Wall Street pay, while lucrative, isnt what it used to be unless you are a board member.
Since the financial crisis, compensation for the directors of the nations biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay.
Take Goldman Sachs, where the average annual compensation for a director essentially a part-time job was $488,709 in 2011, the last year for which data is available, up more than 50 percent from 2008, according to Equilar, a compensation data firm. Some of the firms 13 directors make more than $500,000 because they have extra responsibilities.
And those numbers are likely to skyrocket for 2012 because the firms shares rose more than 35 percent last year and its directors are paid in stock. Goldman Sachs is expected to release fresh pay data in the coming weeks.
Goldmans board is the best compensated of any big U.S. bank and the fifth-highest paid of any company in the country, according to Equilar. Some of its rivals are not that far behind. The nations biggest banks paid their directors about $95,000 a year more on average in 2011 than what other large corporations paid.
Goldman defends the boards pay, saying that the bulk of the compensation is in stock that directors cannot touch until after they have left the board. That arrangement, the firm says, aligns directors interests with those of shareholders.
The boards pay is set at a level that reflects the firms long-term performance as well as directors substantial time commitment and the increased demands placed on them in recent years by new laws and regulations, said David Wells, a Goldman spokesman.
More broadly, banks and compensation experts say, financial firms must now pay a premium to entice and keep qualified directors. After the financial crisis, some financial firms boards were criticized for being asleep at the wheel and not understanding the risks being taken. Recruiters say banks are redoubling efforts to recruit directors with more financial expertise who can exercise better oversight.
Yet it is also a balancing act, because too much pay may end up giving boards an incentive to not rock the boat.
Some Wall Street insiders also question the need to pay bank directors more than their counterparts at other big corporations, arguing that the increased regulation has actually limited bank boards ability to perform important tasks, like raising capital and issuing dividends. Even when it comes to paying senior executives, boards have less leeway because regulators have pressured boards to bring down executive pay.
After Goldman, Morgan Stanleys director pay is the second-highest on Wall Street, with an average of $351,080, roughly the same as it was in 2008 but much higher than the pay at bigger and more complicated rivals like JPMorgan Chase and Citigroup.
Board pay at Morgan Stanley has drawn criticism from Daniel S. Loebs hedge fund, Third Point, which recently bought 7.8 million shares, or a 0.4 percent stake, in the firm. While praising Morgan Stanley and its management, Loeb said in a letter to investors how surprised he was about how much its directors received.
We hope Morgan Stanley will show that its reinvention begins at the top and set an example for the company by quickly revising its board practices, he wrote.
At Citigroup, directors make an average of $315,000 a year, according to Equilar, up 64 percent from 2008. The value of the annual cash retainer and deferred stock award Citigroup directors receive has not changed since 2005, but the pay for additional work, like leading a committee, has risen.
Of the five financial institutions to have reported director pay for 2012, JPMorgan is the biggest, but it gives its directors compensation, on average, worth $278,194 each. Only Bank of America, where directors are paid $275,000 each, pays less.
All told, the average compensation for a director at one of the six biggest banks in 2011 was $328,655, according to Equilar. This compares with $232,142 at almost 500 publicly traded companies analyzed in a study by the executive search firm Spencer Stuart.