Salaries equal big bucks for Wall Street

Wall Street

As the financial crisis rumbles on, tactics on Wall Street are changing. While once, pay structures correlated closely with banks' financial performance, a new trend seems to developing that says, no matter a struggling balance sheet: magnanimity remains high on the agenda.

According to reports in the US, some of the financial services sector's biggest players - who continue to struggle in an difficult economy - are, by some measures at least, the industry's best employers. An article in today's New York Times writes, "Roughly 90 cents out of every dollar that these banks earned in 2009 - and sometimes more - is going toward employee salaries, bonuses and benefits, according to company filings."

In fact, according to reports, in order to compete with their rival banks, the likes of Citigroup, for instance, paid its employees so much money in 2009 - an incredulous $24.9 billion - that the company more than wiped out every penny of profit. The New York Times reports that, as such, after paying its employees and returning billions of bailout dollars, Citigroup posted a $1.6 billion annual loss.

Rethinking

Concerns about such irresponsible management are multifaceted, not least because of the ongoing debate surrounding taxpayer's bailout loans and the continuing excessive rewards being reaped by US bankers.

Because of this, this bonus season sees banking executives rethinking how to play the bonus bubble. Reports suggest that Goldman Sachs, one of the least impacted of Wall Street's giants - is giving its employees an unusually small cut of its profits - about 45 cents out of every dollar. This figure, known as a payout ratio, represents the amount of compensation that Goldman is meting out relative to the pool of profits available for compensation; the interesting point being that, until recently, the ratio for most Wall Street banks hovered around 60 cents of every dollar, in line with other labor- and talent-intensive industries.

Its good news for Goldman employees: if compensation were spread evenly among the bank’s 36,200 employees, each would take home about $447,000 - a fact likely to stir some form of envy among most hard-working Americans

Leftovers

The concern overall, however, is that - in an effort to keep up pace with Goldman - the likes of ailing Citigroup are dolling out huge slices of their profits, leaving little left over for their shareholders. Reports show that Citigroup is, in effect, paying its employees $1.45 for every dollar the company took in last year, while Bank of America is spending 88 cents of every dollar it made in 2009 to compensate its workers. At Morgan Stanley, that figure is up to 94 cents.

Related Articles

BoA posts massive loss | Goldman set for '81% bonus rise'

Like this article? Get the RSS feed: