Merit pay—paying someone based on positive outcomes—has been controversial for almost 40 years. Except on Wall Street where, apparently, reverse merit pay—paying someone based on failure—has become the norm.
Louise Story, writing in the New York Times, reports that “workers at the largest financial institutions are on track to earn as much money this year as they did before the financial crisis began….” Interesting concept: drive your company over the cliff and reap the financial rewards; nice work if you can get it.
Story reports that six of the biggest Wall Street players are setting aside more than US$36 billion for first-quarter salaries for employees. Goldman Sachs alone has set aside US$4.7 billion. “If that level continues all year, it would add up to average pay of US$569,220 per worker,” writes Story. That’s almost as much as the 2007 pay level, which—according to Story—set a record. Morgan Stanley—which lost US$578 million for the quarter—set aside an unbelievable US$2.08 billion for compensation; a mind-blowing 68% of revenue.
Compensation on Wall Street is historically a whopping 50% of revenue. And there’s no sign of that changing any time soon. Story writes:
“Compensation is among the most cited causes of the financial crisis because bonuses were often tied to short-term gains, even if those gains disappeared later on. Still, as profits return, banks do not appear to be changing the absolute level of worker pay—or the share of revenue dedicated to compensation.”
Critics say the compensation relative to revenue is indicative that the core problem of the mass failure of the global economic system has yet to be addressed.
It wouldn’t be so bad—actually, it’d be none of our business—if the Wall Streeters weren’t using US taxpayer money to pay their employees based on failure. But since they are, it is.
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