April 3, 2018

Breakingviews: Dodd-Frank sheds surprising light on Wall St pay

by Breakingviews

The Dodd-Frank Act is shedding some surprising light on Wall Street pay. New disclosures mandated by the crisis-era U.S. law show that the widest income disparities in finance don’t necessarily involve chief executives’ big paychecks. And median compensation can say more about geography and industry sector than inequality. The data may be useful for investors and job seekers alike, and could revive a debate about moving jobs offshore.

President Donald Trump’s administration is eager to pare back the landmark act, but one of Dodd-Frank’s more populist measures is just now coming into force. Angered by misdeeds that provoked the crisis and the rising wealth disparity that followed, lawmakers mandated that companies disclose the ratio between their CEO’s total pay and that of the firm’s median employee.

Though the delta has been yawning for decades, the median 2017 CEO pay ratio of the nearly 375 companies to report so far is a relatively modest 77 to 1, says Equilar. Wall Street bosses beat that handily.

JPMorgan’s Jamie Dimon’s $28 million compensation last year was among the highest reported by a bank, and 364 times the $77,800 median of the bank’s 253,500 employees. Citigroup’s Michael Corbat earned a third less than Dimon, yet his $17.8 million package was 369 times the median. Globalization appears to be a big factor – 54 percent of Citi’s 209,000 employees are in Asia-Pacific and Latin America, where pay scales tend to be lower, while 70 percent of JPMorgan’s staff work in North America.

S&P Global really lives up to its name. CEO Douglas Peterson earned a comparatively modest $10.7 million last year, yet that was 434 times the rating agency’s $24,700 median. The company has cut its U.S. staff nearly in half in the past five years, largely through divestments, and rapidly expanded its footprint in India, where it owns the CRISIL agency and has 19 offices. His counterpart Raymond McDaniel at Moody’s took home 4 percent more than Peterson, yet that was only 187 times the median employee’s $59,700.

Spreading the wealth can defuse the issue. Goldman Sachs paid its median employee nearly $135,200, keeping Lloyd Blankfein’s pay ratio down to 163. Ken Jacobs earned only 67 times the pay of the median employee at Lazard. And Warren Buffett was paid less than two times the $53,510 median paycheck at Berkshire Hathaway. But then egalitarianism comes more easily to a boss worth, according to Forbes, some $84 billion.

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