Bull Bear Report Nov 30 2010

Report Says Wall Street Pay Practices Have Worsened

By julie steinberg

If the government hoped Wall Street pay practices would change as a result of new rules, it will need to go back to the drawing board. A new report from the Council of Institutional Investors say that finance firms link too much compensation to short-term results and have simply increased salaries to offset smaller bonuses.

In order to appease regulators, firms made more use of clawbacks and paid out more bonuses in stock. But they were able to circumvent any real change, the report claims, by shifting a larger percentage of pay to base salaries. The report said that "on balance, pay practices have worsened," and noted that after the financial crisis, some firms handed out gigantic salary increases to executives.

The report's creators said that "most of the banks appear not to understand that deferring pay...does not by itself link pay to the long-term value growth of the company." As a result, "there's still a long way to go," Amy Borrus, deputy director at the Council of Institutional Investors, told WSJ.

The report's release comes at the very start of bonus season, when firms will no doubt come under further scrutiny from government regulators and the public alike. The trend of increasing base salaries is likely to continue.

Write to Julie Steinberg




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