More than two years after the financial crisis, compensation at jobs for major investment banks is still robust, and growing. Total Wall Street pay was up 6 per cent last year, with an average cash bonus of nearly $130,000, according to the New York state comptroller’s office, as reported in the Financial Times.
The Times also noted that Bob Diamond, a Barclay’s Bank executive and the UK’s highest-paid bank boss on a salary and bonus basis at £6.75m ($10.88m) in 2010 was still only the Bank’s fourth-highest paid executive officer. Two of his top officers, Jerry del Missier and Rich Ricci, took home more than £40m each in salary, bonus and share awards.
Despite the public and political backlash against enormous compensation packages for bank executives, the practice remains largely intact. And for good reason, says some experts.
Sir Philip Hampton, chairman of Royal Bank of Scotland, says the principles underlying robust bank compensation are sound.
“There is a big objective reason why you pay people the way you do in banking: this is a serious professional job where people handle almost unimaginable amounts of money,” he says. “Many banks will have balance sheets worth more than £1,000bn. That means that a single individual could be responsible for, say, £50bn of assets. With that proximity to such large sums, you want to make sure that your money is being properly looked after.”
Perhaps more than an elevated sense of responsibility, though, it may come down to fierce global competition for the top investment banking job talent. It’s impossible for one bank to lower pay and hope to attract the best of the best, argues the Times. Industry professionals are highly mobile, and can move from London to New York to booming Asian cities, wherever the best opportunities present themselves.
So far both European and U.S. regulators’ attempts to curb compensation have mostly resulted in limitations on the cash component of bonuses. Or required that senior executives defer a portion of their bonuses for a few years to limit short-term risk-taking, or so the theory goes.
Some say the only downward pressure on compensation will come from either a downturn in the economy, more stringent capital requirements on banks, or the fact that they are pulling back from some of their more risky (and previously profitable) business lines, such as proprietary trading.
Investment banking compensation is robust and growing. Do you think it will continue in this direction? Add your comments below.