Over the weekend, New York Times reported that Wall Street pay is on the rebound. Although firms have cut back on pay and bonuses for 2008, the profitability which banks saw for Q1 have led them to allocate a big chunk of their revenue for compensation. Click for larger.
Looking at this graph, it seems as if things are back to normal with no losses to account for. And this would definitely become again a topic of discussion. Compensation and bonuses have served its time on the spotlight, having been blamed by many as one of the causes of the crisis. Had the money been used instead for lending, some argue, more people would have benefited and perhaps even the crisis wouldn’t have turned out as bad as it did. Then there was the issue over AIG bonuses, which caused tremendous public outrage.
With this report, hatred for Wall Street is set to come back sooner, even before it has fully ceased to exist. But here’s the deal. I, personally, do not have a problem with (excessive) compensation for as long as 1, it doesn’t encourage excessive risk-taking; 2, it is not based on some short-term measure such as profits/revenue in a quarter or even a year; 3, it is not majority or all cash. Let the people earn as much as they want.
My only problem with this reported bounce back of excessive compensation is that the banks seems to be shrugging their shoulders off and choosing to be indifferent about the situation. While it is business as usual for them, it does not merit the irresponsible behavior of allocating still a comparatively equal amount for compensation when “profitability” has been nothing but a quarter-long phenomena. Furthermore, without significant reform in the banking system, I don’t deem it appropriate for banks to persist with the practices that have been scorned for by many, and quite appropriately so.
I understand this higher pay is nothing but the wish of the banks’ executives. At least I’d like to believe there are people inside the walls of those firms who similarly feel a tad bit conscious of what they continuously receive for compensation. I hope I’m right because otherwise, it’s just greed at its finest. And on the part of the regulators, if Ben Bernanke so advocates and backs financial innovation, how about some innovation on compensation?