Can we trust the WSJ on Wall Street pay?

By Felix Salmon
October 12, 2010
Stephen Grocer ran an startling article about Wall Street's 2009 bonuses:

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Back in January, the WSJ’s Stephen Grocer ran an startling article about Wall Street’s 2009 bonuses:

An analysis by The Wall Street Journal shows that executives, traders, investment bankers, money managers and others at 38 top financial companies can expect to earn nearly 18% more than they did in 2008—and slightly more than in the record year of 2007.

On further examination, however, the assertion that Wall Street bonuses were going to hit a record high turned out to have a serious flaw: the calculations for that “record year of 2007″ excluded the likes of Bear Stearns, Merrill Lynch, and Lehman Brothers.

At least in January a critical reader could pick up on that flaw, by reading this paragraph in the right way:

The increase in both revenue and compensation is due partly to the industry’s consolidation during the financial crisis. J.P. Morgan, for example, acquired Washington Mutual Inc. and Bear Stearns Cos. Bank of America bought Merrill Lynch & Co. and Countrywide Financial Corp. Those deals inflated revenue and compensation because the acquirers’ financial results now include the purchased companies.

Obviously, those acquisition deals wouldn’t have inflated total Wall Street compensation if the likes of WaMu, Merrill, and Countrywide were included in total Wall Street compensation figures all along.

Today, however, the WSJ runs much the same article, but with no such giveaway that the data is flawed.

Pay on Wall Street is on pace to break a record high for a second consecutive year, according to a study conducted by The Wall Street Journal.

It’s simply intellectually dishonest to say that a 2010 payroll of $144 billion would constitute an all-time record if you aren’t comparing that sum to total Wall Street pay in 2007.

But it gets worse: at least the January article was largely based on public securities filings. Today’s article, by contrast, is simply based on a survey, which the Journal isn’t publishing and whose methodology we’re not privy to. It’s not even entirely clear whether the Journal survey of 35 firms is the same as the eFinancialCareers survey of 5,671 bankers and financial professionals cited in a sidebar chart.

So please, WSJ, when you’re writing articles about the highly-sensitive subject of Wall Street bonuses, be as transparent and accurate as you can. Explain where you’re getting your numbers, explain exactly how you’re calculating them, and explain any weaknesses in the methodology. You can still have your sensationalist headlines, but if readers want all the relevant information, there’s no reason you shouldn’t give it to them.

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