"Inside Job," the new documentary on the events leading up to the 2008 collapse of the U.S. financial system, stresses the effect of exorbitant financial-sector salaries in stoking the mad rush into shaky derivative deals that upended the economy. Short-term salary bonuses fed directly into transactions hinging almost entirely on short-term profits -- and long-term ruin ensued.
But don't be looking for Wall Street salaries to come down any closer to earth in the new era of financial reform. Indeed, a new round of banking bonuses promise to be the highest ever.
According to a Wall Street Journal report by Liz Rappaport, Aaron Lucchetti and Stephen Grocer, Wall Street compensation will reach a new high in 2010, topping last year's previous benchmark. The Journal conducted a survey of 35 leading banks, investment banks, securities exchanges and other money-management firms, and found that these companies will pay out roughly $144 billion to employees this year -- a 4 percent increase over the $139 billion paid in 2009.
The Journal's research also shows that the rate of growth in pay at these firms is outpacing the revenue they actually take in.
Reports the Journal:
Overall, Wall Street is expected to pay 32.1% of its revenue to employees, the same as last year, but below the 36% in 2007. Profits, which were depressed by losses in the past two years, have bounced back from the 2008 crisis. But the estimated 2010 profit of $61.3 billion for the firms surveyed still falls about 20% short from the record $82 billion in 2006. Over that same period, compensation across the firms in the survey increased 23%.
And reports are now surfacing that some financial companies will pay out annual bonuses in December so as to avoid employees having to pay a higher tax rate in 2011, as the tax cuts for upper-income earners established by President George W. Bush are set to expire at the beginning of 2011.
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