Kneale: The Real Numbers on Wall Street Pay

Can we all just get along?


President Obama says he's fed up with "obscene bonuses" on Wall Street. The Congress is in an uproar. And new numbers from the front page of The Wall Street Journal today are stoking this mob mentality to feverish proportions.

Yet the actual metrics in the Journal story raise a key question: What’s all the screaming about? Wall Street’s total compensation simply isn’t out of control. And the pay critics, in their pious, get-tough crackdown, are only ensuring a new round of outrage when some of these banks recover.

First, some key numbers (rounded up) from The Journal’s study:

  • Wall Street revenue grew 47 percent, to $450 billion, in 2009 vs 2008.
  • Total compensation will rise only 18 percent in ’09 vs ’08.
  • In 2008, 40 percent of revenue went to comp. In 2009: only 32 percent.
  • Average total comp in 2009: $150,000, up less than $3,000 in two years.

We discussed these numbers today on CNBC’s “Power Lunch,” and you can see it here.

So, if you earn $150,000 a year and that’s up less than 2 percent in two years, do you really think you’re getting paid “obscene” sums?

No—but President Obama does. The first battle cry in Washington was that pay caps and bonus restraints should apply only to the banks that got TARP bailout money. Since then the backlash has spread, insidiously and cynically, to cover ALL banks, all Wall Street firms.

How long before the compensation-cranks come after YOUR salary? And mine? Nobody wants to cut a pro quarterback’s pay when he throws a passel of interceptions. Congress didn’t demand steep pay cuts for workers at the automakers when they lost billions and got a government bailout; laid-off workers got 98 percent of pay for two years, and the union refused to give that up until late into the crisis of late ’08.

Yet on Wall Street, bonuses fell 40 percent in 2008 as the world melted down. Thousands were laid off, lost most of their accumulated wealth, saw their stock holdings plummet in value and watched their options become worthless.

Isn’t that already punishment enough? Surely it cuts down on moral hazard: these guys lost so much of their own wealth they will shy away from crazy risk for years to come.

Some smart pay measures definitely should be imposed: Clawbacks that recover bonuses when trades crater a year or two later; more disclosure of, and shareholder votes on, senior pay packages; less lavish options packages so the senior suits can’t benefit when their investors haven’t.

But these fixes should be demanded and imposed by shareholders—not by a Congress and a White House looking to blame Wall Street for the recession and thereby divert public attention away from the millions of people still out of work.

What we have now is a bunch of populist, shrewd politicians pushing for fixes that are likely to set up the next pay scandal. That’s because the enemies of Wall Street are prodding banks to pay a far higher portion of their bonus pools in the form of restricted stock. This, at a time when many big bank stocks are way down from their historic highs.

So let’s say the stocks of battered giants, such as Citigroup or Bank of America , were to double or triple from their dirt-floor levels over the next few years if they regained robust health. Their workers would reap big profits on the shares they are getting paid now.

And the pay critics would run wild again.

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