Pay on Wall Street is on pace to break a record high for a second consecutive year, according to a study conducted by The Wall Street Journal.
About three dozen of the top publicly held securities and investment-services firms—which include banks, investment banks, hedge funds, money-management firms and securities exchanges—are set to pay $144 billion in compensation and benefits this year, a 4% increase from the $139 billion paid out in 2009, according to the survey. Compensation was expected to rise at 26 of the 35 firms.
These guys must be doing something right. After all, doesn’t simple economics tell you that pay is related to performance? The better you are, the more you make. To the top earners go the spoils. The Wall Street Journal itself is the most faithful exponent of this principle there is. But apparently it just isn’t always the case. Normally, compensation is directly tied to revenue. Higher revenue equals higher pay, but …
The opposite is true at Goldman Sachs Group Inc. and Bank of America Corp., where analysts project revenue will be down, but compensation will be up, according to the survey.
Goldman’s revenue is expected to decline by 13.5% this year to $39.1 billion from $45.2 billion in 2009. Compensation remains projected higher than last year, up 3.7% to $16.8 billion, from $16.2 billion in 2009, according to the Journal survey. Through the first half of 2010, Goldman Sachs set aside 43% of its revenue for compensation. Goldman’s ultimate payouts could change drastically. In 2009, for example, it withheld revenue for compensation in the fourth quarter, dropping the overall ratio of revenue to compensation.
What a mystery. Evidently, the iron laws of economics that keep the rest of shackled like galley slaves don’t apply to the gods on Olympus. I guess the invisible hand is too busy strangling us to pay attention to what the boys at Goldman and Bank of America have been up to. But it might catch up to them yet. If revenues continue to fall short, we are informed, “analysts and experts expect that Wall Street will lay off employees in order to keep bonus pools high.”
Yes, Saturn will eat his children to keep his bonus high.