If you’re wondering whether the economic downturn is over on Wall Street, it depends what you mean by “Wall Street.”
If you’re talking about stocks and investing, the answer is “maybe.” In 2010, the S&P 500 index was up about 13%, and most people saw a pretty good year for their 401ks and brokerage accounts. Of course, the S&P is still in the red over the last 10 years, but we’ve started to see equities bounce back. And this January went down as the best for stocks since 1997, so we could be on the way up.
Then there’s those folks who work on Wall Street. If you’re asking whether the downturn is over for them, the answer is decidedly “yes!” In 2010, total compensation and benefits at the big financial firms hit a record of $135 billion.
According to an analysis by The Wall Street Journal, the pay, bonuses and benefits at these publicly traded banks and trading firms is up 5.7% from $128 billion in compensation by the same companies in 2009. Of course, it’s worth noting that revenue at these companies also hit a new record, rising to $417 billion.
Those hardcore capitalists would argue that this pay increase is the just reward for the best and brightest on Wall Street who have brought in more cash to the company coffers. Those who were laid off, make minimum wage or just plain old resent the rich may argue that the only reason to keep inflating already swollen salaries is simple greed.
You can draw your own conclusions on the justness of these bonuses – and comment in the forums at the end of this article. But it’s worth noting that the compensation is coming in a different form as Wall Street’s extraordinary compensation levels are adjusting to public perception in the wake of the financial crisis. According to the WSJ, “deferred compensation” outside of salary and bonuses made up as much as half of total pay, up from about a third in 2009. That’s because banks and trading firms are sensitive to criticism that massive year-end cash bonuses encourage risky behavior, and the perception that unscrupulous Wall Streeters can burn the house down as long as they get their big payday at the end of the year.
Of course, this information may not change your opinion. If you’re of the mind that this is well deserved compensation, you probably think the shift is irrelevant – these investment bankers earned their keep whether it be a big paycheck, stock options or a company car. And if you’re of the mind that this is all greed driven, you probably think Wall Street is just trying to whitewash it’s money-grubbing ways.
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Perhaps the real question raised by this article is what will happen this year. After all, 2010 was a decent year on Wall Street for most investors. What if 2011 turns south, or stocks just slide sideways all year? Will investment banks continue to be sensitive to public perceptions? And what if 2011 is a breakout year for stocks as the recovery gets into full swing – will this only be a blip on the radar as compensation goes back to the go-go days of the mid-2000s?
It’s anybody’s guess. But one thing is for sure looking at these numbers – you can bet that whatever happens to the S&P this year, Wall Street compensation is surely not going to move down in any significant way.