Ultimately, Goldman’s earnings report this week showed the firm cut the share of revenue it spent on compensation to 30% last year, down from about 34% or more in the prior three years. At JPMorgan’s corporate and investment banking division the ratio fell to just 24%, down from 28% in those earlier years. Morgan Stanley also shaved two percentage points off its compensation ratio.
A Goldman Sachs spokeswoman cited comments by Chief Financial Officer Stephen Scherr in response to a request for comment.
“Our philosophy remains to pay for performance, and we are committed to compensating top talent,” Scherr told analysts during an earnings conference call Tuesday. “Our full year compensation ratio is at a record low, reflecting the operating leverage in our franchise. As we have said in the past, we view the compensation ratio metric as less relevant to the firm as we build new scale platform businesses.”
A JPMorgan spokesman declined to comment.
The last time revenue growth and compensation growth diverged so wildly was in 2009, when Wall Street earnings rebounded from the 2008 financial crisis amid a withering public backlash against the industry’s pay practices. Critics of the industry’s excesses have kept a close eye on bonus trends ever since.
Early last year, as the Covid-19 outbreak shuttered businesses and put millions out of work, U.S. lenders began announcing plans to grant special pay to rank-and-file staff. All of the six banks except Wells Fargo & Co. ended up increasing their total spending on compensation.
Now, with 2020 over, one open question is how boards will reward C-suite executives including CEOs. Banks usually start announcing those decisions in the latter half of January.
The 2010 Dodd-Frank Act paved the way for heavier regulation of executive compensation. But several of its key rules were never fully adopted. The prohibition on incentive-based payment arrangements that can encourage inappropriate risk-taking by bankers still hasn’t yet been finalized. And while some major banks have voluntarily instituted clawback provisions since the 2008 crisis, few have used them.
Rodriguez Valladares expects policy makers will pay more attention to the gaps in pay between senior executives and employees on the lower rungs.
“Where legislators can play a very good role is to say: ‘Well hang on, you’re getting paid 100 times more than your teller, why is that?’” she said. “‘And you’ve been underpaying these people, so pay them more.’”
This article was provided by Bloomberg News.