Wall Street payWall Street pay hit a record $135 billion in 2010. Why is that so -- when the average worker hasn't enjoyed even a small raise? In fact, adjusted for inflation, U.S. median family income has declined 5% from its 1999 peak of $52,388 to $49,777 in 2009. The answer to the first part of that question: Wall Street is one of the few industries where America enjoys an undisputed global lead.

As to the second part, average workers can't get a raise because most other American industries face serious global competition, so they cut costs via layoffs and press for pay concessions and productivity improvements whenever possible. Wall Street is far from a workers' paradise -- some bankers got paid much more than others, and more of their pay is being deferred -- but it does pay its rank-and-file much better than average.

According to The Wall Street Journal, revenues at the top 25 Wall Street banks and securities firms (with market capitalization exceeding $750 billion) were up a mere 1% in 2010 to $417 billion. Their pay and benefits, however, rose far faster -- by 5.7% to $135 billion. Pay for 2010 represented a bigger portion of revenue (32.5%) than it did for the year before (31%).

Average compensation per Wall Street employee was up a mere 3% in 2010, to $141,000, according to the Journal. But this masks wide variations. For example, highly paid traders took 20% to 30% pay cuts in 2010 -- due to a trading slowdown in November and December -- while commercial bankers and hedge-fund managers had slight increases.

In my view, four factors account for Wall Street's high pay:

  • It attracts America's top talent. For example, Goldman Sachs (GS) recruits largely from Ivy League schools and puts its potential recruits through between 30 and 100 interviews designed to make sure they can handle stress and will fit into its culture. Many top banks recruit heavily from the ranks of PhD physics and math graduates, some of whom built the computer models for traders of those ill-fated credit default swaps and other derivative financial instruments.
  • Most of its work can't be outsourced to China or Bangladesh. Although some work -- such as preparing stock analysis reports -- has been sent to India, most of what Wall Street does requires workers who are steeped in the trading culture that works best in the U.S. and London, or who have relationships with CEOs of the largest companies.
  • It makes most of its profits by borrowing money to trade -- often using "insidery information." For example, Goldman made over half of its 2010 revenues from trading. Many Wall Street firms borrowed as much as $30 for every $1 of capital it traded. And, according to PBS, Goldman often uses what it knows about clients positions to place its own bets. As I wrote on DailyFinance in January 2010, such insidery information is technically legal, but it shouldn't be.
  • The U.S. government cushions its losses. As we saw in 2008, when the financial crisis hit, Washington (aka taxpayers) bailed out Wall Street with the $700 billion Troubled Asset Relief Program (TARP) and a total of $23.7 trillion in cash and guarantees. After pouring $5 billion into the coffers of Washington politicians and lobbyists between 1998 and 2009, Wall Street got a great return on investment. And when the Dodd-Franks financial overhaul law passed last June, it preserved too-big-to-fail banks. So, Wall Street is likely to get bailed out the next time around as well.
Why Other Workers Get the Short End

The same doesn't hold for America's other industries. That's not to say the U.S. doesn't lead the world in other industries. No other country can yet rival the U.S. when it comes to certain kinds of high-tech innovation. For example, Apple (AAPL) and Google (GOOG) lead the world in their respective fields. (And it's worth noting that Apple CEO Steve Jobs makes $1 a year in salary. His net worth of $6.1 billion is based on stock holdings in his successful companies.) But pay for typical workers in these companies is much lower than for Wall Streeters. (For example, according to SalaryList.com, the average salary for the 165 jobs it lists at Apple is $107,719 -- about 24% less than the Wall Street average).

That's because America has developed an even more unequal system for paying high-tech workers. If you happen to start a successful tech company and own stock that ultimately gets publicly traded, you can do far better than the average trader. But the risks you incur in starting such a company are much greater than the odds are on Wall Street. And high-tech companies also do plenty of outsourcing -- many Apple products are manufactured in China.

Also, the federal government doesn't guarantee the losses of high tech startups and their investors. As a result, much of the best scientific and math talent goes to Wall Street, where the risk is lower, the pay is higher -- and the social value is imperceptible (or perhaps, negative).

Wall Street was originally set up to raise capital for such startups and to help people invest for their retirement. It's those startups that create products and services that are useful to society. Until we can get Wall Street back to striving to achieve those purposes, America's financing tail will keep wagging its innovation dog.

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Look at the salaries of investment bankers


November 25 2013 at 8:49 PM Report abuse rate up rate down Reply

Wall Street exists for the purpose of making money....The wealth that at one time was more and more equally distributed in this country, is sucked into the bottomless maw of Wall Street.....But what this institution of Capitalism run amouck does not care to understand is that there bringing this whole country down just to justify the "John Gault's" in this society.

February 07 2011 at 6:37 PM Report abuse +1 rate up rate down Reply

I used to think the people who worked in the financial markets were "talented". They are just CORRUPT and GREEDY!!!!!

February 03 2011 at 1:56 PM Report abuse +2 rate up rate down Reply
1 reply to j99benz's comment

Sad to see that people who really CREATE NOTHING get paid soo much in a country that MAKES NOTHING.

February 03 2011 at 2:46 PM Report abuse +2 rate up rate down Reply

In Anthropology they have a specific name for these organisims....PARASITES.

February 03 2011 at 12:58 PM Report abuse +2 rate up rate down Reply

I never write back after reading an article but I have had it up to here. It is unconscionalbe that kids graduating from college get jobs on Wall Street and make more money in a year than their parents did in a lifetime. And what did they do to earn it? They learned to shuffle money and paper around and take as much of it for their companies as they can. For that reason, the investor, who is looking for a return on hard earned savings, gets such a small piece of the pie and takes all the risk. Trying to make money in the market is hard enough without the poachers who steal so much off the top that you're lucky to breat even.

February 03 2011 at 11:00 AM Report abuse +3 rate up rate down Reply

When 2% own 90% of the wealth, it's greed and corruption.

February 03 2011 at 2:10 AM Report abuse +4 rate up rate down Reply

I'm 57 years old and have had a medical practice for 30 years. In my day, the brightest minds chose law, medicine, or engineering majors. Nowadays, both young bright people and Wall Street look to make a quick buck. I hope you can sleep because you are far and away the greediest segment of the working world. What will happen when young people stop entering medicine and engineering due to the lure of the almighty quick buck on Wall Street ? Maybe they can hop in their private jets and go to India or China for their medical treatment. I fear for the quality of life for my children's and grandchildren's generation. The biggest problem we are facing is allowing Wall Street to dictate how not only the USA works, but the entire world. I hope these jerks choke on their money--they sold out the USA and all the special folks who made this a great country.

February 02 2011 at 9:04 PM Report abuse +3 rate up rate down Reply

I stopped at "attracts talent." How can anyone call this talent when they brought this country to its knees and for that they got big bonuses. Unfriggenbelievable!

February 02 2011 at 7:47 PM Report abuse +3 rate up rate down Reply
2 replies to vippy's comment

Foggy Bottom caused the financial crisis.

February 02 2011 at 10:34 PM Report abuse -1 rate up rate down Reply

Trevor....The financial crisis was, and is, caused from Credit Default Swaps".....they are still with us, strewn like so many minefields around the American financial landscape....and the counterparty risk in them is in the quadtrillion's of dollars.

February 07 2011 at 6:45 PM Report abuse +1 rate up rate down Reply

I think it is more complicated than this...but overall I agree much of what you summarized. I also think our trade policies, and hollywood/environuts/educated elite's view of 'dirty' manufacturing and the American factory worker, and poor union/management relations (greed on both sides) did little to encourage industry to stay and for our political leaders to create cohesive industrial policies to maintain leadership in the face of inevitable global competition.

February 02 2011 at 6:59 PM Report abuse +1 rate up rate down Reply

Let's add one more major reason. In the 1970's businesses began to adopt the premise of labor over capital. That grew until many companies that wanted to increase profit margins and therefore look better on wall street began to take more and more monies from their workers, offshored their work and did every thing possible to drive down the cost of expense and labor in general.

Many companies refused to make workers live better, preferring to seek more cheap and often repressive cultures in which to gain labor sources

This became one of the main drivers of the market and many companies aggressively sought reduce cost and expenses through labor resource management.

The idea became to sell products in a high cost market that was produced by low labor in low cost markets. This worked well for decades.

As the jobs declined in high cost labor markets based on predatory attitudes of companies, the middle income began it's slow decline into poverty. This process was aided and abetted by our so called leaders from both parties who did little to protect our greatest treasure, the American consumer market and the consumers who supported it. That was the greatest failure of America's leadership in modern times.

We as consumers helped by our voracious appetite for the cheap goods and our willingness to buy stock in those predatory companies. The same businesses that have screwed our country and through greediness destroyed our manufacturing and industrial processes, that is creating the trade imbalance and subsequent debtor role that we have today.

We traded out future, our children's future and the future of this country for these momentary moments provided by this traitorous market concept. Our politicians from both parties led this charge. God help our wretched souls.

That is America's post mortem.

February 02 2011 at 5:30 PM Report abuse +1 rate up rate down Reply
1 reply to rraffiel's comment

Sorry what I meant to say was CAPITAL OVER LABOR. Labor over capital was an idea of an equally disconnected despot by the name of Karl Marx.

February 02 2011 at 5:35 PM Report abuse -1 rate up rate down Reply