rowe Jr., a member of the pension board in Texas.

…i.e., a shareholder.

As usual for the bankers, Morgan Stanley’s CFO doesn’t help with this comment:

“The number of fat cats making loads of money is much less than you think.”

Not that many fat cats?  That should calm reader envy just like that.  (Mack, put a muzzle on your man, here.)

Finally, I don’t know how this got into the article.  It kind of just pops out of nowhere near the end of the piece, as if the writer was just throwing up the rest of her notes onto the page:

If shareholders do not like compensation policies at banks, they can simply sell their shares.

Interesting.  Sell their shares.  Hmm.