Wall Street's Bonus Boys

Flacks on Wall Street may have the toughest job in all America. They have justify why some Americans deserve to be paid $33,000 an hour.

January 1, 2007

By Sam Pizzigati

Who works harder on Wall Street today, the power-suited execs and traders who regularly pocket multi-millions in year-end bonuses or the flacks those power-suits hire to justify all those multi-millions?

The nod, this holiday season, has to go the flacks. What task could possibly be more trying than the labor needed to make Americans smile upon the bonuses that are currently raining down on Wall Street?

Start with the sheer immensity of this latest bonus round. For Goldman Sachs CEO Lloyd Blankfein, $53.4 million, the largest single annual executive bonus in Wall Street history. For Lehman Brothers CEO Richard Fuld Jr., $11 million in bonus, plus a stock goodie bag worth $189 million over the next ten years.

In all, according to the New York State comptroller's office, Wall Street securities firms shelled out $23.9 billion in 2006 compensation, a total up 17 percent over 2005. Top Wall Street traders, assuming a 60-hour work week, averaged from $17,000 to $33,000 an hour.

The typical American household, by contrast, only took home $46,326 in 2005 for the entire year.

Numbers like these certainly make life challenging for Wall Street flacks. Unfortunately, for the flacks, Wall Street's top guns are only adding to that challenge — with their spending habits. Those bonus millions are translating into luxury spending binges that, once reported, leave average Americans shaking their heads in disbelief.

Down the street from Goldman Sachs, for instance, the Barclay-Rex Tobaccionist shop is now selling cigar lighters at $700 a pop. The same store, the New York Post reports, offers a “gold-plated, double-bladed” cigar clipper for $320.

How can all this excess be justified? Fortunately for the flacks, they can count on some help, from an eager-to-please assortment of academic and media apologists. These apologists spent December trotting out what has become, ever since inequality in the United States started ballooning a quarter century ago, a familiar litany of contentions.

Wall Street's big-bonus boys, the argument goes, work hard, take risks, and generate wealth. On top of that, we're all assured, the ample rewards for all this hard work, risk taking, and wealth generation ultimately benefit everybody.

How hard do Wall Streeters work? Lots of them, CNN's Christine Rogers informed viewers in December, work as many as 100 hours a week. How much risk do Wall Streeters run? Sure, the apologists point out, pay on Wall Street has indeed soared 49 percent since 2003, but some years Wall Street bonuses actually fall. They tumbled, for instance, 22 percent in 1998 and 27 percent as recently as 2001.

And how much wealth do Wall Street movers and shakers create? The wizards who work at Goldman Sachs generated $9.5 billion in 2006 profits, “even more,” former Wall Street stock analyst superstar Henry Blodgett observed last month in the New York Times, “than the employees at Google, another fantastically profitable wealth-generation machine.”

In the context of sums so huge, the apologists posit, how can we begrudge anyone on Wall Street a $10 million — or even a $50 million — bonus? Don't critics understand, the apologists add, that all those bonus dollars pay dividends, in the end, for everyone?

“A few years back, New York was in a tailspin ” as Noel Sheppard of the Business & Media Institute noted triumphantly last month, “Now, Wall Street's billions in profit mean a Big Apple boom.”

Big bonuses, agrees New York comptroller Alan Hevesi, translate into big billions in extra tax revenue. In 2005, Hevesi cheers, the $21.5 billion in Wall Street bonuses netted the state and city of New York $2.1 billion in tax receipts. Sales taxes on $700 cigar lighters apparently add up.

So should we all be applauding Wall Street's new bonus records? Hold that applause, please. Not one of the claims that apologists advance, upon any sort of serious scrutiny, hold up.

Those long Wall Street work weeks? Some Wall Streeters may occasionally work a 100-hour week. But the notion that anyone could actually “work” 100 hours week after week after week — and live to the tell the tale — reeks of deep-pocket self-delusion.

And just when, in the U.S. economy, did long hours start triggering — and obligating — vast rewards? Plenty of Americans spend long hours on the job. Millions of workers in the United States moonlight in two or more jobs, year around, without any bonuses at all.

Many of these workers, on top of their insanely long hours, face real risks, too. They work amid toxic chemicals, for instance, or at dangerous construction sites. They sometimes see their fellow workers even die on the job.

What risk do Wall Street movers and shakers face? They handle other people's money. If they do poorly with that money, their clients lose money. They don't. They just get less bonus. And even if their bonus checks should take a hit in one year, they still get to keep all the many multi-millions the collected the year before.

These multi-millions add up. Goldman Sachs CEO Lloyd Blankfein, notes the Wall Street Journal's Peter Lattman, now holds about $700 million worth of Goldman Sachs stock.

But don't Wall Streeters like Blankfein generate huge mountains of wealth for their companies? Doesn't that generation entitle them to bountiful bonuses?

Let's look a bit closer at the generation process.

Goldman Sachs, notes Washington Post business journalist Steven Pearlstein, had 26,400 employees on the payroll last year. The firm's bonus formula entitled just 25 of these employees — the company's 25 top managers — to 15 percent of the company's pretax earnings.

Now if the rest of the 26,400 employees at Goldman Sachs were to receive, as bonuses, every cent of the rest of these earnings, their bonuses would average, at best, one thousandth of 1 percent of the company's pretax take.

That slight gap raises an obvious question. If all those Goldman Sachs employees deserve so little of the company's good fortune, they must be contributing precious little to Goldman Sachs success. And if they're contributing so precious little to the firm's success, then why do Goldman Sachs top executives keep them on the payroll?

These executives must either be wasting company dollars on unnecessary employees or seizing an unjustifiable share of the rewards their employees help generate. Either way, the executives are messing up — and hardly deserve tens of millions in bonus rewards.

But what about that final claim in the bonus apologist arsenal, the notion that fantastically lush rewards eventually percolate down into benefits for society at large? The richer our rich, in other words, the richer the rest of us can look forward to becoming.

Apologists for inequality have been enthusiastically making this case, with straight faces, for over a generation now, ever since the early 1980s. Over this period, our rich certainly have become richer. But wages and salaries for average Americans have only stagnated.

Wall Street's supersized bonuses don't benefit society. They bludgeon it. Manhattan, for instance, has become virtually uninhabitable for middle-class families, as the ever-richer super rich bid up and up the cost of housing.

Wall Street elites add little real value, overall, to the U.S. economy. Their “labors,” instead, merely grease the gears of a vast corporate churning machine where only one value — the price of a share of stock — matters.

To jack up that price, movers and shakers on Wall Street connive with corporate CEOs and assorted other deep pockets to buy up companies and merge them into huge corporate empires. These empires typically become “successful” by downsizing workers and shortchanging consumers. Once successful, these companies go on the block. Wall Streeters help their owners break their empires apart and sell off the profitable pieces.

The pieces then coalesce into new corporate empires. The corporate buying and selling, in contemporary America, never ends.

And the game pays well for all the key players. The Wall Streeters take in generous fees on every transaction. The corporate executives who sit on growing empires pocket huge windfalls for “growing” their companies. The executives in empires breaking apart walk off with huge severance packages. Nobody — in a power suit — loses.

Until this past year, as business analyst Steven Pearlstein points out, Goldman Sachs actually had in place a $35 million cap on how much bonus any single executive in the firm could collect on an annual basis.

That $35 million cap has since gone by the boards, and Goldman Sachs doesn't figure to bring back that cap, or any other.

Maybe the rest of us should.

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Sam Pizzigati edits Too Much, an online newsletter on excess and inequality.