CEO pay on Wall Street has tumbled by more than half since before the financial crisis, but that’s hardly a sign of progress in any effort to promote income equality. It’s an accident, more than anything, and it likely won’t last.
The gap between what bank chiefs make and the salaries of rank-and-file workers has narrowed substantially since 2006, according to a study conducted by The Wall Street Journal. That sounds like a win for Main Street. After all, Wall Street bankers were among the biggest villains of the financial crisis and ensuing Great Recession, and yet not a single CEO went to jail.
Indeed, many of them didn’t even lose their jobs.
As much as a pay cut might sound like punishment, it’s nothing of the sort. It’s really just a byproduct of the new regulatory regime on Wall Street and a multi-year period of weakness in trading revenue and other bank business.
Although the regulations may not change, you can bet that business will eventually pick up and boards of directors will be happy to reward their pet CEOs.
It’s also not like Wall Street CEOs are starving.
CEO Pay Cuts Aren’t Intentional
A look at executive compensation by the Journal revealed that bank CEOs last year on average made 124x more than the average bank worker. That’s down 55% from 273x the average pay gap in 2006.
That’s because top CEO pay dropped while average worker pay grew. CEOs at the big five Wall Street banks — JPMorgan Chase & Co. (NYSE:JPM), Bank of America Corp (NYSE:BAC), Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) — collectively made nearly $174 million in 2006, according to the Journal. Last year, total CEO pay added up to “only” to $92.5 million.
At the same time, the average pay of bank workers — all employees from tellers to CEOs — rose 17% since 2006, from $127,379 to $148,740. The lure of Silicon Valley or the hedge fund industry for many of the most talented employees no doubt helped raise that figure.
But it’s still peanuts compared with CEO pay. And it’s not like Wall Street purposely engineered it that way. CEO pay is down because the optics of unseemly executive compensation remain toxic as long as memories of the financial crisis remain fresh. CEO pay is also under pressure because Wall Street earnings are stagnant or in reverse amid weak trading revenue, sluggish commercial lending and a slowdown in mortgage origination.
Regulations mean banks can’t employ leverage like they used to, and they’ve had to set aside many billions for legal costs.
Narrowing the pay gap between CEOs and average workers isn’t something Wall Street is actively pursuing. Besides, as much as the gap has narrowed, the average pay of a Big Five Wall Street CEO was still $18.5 million last year. The gap has gotten smaller, but it remains huge.
Lastly, Wall Street banks may never get back to the good old days when they were profit machines, but there’s ample room for growth. CEO pay might be down these days but it’s unlikely to stay that way for too long.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
