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“Low Wage Jobs Endanger Nothing”: Wall Street’s 2013 Bonuses Were More Than All Workers Earned Making The Federal Minimum

Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses.

New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.

That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers.

The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.

And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.

When low-wage workers spend their money at the grocery store or on utility bills, this cash ripples through the economy. According to my new report, every extra dollar going into the pockets of low-wage workers adds about $1.21 to the national economy. Every extra dollar a high-income American makes, by contrast, only adds about 39 cents to the gross domestic product (GDP).

And these pennies add up.

If the $26.7 billion Wall Streeters pulled in on their bonuses last year had instead gone to minimum wage workers, our economy would be expected to grow by about $32.3 billion — more than triple the $10.4 billion boost expected from the Wall Street bonuses.

This immense GDP differential only speaks to one price we pay for Wall Street’s bonus reward culture. Huge bonuses, the 2008 financial industry meltdown made clear, create an incentive for high-risk behaviors that endanger the entire economy.

And yet, nearly four years after passage of the Dodd-Frank financial reform, regulators still haven’t implemented the modest provisions in that law to prohibit financial industry pay that encourages “inappropriate risk.” Time will tell whether last year’s Wall Street bonuses were based on high-risk gambles that will eventually blow up in our faces.

Low-wage jobs, on the other hand, endanger nothing. The people who harvest, prepare and serve our food, the folks who keep our hotels clean, and the workers who care for our elderly all provide crucial services. They deserve much higher rewards.

 

By: Sarah Anderson, Moyers and Company, Bill Moyers Blog, March 12, 2014; This post originally appeared at Other Words

March 13, 2014 Posted by | Economic Inequality, Executive Compensation | , , , , , , , , | 1 Comment

“Bad Incentives Haven’t Gone Away”: You Still Need To Care About Sky-High Wall Street CEO Pay

According to a new regulatory filing, Bank of America CEO Brian Moynihan received a compensation package for 2013 worth $14 million, a $2 million increase over 2012. This places Moynihan third on the list of big bank CEOs, behind Goldman Sachs chief Lloyd Blankfein, who made $23 million last year and JPMorgan Chase’s Jamie Dimon, who made $20 million. Moynihan’s top underlings also received multi-million dollar compensation packages of their own.

With these numbers, it seems that Wall Street’s biggest banks are trying to put the financial crisis of 2008 firmly in the rear view mirror. (Never mind that many of them, most prominently JPMorgan, are still paying out hefty fines, penalties and settlements due to their actions in the lead up to that crisis.) Nothing more to see here! Back to business as usual! All’s well that ends profitably!

Over at the New York Times’ Dealbook this week, Ohio State University professor Steven Davidoff even lamented the outsized attention still garnered by CEO pay at Wall Street firms, when, for instance, tech CEOs sometimes make much more. “This double standard for finance and technology doesn’t make sense,” he wrote, adding that “perhaps it is time to call a truce on the Wall Street bias in looking at executive compensation.”

But there’s a good reason for the focus on Wall Street pay. For tech firms, misaligned incentives aren’t likely to crash the economy. For Wall Street, however, short-term risk-taking in pursuit of bigger bonuses can cause systemic problems, as several studies have shown. That’s why the Dodd-Frank financial reform law included new regulations meant to tie executive compensation at banks to longer-term performance (and it didn’t hurt that reining in Wall Street pay makes for good politics).

Sure, Davidoff is right that sky-high CEO pay deserves a broader look across the board. After all, it’s a big driver of income inequality. As the Economic Policy Institute has found, “Executives, and workers in finance, accounted for 58 percent of the expansion of income for the top 1 percent and 67 percent of the increase in income for the top 0.1 percent from 1979 to 2005.” Not only that, but taxpayers are subsidizing these big pay packages thanks to a loophole allowing corporations to write off CEO pay that is “performance based.” (Rep. Lloyd Doggett, D-Texas, has introduced legislation to fix that particular problem, but given what the Republican-held House is interested in these days, I wouldn’t expect it to come up for a vote anytime soon.)

But the fact remains that Wall Street pay is unique due to its ability to cause harm to the wider economy. The simple solutions for reining in pay that would work in other industries – such as higher taxes, more transparency and stronger unions – don’t reduce that risk. And the fixes in Dodd-Frank, while helpful, haven’t done enough, as professor J. Robert Brown Jr., an expert in corporate law, wrote recently:

Executive compensation is not adequately bounded by legal standards under state law. Efforts to address these concerns by Congress have been useful but remain incomplete. The system as it currently exists does not ensure that compensation will be based upon actual performance or that the approach will not encourage excessive risk taking.

Now, Wall Street will tell you up, down and all around that its new pay packages are not like those of yesteryear. And maybe that’s even the case for now. But as 2008 fades further and further into memory, it’s worth remembering just how the economy was brought to the brink and what still hasn’t been done to fix those problems. Without firm rules, there’s nothing stopping Wall Street from slipping right back to the same old bad habits when it thinks everyone has lost interest.

 

By: Pat Garofalo, U. S. News and World Report, February 20, 2014

February 24, 2014 Posted by | Economic Inequality, Executive Compensation, Wall Street | , , , , , | Leave a comment

   

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