Goldman Sachs (NYSE: GS) famously set a Wall Street pay record in 2007. Since then, the firm has come under increased pressure from shareholders and politicians, seeking to reduce bonuses following the financial crisis. One must wonder though if politicians fully understand the gravity of this request, as lower compensation payments means lower tax revenue, and given the tenuous state of New York’s tax revenue it is peculiar they would risk jeopardizing this further.
Recently, the firm cut its full year ratio of compensation to revenue to just 35.8 percent, the lowest since the firm went public in 1999. Brad Hintz, a prominent analyst at Sanford C. Bernstein & Co. commented “They recognize that the world has changed. The only way to improve your return on assets is to control compensation.”
Although most of Wall Street employees earn their money from the year-end bonuses, the banks typically reserve and accrue for it throughout the year as a portion of revenue. Last week, JPMorgan Chase &Co. (NYSE: JPM) reported that it set aside 39 percent of its investment bank’s revenue to pay workers in the division for the first nine months of the year, up from 38 percent a year earlier.
The expense at JPMorgan’s investment bank fell 10 percent to $7.88 billion from $8.79 billion. That’s equal to $298,866 for each of the unit’s 26,373 workers at the end of September, down from $353,834 on average for the division’s 24,828 employees a year earlier. The estimates for Goldman Sachs’ reserves show average compensation per employee of $370,706, a significant drop for the firms 35,400 employees.
