Occupy This: Wall Street Pay Rises as Profits Fall

Last Updated Oct 11, 2011 4:07 PM EDT

What financial crisis? In 2010, a year when profits on Wall Street fell by more than half, the average salary for securities industry workers in New York City rose 16 percent, to more than $361,000.

So much for New York Mayor Mike Bloomberg's contention that the Occupy Wall Street protests are misguided because they target people making "$40,000 or $50,000" a year. He might also be surprised to note (or, more likely, not) how much more pin-stripers in lower Manhattan make than other Gothamites. Securities professionals in New York last year earned roughly 5 times the pay of local private-sector employees, up from twice their average salary in 1981 (see chart at bottom).

Yet such data, from a new report by the New York state comptroller, highlight something beyond Bloomberg's fuzzy thinking: the failure of financial reform to impose a measure of reason on banker pay. I define sanity here as not paying employees more when their companies earn less. Even more important is not to reward people for letting it ride, as big banks did in the years leading up to the housing crash.

Same 'ol same 'ol
True, Wall Street firms have tweaked their comp practices. More companies are deferring financial bonuses for some employees, according to a recent analysis by the Federal Reserve. In handing out these awards, a few institutions have also started factoring in whether employees may be putting the firms in danger. Pay, which continued to rise this year at most banks and investment firms, is also expected to slow (click on chart at right to expand).

That's a step forward, but most securities firms still have a long way to go in adjusting Wall Street comp to discourage the kind of speculative chicanery that led to the housing crash, the central bank found. As one expert tells the NYT:
"It's surprising to learn that practices that the Fed raised as problematic two years ago are still going on," said Robert Jackson, a Columbia Law School professor and senior adviser on executive compensation in the Obama administration until last fall. "We are still waiting for hard evidence of any real change."
B of A firing and hiring

If pay at the top end of financial services is increasing, Wall Street itself is shrinking. Since 2008, the securities industry has lost some 22,000 jobs, according to the comptroller's office. Financial firms including Bank of America (BAC), Credit Suisse (CS) and Goldman Sachs (GS) are expected to shed another 10,000 positions by the end of 2012.

Those are big numbers, representing a nearly 17 percent contraction. Still, that decline on Wall Street is less severe than it was during the last two recessions in the early 1990s and after the dot-com bust. Employment at bulge-bracket firms also waxes and wanes with the economic tides. When times are "tough," as they are now for big banks, the pink slips fly. When things improve, the hiring resumes. Not surprisingly, previous efforts to rein in banker pay, or at least to yoke it to shareholder interests, have largely gone nowhere.

It's also not like big banks are abandoning hiring altogether. In fact, a number of large financial firms are still planning to hit the college circuit this year in search of fresh meat. As one recruiter at B of A, which recently announced plans to lay off 30,000 employees over the next several years, told financial industry employment site FINS Finance:
"Our plans [to recruit] are consistent with last year," said Kristen Williams, head of Bank of America's global banking and markets campus recruiting team. "We have our target school list in the U.S. and globally."
Add "brain drain" to the list of Occupy Wall Street's grievances.


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  • Alain Sherter On Twitter»

    Alain Sherter is an award-winning business journalist who has written for The Deal, MarketWatch and Thomson Financial Media.

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