Wall Street Compensation on Track to Soar Again

Business is back on Wall Street as big pay packages return. Apparently, there is nothing better from a financial standpoint than being a Wall Streeter. Unfortunately, it’s not even remotely as lucrative for the shareholders over the cycle.

From the WSJ:

Based on analysts’ earnings forecasts for 2009, Goldman Sachs Group Inc. is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm’s $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007, according to analyst estimates reviewed by The Wall Street Journal.

Morgan Stanley, the only other huge U.S. securities firm left as an independent company, will likely pay out $11 billion to $14 billion in compensation and benefits this year, analysts predict. On a per-employee basis, payouts are expected to exceed last year’s average of $262,000. Howard Chen, an analyst at Credit Suisse, projects that the company’s average pay will come close to the $340,000 paid out by Morgan Stanley in fiscal 2007.

Some of the most lucrative pay packages are being offered in businesses that are improving, such as junk-bond trading.
…
[N]on-U.S. banks that didn’t get Troubled Asset Relief Program funds are becoming increasingly aggressive.

Deutsche Bank AG, for example, has discussed a two-year guarantee with prospective fixed-income traders and salespeople in conversations about potential job offers, according to people with knowledge of the discussions. Deutsche Bank declined comment.

“I’m seeing deals like it’s 2007 again,” says Steven Eckhaus, an executive-employment lawyer at Katten Muchin Rosenman LLP in New York. He’s worked on several deals recently that featured eight-figure guaranteed pay packages stretched over one to three years.  – emphasis added

This almost instantaneous comeback in compensations, considering the mess we still find ourselves in, shows how hard it is for Wall Street to break its old habits. And we are talking here about people who got annual compensation packages that always ran into the millions of dollars. The question that persists however is: what did these high salaries get the shareholders? Well, if you bought Citi (C) shares back in 2004, you would have paid close to $50+/- a share. The stock now sells for less than $3. It printed a 52wk low of $0.97 in March. For awhile there it even looked as if ticker was heading for pink levels. And Bear Stearns, well we all know how that story ended.

The point is, higher compensation on poor performance is just illogical. Clearly we need a new regulatory structure that rewards success not incompetence.

Graph: WSJ

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