Off the Deep End

Wall Street bonuses are back in the spotlight. The 2014 figures are out, and so is a new study by the Institute for Policy Studies: “Off the Deep End: The Wall Street Bonus Pool and Low-Wage Workers.” Last year, it shows, the nation’s bankers got bonuses adding up to more than double the combined earnings of the nation’s full-time minimum-wage workers.

Since the first group is far smaller than the second (167,800 bankers versus a minimum-wage workforce of just over a million), this works out to an even more astonishing per-person gap: while the average minimum wage earner made $13,903, the average banker got a bonus of $169,845 – and, of course, that’s extra money, above and beyond the banker’s base pay.

Numbers like these raise profound questions of economic justice. They also remind us of the role that reckless Wall Street pay practices played in the 2008 financial meltdown, and of reforms enacted by Congress that were intended to do something about that problem.

The Dodd-Frank Act included two pay-related provisions. Section 956 prohibits compensation practices that incentivize dangerous behavior on the part of Wall Street traders and executives. And Section 953 requires all publicly traded companies to disclose the gap between the pay of their CEO, on the one hand, and their median employee, on the other. The idea was to help shareholders guard their pocketbooks against self-seeking executives and better evaluate the long-term soundness of companies in light of evidence that runaway pay at the top inhibits teamwork and reduces employee morale and productivity.

Neither of these provisions has been implemented, however. Last fall, SEC chair Mary Jo White said she expected her agency to complete action on Section 953 by the end of 2014. But since she said that, her agency has been silent, while Wall Street lobbyists have continued to fight the idea – and to make absurd claims about the supposedly burdensome costs of compiling the information.

When it comes to Section 956, the situation is more promising. Federal regulators came out with a woefully inadequate proposal, calling for a modest delay between the awarding and payout of bonuses for a limited number of senior executives, in 2011; and let the matter slide for the next three years. In recent months, however, the Administration has highlighted the importance of this provision, with President Obama  urging regulators to act and Treasury Secretary Jacob Lew identifying pay reform as a high-priority task. And now the responsible regulators are working on a whole new draft proposal which we hope and expect will be stronger.

Meanwhile, European Union officials have come out with guidelines limiting executive pay at financial firms to 100% of base salary, or 200% with shareholder approval. Perhaps the forthright attitude of EU regulators on this issue is beginning to catch on in the U.S.

— Nickolai Sukharev

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