Wallstreeters must hope that past isn’t precedent

I’ve been reading a justly lauded book about Bear Stearns and the shenanigans that led to the firm’s collapse, House of Cards by William D. Cohan.

In his dissection of the firm and his evisceration of its executives, the author periodically brings us up to date on their compensation, a pittance in contrast to most of the mammoth packages handed on Wall Street today.

For example, Cohan writes that top executives, especially Ace Greenberg and Jimmy Cayne, were making “eye-popping” amounts of money in the fiscal year ended June 1991.  He notes that:

. . . the thirteen top Bear Stearns executives received an average compensation of $2.8 million, up 25 percent from the year before.

Greenberg’s cash compensation for the year increased to $5.3 million, from $4.2 million the year before.”

Who among us wouldn’t be thrilled to collect that much money in a single year?  Answer: the folks toiling on the Street these days.

Investment banks and securities firms paid employees in New York City an estimated $20.3 billion in annual bonuses, according to the New York State Comptroller. Compensation at Goldman Sachs, Morgan Stanley and the investment banking operations of JPMorgan Chase rose 31 percent last year.

At Goldman, however, each employee received approximately about $498,000 in bonus and compensation for 2009, less than usual because the firm’s reputation was under attack.  CEO Lloyd Blankfein took home only $600,000–$40 million less than in 2008.  But his compensation in 2007 was $68.7 million, so he’s probably not haunting any end-of-season sales.

JPMorgan Chase Chairman and CEO Jamie Dimon isn’t hurting either.  He is taking home a nearly $16 million bonus in restricted stock and options in return for the firm’s performance last year.

Compared with hedge fund managers, however, investment banking chiefs made paltry sums.

The highest-paid 25 hedge fund titans earned a collective $25.3 billion, beating the old 2007 high by a wide margin. The minimum individual payout on the list was $350 million in 2009.  Topping the list was David Tepper, who earned $4 billion, with a “b.”  George Soros was close behind, with James Simons and John Paulson in respective third and fourth places.

Not every hedge fund executive did so well: Consider the case of one employed by a distressed fund who was arrested on charges related to her operating a marijuana farm in Connecticut.

David Tepper

I’m not about to join the chorus of those who question whether there’s any rational connection between the value of the work performed and the amount of compensation.  Okay, I can’t resist.

At the risk of offending some of my readers, I do wonder why making a ton of money for a company requires it to offer unfathomably high rewards to those who produce such a benefit–to the company, not the GDP.  Yes, individuals make a difference.  I just fail to see how anyone can be worth millions of dollars a day.  Couldn’t others do the job just as well for profoundly less money?

Actually, I once worked at an investment bank, the unhappiest year of my life, even though I made multiples more money than ever before.  I wasn’t a trader, a banker or an analyst.  I was merely the vice president for communications.  Let’s just say that the firm’s culture and mine were a poor match.

As for the “eye-popping” sums cited by Cohan, don’t they seem positively quaint by today’s standards?

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Malcolm Carter
Licensed Associate Real Estate Broker
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Charles Rutenberg Realty
127 E. 56th Street
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