Major U.S. banks and securities firms are on pace to pay their employees about $140 billion this year -- a record high that shows compensation is rebounding despite regulatory scrutiny of Wall Street's pay culture.
Workers at 23 top investment banks, hedge funds, asset managers and stock and commodities exchanges can expect to earn even more than they did the peak year of 2007, according to a Wall Street Journal analysis of securities filings for the first half of 2009 and revenue estimates through year-end.
Total compensation and benefits at the publicly traded companies analyzed by the Journal are on track to increase 20% from last year's $117 billion -- and to top 2007's $130 billion payout. This year, employees at the companies will earn an estimated $143,400 on average, up almost $2,000 from 2007 levels.
The growth in compensation reflects Wall Street firms' rapid return to precrisis revenue levels. Even as the economy is sluggish and unemployment approaches 10%, these companies have been boosted by a stronger stock market, thawing credit market, a resurgence in deal making and the continuing effects of various government aid programs.
The rebound also reflects growing confidence by some Wall Street firms that they can again pay top dollar for top talent, especially once they have repaid the taxpayer-funded capital infusions they received at the height of the crisis. So far, regulators and lawmakers have focused on making sure pay practices discourage excessive risk-taking, leaving to companies the question of how much is too much.
The Journal's analysis includes banking giants JPMorgan Chase (JPM, news, msgs), Bank of America (BAC, news, msgs) and Citigroup (C, news, msgs); securities firms such as Goldman Sachs (GS, news, msgs) and Morgan Stanley (MS, news, msgs); asset managers BlackRock (BLK, news, msgs) and Franklin Resources (BEN, news, msgs); online brokerages Charles Schwab (SCHW, news, msgs) and TD Ameritrade (AMTD, news, msgs); and exchange operators CME Group (CME, news, msgs) and NYSE Euronext (NYX, news, msgs).
These companies' total revenues are projected to hit $437 billion, surpassing 2007's $345 billion, according to the analysis. The rise in total revenue and compensation is in part a function of Bank of America's acquisition of Merrill Lynch and JPMorgan's acquisitions of Bear Stearns and the banking operations of Washington Mutual.
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The Journal calculated each company's compensation as a percentage of revenue. It then projected how much the company would pay at that rate over the full year, using analysts' quarterly and full-year revenue estimates provided by Thomson Reuters. The methodology was reviewed by compensation experts.
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Investment banks such as Goldman and Morgan Stanley typically pay employees about 50% of revenue. The rate is lower at commercial banks, whose tellers and other retail-banking employees earn less than traders.
Some companies contacted about the analysis didn't dispute the methodology, though others said it was too early to speculate. Some say they set aside more money for compensation at the beginning of the year, in order to avoid shortfalls, and then ratchet back later.
Goldman disputed the Journal's projection that the bank was on track to pay a record-high $21.85 billion. Spokesman Lucas van Praag said Goldman paid an average of 46.7% of net revenue from 2000 to 2008, lower than the 49% rate used by the Journal.
Based on Goldman's historical average, it would be on pace to report full-year compensation and benefits of about $20 billion. In 2007, Goldman paid out $20.19 billion, its securities filings show.
Another wild card is whether financial firms will bend to public and political pressure to rein in pay. "Compensation played a role in the financial crisis, and yet nothing has changed," says J. Robert Brown, a professor at University of Denver's law school and an expert on corporate governance.
Continued: 'The easiest way to destroy the firm'
