Big Paychecks Back on Wall Street

Big paychecks are back for the Wall Street Banks, as per a report published in the Wall Street Journal this morning. Leading the way is Goldman Sachs (GS - Analyst Report), which is expected to pay $700,000 per employee for 2009, almost double from last year and slightly higher from 2007. Morgan Stanley (MS - Snapshot Report) is expected to pay $340,000 per employee, which is almost at same level as 2007.

These figures are largely based on the expectations that earnings momentum will continue for the big banks. During the first quarter, these banks made huge profits in trading businesses.

One of the reasons for the financial crisis was the executive compensation structure that encouraged excessive risk-taking. The Obama Administration is trying to revamp the compensation policies of the financial firms as a part of the broader regulatory reform package.

But restrictions on the executive compensation resulted in repayment of TARP money by the healthier banks. Banks which still have TARP capital on their balance sheets continue to be under intense scrutiny by the government, and some of them, like Bank of America (BAC - Analyst Report) and Citigroup (C - Analyst Report) have been trying to raise the base salary instead of paying bonuses that would invite lawmakers’ wrath.

We can only hope that these banks will put in place a proper mechanism to ensure that compensation is tied to long-term and not short-term performance, and that there is a provision to claw-back bonuses in the event of failures.