Wall Street Compensation Bounces Back
While government prosecutors pursue lawsuits against JPMorgan Chase and Wells Fargo for "misconduct" in the mortgage market, and Wall Street firms complain about new regulations, compensation on the Street is rising.
New York State Comptroller Thomas DiNapoli reports that total compensation at Wall Street firms rose 4% last year to more than $60 billion—near pre-crash levels—and the third highest level ever.
"This is an astounding chunk of change, $60 billion," says The Daily Ticker's Henry Blodget. It represents nearly half of all revenue earned by Wall Street firms.
The average pay package of financial industry employees in New York State was $362,950 in 2011, more than seven times the national median household income of just over $50,000, which often reflects the pay of two working adults.
One reason average pay on the Street has been rising is that less people are working there. DiNapoli estimates that financial firms lost more than 20,000 net jobs since late 2007, when the financial crisis began, and layoffs are continuing. Goldman Sachs has 9% less people on payroll at the end of the second quarter compared to a year ago. Bank of America had 4% less.
Another reason for the rise in compensation: Wall Street's dependence on its top employees. "This is an industry where your talent is the industry," says The Daily Ticker's Aaron Task. "If people walk out the door, the business is going to get hurt…. These companies make a lot of money and they should pay their people a lot of money."
But they're paying them less cash now than before. Cash bonuses accounted for about third of the average compensation on Wall Street last year but were down 14%, from the previous year. And the pay of some top executives including Goldman Sachs' Lloyd Blankfein are well before what they were before the financial crisis.
DiNapoli says cash bonuses are likely to decline again, for the second consecutive year, as firms use more long-term compensation and stock to discourage the kind of risk-taking that led to the financial crisis. But total compensation on Wall Street could rise if earnings continue to advance.
DiNapoli says Wall Street earnings totaled $10.5 billion in the first half of the year and are on track to reach $15 billion for the full year—almost double the $7.7 billion earned for all of 2011.
"It's really not so bad to be on Wall Street anymore," says The Daily Ticker's Task.
"It's actually a great time to be working on Wall Street, "says Blodget. "The most powerful, profitable industry in the United States right now and around the world."
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