Wall and Main

Main St wins Pyrrhic pay victory over Wall Street

Main Street may have won a Pyrrhic pay victory over Wall Street since the global financial crisis. Big commercial banks like Bank of America (BofA) and JPMorgan are shelling out far more on average compensation than they did a decade ago, according to Breakingviews calculations. But the increase isn't going to investment bankers and traders. For these Wall Streeters, the average annual wage has fallen. They earn far more, of course, but a narrowing gap is a good thing.

JPMorgan's per-capita average compensation has grown by 36 per cent since 2004, outstripping a 25 per cent increase in inflation. Those working in the lender's corporate and investment bank, though, are on average earning a quarter less. It's not quite an apple-to-apples comparison because the less remunerative investor services unit was folded into the division three years ago. Pay has continued falling since then, though.

Various mergers, sales and other issues skew the numbers across the industry. Morgan Stanley's average compensation has jumped by 67 per cent over the past 10 years. During that time it spun off credit-card company Discover, where pay was lower, and bulked up in wealth management. That's a business that usually sets aside a greater portion of its revenue for staff than investment banks. The firm run by James Gorman doesn't reveal how many people work for its investment bank, though. Nor do BofA or Citi, which also keep those businesses' compensation totals under wraps.

Still, the trend looks pretty strong. JPMorgan's credit-card and retail-banking employees now earn on average $77,000 a year, 75 per cent more than in 2004. Goldman Sachs, whose strategy remains broadly intact but which has had to grapple with many new regulatory hurdles, now pays its average employee almost 18 per cent less.

There's the rub for Main Street bankers. JPMorgan's crew took home just a third, on average, of its Wall Street brethren's compensation. The average Goldman employee raked in $383,000, five times as much.

Averages don't tell the whole story, either. With proprietary trading effectively banned and other risk-taking rendered economically unviable by new rules, fewer traders earn outsized bucks. The new regime has also forced banks to add risk and compliance staff. These tend to command lower salaries.

Of course, top bankers get a large portion of their pay in stock. At times, that can be a drag. But shares in the big five firms with investment banks have doubled since the start of 2012; tripled, in BofA's case. That beats retail bankers' salary increases by any measure.