Wall Street pay is down. Are new regulations partly responsible?
Executives at some of Wall Street’s biggest financial firms are likely to see a big pay cut, along with shrinking bonuses. Many at Goldman Sachs are expected to see their pay halved from 2010, and Morgan Stanley is likely to slash bonuses by 30 to 40 percent, the Wall Street Journal reports.
At first glance, the changes seem to have little to do with the new regulations on executive pay. Under Dodd-Frank, shareholders of publicly traded companies are required to submit their executive compensation to a non-binding shareholder vote. Earlier reports indicated that the vast majority of shareholders gave a thumbs-up to their companies’ pay packages: 98.5 percent said “yes” according to one study in July, and 98 percent said “yes” according to a September study.
Instead, lower revenue amid a troubled global economy is more responsible for curbing Wall Street pay than anything else. Even with the pay cuts, the proportion of financial companies’ revenue going to employee pay is actually expected to rise to 36 percent in 2011, as opposed to 33 percent in 2010, according to the Journal. If Dodd-Frank had an impact on pay, it probably had more to do with the impact of major, binding regulations on the industry that are coming down the pipe than on the new executive compensation rules, per se.
But the new regulations could be amplifying the effect that modest revenues are having on compensation. As the Journal notes, a number of firms will probably make further pay cuts to “partly to appease shareholders frustrated by soft profits.” In fact, there are some academic studies showing that lower executive pay actually boosts a firm’s performance in the long run.