Wall Street Bonuses Scrutinized
Wall Street Bonuses Scrutinized

DODD-FRANK DIRECTIVE: Securities and Exchange Commission Chairwoman Mary Schapiro testifies during a House Financial Services Committee hearing on Feb. 15, in Washington.  (Mark Wilson/Getty Images)
DODD-FRANK DIRECTIVE: Securities and Exchange Commission Chairwoman Mary Schapiro testifies during a House Financial Services Committee hearing on Feb. 15, in Washington. (Mark Wilson/Getty Images)
Wall Street bonuses, which have resulted in heated discussions by experts, professionals, and people of all walks of life, are again newsworthy.

First, the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC) have announced rules that are consistent with Section 956 of the Dodd-Frank Act, on Feb. 8 and March 2, respectively.

Secondly, surveys have shown that the maligned excessive executive bonuses are tumbling down.

Wall Street bonuses took an 8 percent nose dive in 2010 and have dropped by about one third since 2007, with a total bonus payout of $20.8 billion in 2010.

Regulatory reform and different types of compensation, including deferred rewards and higher base wages, are seen as the underlying cause for the significant decline in pure bonus payouts.

Scrutiny of a number of 2010 security industry financial statements show that “although the size of the cash bonus pool has declined, overall compensation has grown,” by 6 percent, according to Thomas P. DiNapoli, New York state comptroller, in a recent press release.

The intent is to no longer award incentives for achieving short-term jumps in profitability without looking at long-term effects. Excessive risk taking is discouraged under the new reward schemes.

“Cash bonuses are down, but that’s not an indicator of a weakness on Wall Street. Wall Street is changing its compensation practices in response to regulatory reforms adopted in the aftermath of the greatest financial meltdown since the Great Depression,” DiNapoli said.

The moneyblog Personal Money Store calls the new bonus schemes a deception and a way to get out of paying taxes. It suggests that Wall Street is still at its old games, letting creative juices do the searching for loopholes that will benefit its adherents.

Wall Street intends to “give financial regulators the impression they are encouraging long-term profitability instead of short term gain. By doling out smaller bonuses, Wall Street firms have also discovered a new and effective tax avoidance tactic,” according to the moneyblog.

In its recent press release, the New York state comptroller’s office bemoaned the loss of taxes from Wall Street’s wheelers and dealers, with an about 7 percent loss, down from a 20 percent tax collection before the economic upheaval.

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