This Is Why the Rich Get Richer

Technorati Tags: Wall Street, Securities Exchange Commission, bonuses, investors, stock options, SEC ruling

The CEO of Goldman Sachs bagged $53.4 million this year.

That was not his salary. It was his Christmas bonus:

For workers lucky to get a turkey as a Christmas bonus, the year-end payouts to top Wall Street executives must seem unimaginable.

Earlier this month, Morgan Stanley CEO John Mack took home $40 million, a record bonus for a single year's performance. Days later, his record was smashed by the $53.4 million payout to Goldman Sach's Lloyd Blankfein.

If executive pay as a whole has reached insane levels, at major securities firms it is insanity on steroids. The payouts to Mack and Blankfein are part of $24 billion in bonuses New York's comptroller expects will be paid by securities firms this year, thanks to surging 2006 profits.

Some might see it as Scrooge-like to begrudge big bonuses in such a bountiful year. But the whopping payouts underscore something of greater social importance: the nation's growing disparities in wealth. The top 10% of income earners in the USA own 70% of the wealth, according to a Federal Reserve study. And while hourly wages are forecast to increase about 3.5% this year, Wall Street bonuses are expected to jump 15% from last year. These trends are a recipe for resentment and class conflict.

There's more. The Securities Exchange Commission today reversed a July ruling with the result that top executives will be allowed to make their total compensation package look smaller by changing the way stock option grants are reported to investors:

"It was a holiday present to corporate America," Ann Yerger, the executive director of the Council of Institutional Investors, said yesterday. "It will certainly make the numbers look smaller in 2007 than they would otherwise have looked."

Christopher Cox, the commission chairman, said yesterday that he viewed the decision as "a relative technicality" that improved the rule. When the rule was adopted in July, Mr. Cox said it was aimed at providing information that would allow shareholders to "make better decisions about the appropriate amount to pay the men and women entrusted with running their companies."

In announcing the new rule on Friday, he said "the new disclosure requirements will be easier for companies to prepare and for investors to understand."

As controversy has grown over rising executive pay, it has been hard to even get agreement on the total value of compensation for top executives. The rules passed last summer required companies to disclose more information and to compile it in a summary compensation table that is expected to become the standard by which corporate pay is compared.

The new rule changes the way grants of stock options will be measured in that summary table.

Under the old rule, if a company awarded an options grant valued at $15 million to an executive this year, the full amount of $15 million would show up in the summary compensation table.

Under the new rule, which takes effect immediately, the amount reflected in the table would be much smaller, with the remaining part of the $15 million included in later years, as the executive qualifies to exercise the options.

Under some circumstances, the options grant might not be reported at all in the first year, even if the executive would otherwise have been the company's highest paid executive had the full value of the option grant been included.