In many ways, the financial world has changed remarkably little in the five years since the 2008 financial crisis. Yes, banks, brokers and other intermediaries are neither as profitable nor as popular as in the pre-crisis years. However, the industry is still arrogant, isolated and ridiculously lucrative. Leading financiers look more like pre-revolutionary aristocrats than normal businessmen.
Pay is the most obvious sign of this privileged social position. Consider JPMorgan, a fairly typical financial firm in terms of remuneration. Last year, the annual compensation per employee was $192,000.
That already seems high, but the measure includes the majority of employees whose pay is bunched around the $45,000 average for non-supervisory U.S. workers in finance. Assume that two-thirds of Morgan’s employees were in that group. For the rest, the people at the top and upper middle of the company, that leaves an average pretax reward of $485,000 – more than 10 times the norm of the lower orders.
Few senior hedge fund managers, successful inter-broker dealers or other high earners in finance see themselves as seriously overpaid. They are wrong.
The rewards for financiers are excessive by three standards. First, professionals with comparable skills earn much less. Second, financiers are paid far more than is merited by their contributions to the common good. It is telling that the most richly rewarded financial activities – trading, advanced financial engineering and sales – are more likely to subtract than to add economic value. Finally, there is the matter of justice. Penance was in order after the industry’s foolish behaviour in the years leading up to the crisis. But instead of sackcloth and ashes, or bread and water, there are designer clothes and helicopter skiing, caviar and champagne.