by Jon Lewin on April 17, 2012
Before the 2008 financial crisis, the ratio of CEO pay to the average employee salary at some banks was over 100-to-1. But the ratio at most banking firms is now somewhere between 18-to-1 and 50-to-1, according to Bloomberg. According to one analyst, that’s not high enough.
“Thirty to 50 times is probably unsustainably low for the industry, but that’s somewhat consistent with the bummer of a year we had in 2011,” said Alan Johnson, president of compensation consultant Johnson Associates Inc. “If it stays there, that’s probably a really bad sign. It means the firms are still not doing very well.”
One of the CEOs struggling to get by after the “bummer of a year” is Goldman Sachs Group Inc.’s Lloyd Blankfein, who received $12 million in 2011, down 35% from the previous year. Blankfein’s pay was 33 times greater than the average amount of $367,057 that was put aside for each employee at Goldman. In 2007, that ratio was 104-1.
Under a Dodd-Frank mandate, the Securities and Exchange Commission is creating a rule requiring public companies to reveal their ration of CEO compensation to median pay. A 2010 survey found that CEO pay across the U.S. was 325 times greater than the average pay of workers.
But while the new SEC rule is designed to address outrage over the disparity in pay between high-level executives and regular workers, it’s hard to imagine that groups such as Occupy Wall Street are protesting because Goldman employees are forced to make do with $367,057.
On Wall Street at least, the compensation ratio rule might most benefit Wall Street employees, where someone at Goldman can compare his or her situation with an employee at JPMorgan Chase & Co., where CEO Jamie Dimon, one of the few CEOs in banking to avoid a cut in pay, earned $23 million in 2011. Dimon made 67 times the average amount that was put aside for JPMorgan Chase’s investment bankers and traders, which was the widest gap among the banking firms that reported divisional pay.
While Dimon’s compensation was the same as the previous year, the ratio of his pay to that of the bankers and traders rose from 62-to-1.
According to JPMorgan investment bank CEO Jes Staley, the board and management team elected to pay individual employees an amount similar to what other companies paid, as opposed to a similar revenue percentage. As a result, while division revenue rose in 2011, compensation costs fell. The average pay at JPMorgan’s investment bank was $341,552.
So JPMorgan Chase is keeping compensation costs down to make the shareholders happy. Based on consultant Johnson’s notion that successful banking firms have higher CEO-employee pay ratios, increasing the ratio of Dimon’s pay to bankers and traders should make shareholders happy as well. One wonders how the investment bankers and traders at JPMorgan Chase feel about that growing ratio.
Jon Lewin is a Feature Writer for the Compliance Exchange and Wall Street Job Report. He is also a columnist for the Faster Times and a blogger for Subway Squawkers. Lewin’s work has appeared in the New York Daily News, Huffington Post and Digital Innovation Gazette as well as the “Cambridge Companion to Baseball” and the Daily News history essay collection “Big Town Big Time.”