Wall Street Pay

Today's reading from the NY Times website: On Wall Street: All Reward, No Risk by William D. Cohan.

For the life of me, I can’t figure out why Wall Street bankers, traders and executives get paid so much money year after year for doing jobs that rarely require them to innovate, enlighten or put their own capital at risk, and have the nasty habit of periodically sinking our economy.

After a two-year stint as a reporter on a daily paper in the early 1980s, I worked on Wall Street for nearly two decades, and quickly discovered that I could make more money in one year as a banker than I could in a lifetime as a journalist. And that was when I was a relatively junior banker. By the time I was a managing director, the pay — and the pay spread — was astronomical.

Curiously, though, the amount of time and energy I devoted to the two professions on a daily basis wasn’t all that different; both were totally demanding. While it was true that as a banker I generated revenue, or helped to generate revenue, and as a journalist, the publisher likely figured I was part of a cost problem, the discrepancy in pay never made much sense to me since I always had trouble imagining a newspaper without writers.

Now, after six years of writing about Wall Street — including two lengthy books — I remain at a total loss to explain the pay phenomenon. What’s worse, even the most modest slights when it comes to pay on Wall Street — “The guy next to me got a $2 million bonus, why did I only get $1.9 million?!” — is enough to reduce someone to tears. Indeed, I have yet to encounter a person on Wall Street who can, with a straight face, justify his compensation on other than the most painfully tone-deaf grounds, usually along the lines of how they “add value” for their clients....

This was a key paragraph for me:

Do Wall Street firms exist for the benefit of their shareholders, like other public companies, or do they exist primarily for the benefit of the people who happen to work there? The answer to this rhetorical question is painfully, and sadly, obvious. No other large public companies pay out anywhere near as high a percentage of revenue to their employees. But where is it written that this madness has to continue? Why does a financial engineer have to get paid exponentially more than a real engineer?

It does fascinate me how we value different kinds of work...