A new tone on Wall Street as bankers’ pay declines?
By Jena McGregor,
In recent days, a number of high-profile banks have made news about declining compensation.
Goldman Sachs said that in the fourth quarter, the percentage of revenues it pays to employees was cut in half, to 21 percent, the second-lowest level since the bank went public in 1999, reports Reuters. At JPMorgan Chase, reports Bloomberg, compensation costs fell 3 percent in 2012. Even bigger: The bank cut in half the pay CEO Jamie Dimon received in 2011, dropping his compensation from $23.1 million the year prior to $11.5 million in 2012, despite achieving record profits for the year. And at Morgan Stanley, which released earnings Friday, press reports this week said highly paid employees (those making more than $350,000 a year and receiving bonuses higher than $50,000) will now see their bonuses deferred over a period of three years.
Investor pressure is surely behind most of the moves, while Dimon’s massive cut is in response to the “London Whale” trading fiasco, which cost the bank more than $6 billion last year. But the moves are also signs, perhaps, that Wall Street is starting to come to terms with bankers’ real worth. As Neil Irwin wrote Wednesday on Wonkblog, “a combination of market forces and regulation are leading banks to come to the same conclusion that many people not on Wall Street arrived at a long time ago: Maybe it’s time for a pay cut.”
It’s hard to believe it’s taken this long. The financial crisis happened more than four years ago, and a dismal economy hardly gave newly minted MBAs many other choices for places to go. Though the big banks could lose some of their people to smaller boutique houses that are reportedly continuing to pay more—or pay bonuses all in cash—those smaller shops only have so many jobs on offer. Several years after much of America was readying its pitchforks to march on Wall Street, we may finally be seeing a reckoning, however relative it may be.
Whether or not this is a blip on the screen or a true come-to-Jesus moment for the industry will only become clear with time. But a frank new tone at the top of some banks suggests there may be staying power. At Barclays, which news reports also said this week planned to cut bonuses between 10 and 20 percent, new CEO Antony Jenkins said employees should leave if they aren’t ready to sign on to new “purpose and value” standards the company will use in assessing bonuses and performance, the Guardian reported Thursday. In a memo to staff, the paper discovered, Jenkins wrote that for those people who cannot sign on to the new standards, “Barclays is not the place for you. The rules have changed. You won’t feel comfortable at Barclays and, to be frank, we won’t feel comfortable with you as colleagues.” The new standards are in part an effort to rebuild the bank’s reputation following a rate-fixing scandal last year.
Meanwhile, back in October, Morgan Stanley boss James Gorman foreshadowed recent news when he told the Financial Times—in a comment that not so long ago would seem like blasphemy in the industry—that “there’s way too much capacity and compensation is way too high. As a shareholder I’m sort of sympathetic to the shareholder view that the industry is still overpaid.” Later in the piece, he acknowledges Wall Street’s tendency in recent years to fret about losing too many people if pay goes down, saying “that’s a classic Wall Street case of ‘Heads I win; tails you lose.’ The current Wall Street management is a little tougher minded about that.”
Not all banking chiefs, of course, are being quite so forthcoming about their feelings on pay cuts, or at least not when it comes to their own. JPMorgan’s Dimon admitted he respected the board’s decision, but when asked for his reaction to his own massive cut in pay told reporters, according to the Wall Street Journal, “nope, you’re not going to get it.” Some banking CEOs may be ready to admit industry pay needs to come down, but it’s not clear whether or not they’re ready for their own to do the same.
Jena McGregor is a columnist for the Washington Post’s On Leadership section.