President Obama thinks Wall Street should be embarrassed to pay itself multi-million dollar bonuses. But embarrassment is not in Wall Street's emotional lexicon -- except for the embarrassment of getting paid a smaller bonus than the person sitting at the next desk. And it's that kind of embarrassment that is driving Morgan Stanley (MS) to pay out 72 percent of its revenue in cash compensation.

While we're at it, the SEC should be embarrassed to allow Wall Street banks to sell their stock to the public. That's because those banks are so clearly run for the benefit of their employees rather than for public shareholders. Morgan Stanley lost $1.3 billion in the second quarter -- since it did not make a profit, it makes no sense to me to pay bonuses. Meanwhile, Goldman Sachs Group (GS) is on track to pay itself almost $773,000 in bonuses per employee -- it made $3.4 billion in profits in the second quarter -- but those came mostly from taking big trading risks.

So why is Morgan Stanley paying out so much of its revenues in bonuses? It is afraid of losing people to Goldman. How so? Morgan Stanley's 72 percent of revenues -- a mere $92,009 per employee in the first half -- is a fraction of Goldman's $386,429 per employee.

And therein lies a threat to the rest of the industry: All Wall Street employees who generate significant revenue for their firms will have no choice but to jump ship from wherever they work and go to Goldman. The reason is simple. On Wall Street it is embarrassing to get paid less than the fellow at the next desk. If you could be getting paid three times more at Goldman than you are at Morgan Stanley, you must go to Goldman if Goldman will have you.

The U.S. should be embarrassed that it is allowing the top six Wall Street banks to pay themselves $74 billion -- up from $60 billion in the corresponding period in 2008. Many of these banks have repaid the TARP money but they are still getting tens of billions of dollars worth of very low interest rate loans from the Fed, the Treasury, and the FDIC to finance their trading. In short, taxpayers who have put $23.7 trillion at risk to bail out Wall Street are subsidizing its record bonuses.

And Goldman -- which is paying out the biggest bonuses -- is taking the most risk. Which means that it is likely engaging in the same short-term risky behavior that got the financial system into trouble in the first place. But therein lies another problem -- reading Goldman's financial statements provides no insight into exactly how Goldman makes its money.

When it comes to Wall Street pay, there is plenty of embarrassment to go around -- but not the kind that for which President Obama yearns.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College. His eighth book is You Can't Order Change: Lessons from Jim McNerney's Turnaround at Boeing. He has no financial interest in the securities mentioned.

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