Word out yesterday was that Richard Fuld, CEO of Lehman (LEH), would make $35 million for his year’s work. Lehman stock is down over 20% this year. But, the company’s board probably decided that Lehman stayed in business while some other institutions are in grave trouble. Cold comfort for Lehman’s shareholders.

Now, the FT is reporting that Lloyd Blankfein, chief of Goldman Sachs (GS), will see his pay move up 30% over last year to $70 million. In other words, he did his job twice as well as Fuld did. Goldman’s shares are up about 7% this year, in line with the broader market.

Why do people get paid so much for doing a modest job? Or doing a better than modest job under trying circumstances? Readers get bored with articles about executive compensation, especially on Wall St. The big numbers get posted every year and the press complains that no one is worth that much. Boards say that the compensation packages are the going rate. It is like baseball players. The market sets the payments.

But, the big payments to investment banking chiefs are particularly cruel this year. They may not have loaned money to people who could not afford their mortgages, but their companies did create the financial instruments based on mortgages, instruments that later collapsed.

Wall St. CEOs are now being paid based on whether they were able to dodge a bullet which they built. Bear Steans (BCS) did not move out of the way fast enough. Neither did Citigroup (C) or several other banks.

The compensation system does not take into account the fact that the mortgage mess was made worse by derivative products created and sold by investment banks. The disaster was deepened by an urge to make money on the complex web of home lending.

No one seems to have taken a pay cut for that.

Douglas A. McIntyre

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