While Main Street Americans struggle just to get by, Wall Street employees saw their bonuses increase by 17% to collective $20.3 billion in 2009, according to an estimate released by New York State Comptroller Thomas P. DiNapoli. He estimates total compensation at the largest securities firms grew even faster. Industry profits could exceed an unprecedented $55 billion in 2009, which is nearly three times greater than the previous all time records. But, there won't be cash bonuses for top executives at the top firms in 2009; instead they will receive stock options and other forms of deferred compensation.DiNapoli annually releases his estimate of bonuses paid to securities industry employees who work in New York City. He does not include employees who work outside of New York, nor does he include deferred compensation for which taxes have not been prepaid, so the final numbers for some employees could be much higher.
The estimate also does not include stock options that have not yet been realized. He estimates this year's bonus pool is a third less than the amount paid two years ago, which was Wall Street's most profitable year.
Higher Base Salaries
But, DiNapoli did acknowledge his estimates were harder to come by this year because of changes in compensation practices. Many financial firms delayed payments and paid a greater share in stock or other forms of deferred compensation. The industry also paid higher base salaries, deferred cash payments and implemented clawback provisions, which will enable firms to recoup bonuses for excessive risk-taking.
The industry devoted a much lower share of net revenue to compensation in 2009, compared with the period before the financial crisis. Historically compensation (salary and bonuses) averaged about half of net revenue, DiNapoli said that number fell to about 40% in 2009.
Employment in the securities industry declined by 31,500 jobs between November 2007 and August 2009, which represents a decline of 16.7%. Since that time only 3,900 jobs were added through December 2009. He estimates that for every job created on Wall Street, three jobs are created elsewhere in the state's economy.
Profits Could Exceed $55 Billion
DiNapoli reported that broker-dealer operations of the New York Stock Exchange member firms earned $49.9 billion through the first three quarters of 2009 and he forecasts that profits could exceed $55 billion in 2009. Compensation at Goldman Sachs (GS), Morgan Stanley (MS) and JP Morgan Chase (JPM) increased by 31% in 2009. Average compensation rose by 27% to more than $340,000. He did not have data on Citibank (C) or Bank of America (BAC).
DiNapoli called for stricter regulations in his press release, "We cannot see a repeat of risky behavior that crippled our economy. Tying compensation to long-term sustainable profits is a step in the right direction. We also need the right level of regulatory protections to make sure the securities industry thrives without driving the rest of us out on a fragile economic limb."
Regulations are not the only changes needed. Changes that allow shareholders more say on how Wall Street firms compensate their employees would go a long way toward correcting the imbalances where Wall Street continues to ignore that anger of Main Street.
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