Can Wall St. Dodge Government Pay Limits?

Now that the government has set a number of caps on Wall St. pay packages, the question is whether the financial firms can get around some of the rules. Certainly not. Congress has too much invested in showing the public that it can bring down the people who tend to get the most blame for the collapse of the of the credit system.

The limits on pay are set up to hit a number of high paid people at banks and brokerages. Putting restrictions on CEOs and top management compensation was expected to be a part of any plan to control the actions of companies which have received or will receive government funds to stay solvent. But, the new rules are set up to hit the pocket books of some of the financial firms’ employees who bring their employers huge amounts of profit.

According to The Wall Street Journal, “The most stringent pay restriction bars any company receiving funds from paying top earners bonuses equal to more than one-third of their total annual compensation. ”  That means that a trader making a modest salary of $400,000 who brings in $50 million in profits for his firm would probably be paid less than $600,000 under the new rules. Most traders get bonuses at year end. Successful traders can make $10 million or $20 million a year in exchange for pumping up their employer’s bottom line.

The first conflict that government is going to have to resolve is what happens to investment bankers and traders who have employment contracts? When financial companies are recruiting top talent, they often guarantee large pay-outs that last several years. Will the government try to void these deals? The court fights over that will make good theater.

The most obvious way for a financial firm to end run the new government rules is to give its top money makers huge base salaries and move the compensation system almost totally away from one that depends on bonuses. Congress and the Administration won’t like that. Count on any attempts to change pay packages to keep compensation high to be knocked down before they gather momentum.

Wall St. won’t get a chance to humiliate Congress even if the new rules will damage the most profitable parts of the financial system.

Douglas A. McIntyre