The Wall Street Journal reports that Wall Street pay hit a record (asterisk attached) last year at $140 billion. That’s breathtaking. Put the economy in a near-depression, put nearly 10 million Americans out of work, put taxpayers on the hook for trillions of dollars of direct and indirect bailouts, and laugh all the way to the bank.

The WSJ, unfortunately, hypes its story by putting this in the second paragraph… (emphasis mine)

Across Wall Street, leading firms paid out $140 billion in compensation and benefits, the highest number in history, based on a final tally of the pay disclosures at 38 financial-services firms. That figure, which was projected earlier by The Wall Street Journal, represented an increase from $123 billion earned by financial professionals in 2008 and $137 billion in 2007.

… and putting this near the bottom:

Per-employee pay of $135,500, though, was down slightly from 2007’s figure of $138,500 a reflection that two firms on the list, Bank of America Corp. and J.P. Morgan Chase & Co., added thousands of new employees through acquisitions. In 2006, the pay was $110 billion.

Per-employee pay is what really matters here, not the overall total. The WSJ should have made this clear up high.

Still, it’s near a record, and anyway obscene. The paper is good to note that CEO pay cuts have obscured the fact that their traders are stuffing fistfuls of dollars into their pockets:

Meantime, Andrew Ross Sorkin lets loose some good questions today on pay for Citigroup eminence grise Robert “The Deregulator” Rubin and Citi’s ex-CEO Dancin’ Chuck Prince.

But there is one small question, not so obvious, that has been crying out for an answer for years, and it has nothing to do with exoticisms like C.D.O.’s or C.D.S.’s. Instead, this question is about incentives and compensation on Wall Street and a mind-set — a group-think really — that pervaded not just Citigroup but the entire industry…

As a thank-you present for running the bank into the ground, the board gave Mr. Prince a parting gift valued at $12.5 million. Yes, you read that correctly, $12.5 million. That exit bonus was on top of the $68 million he received in stock and options he had accumulated over his many years at the company; a $1.7 million pension; and an office, car and driver for up to five years. In exchange, Mr. Prince signed an agreement not to compete with Citigroup for five years.

This wasn’t a case of the board paying out an exit bonus to a chief executive with no whiff of a problem, only to find time bombs ticking after he left. Mr. Rubin and Citigroup’s other directors decided to pay the $12.5 million bonus knowing very well that Citigroup’s market value had dropped by $64 billion during Mr. Prince’s tenure.

So the simple question for Mr. Rubin and Mr. Prince is, Why? Why would you knowingly reward such failure? What is it about the culture of Citigroup and Wall Street that encouraged you to approve such a large party favor? Why was there reason to give a bonus at all?

Barry Ritholtz has a few reasons why. “Legal corporate theft”… err… compensation at the top is out of hand, he says, because:

There are numerous enablers of this terrible comp system: Crony boards rubber stamp what turns out to be outsized — and oft guaranteed — pay packages for under-performance. An entire class of consultants somehow blesses these absurdities, giving the boards cover for their theft of shareholders. Third, large mutual funds remain mute, failing to fulfill their obligations as stewards of their investors’ stock shares. Instead, their silence is bought with 401k business and syndicate shares (IPOs, secondaries).

Solutions are as simple as they are unlikely: Require shareholder approval of exec comp plans, mandate public disclosure of consultant comp plans (they are embarrassingly ridiculous), and last, cleave the mutual fund asset management business from the rest of the companies. Impose a fiduciary obligation on mutual funds to investigate all Board nominees and vote their shares on behalf of S/Hs.

Just don’t hold your breath waiting for credible compensation reform to take place …

The linchpin of the whole mess is the resistance of institutional shareholders like mutual funds to throw their weight around. Even requiring shareholder approval of comp would probably still result in rubber stamps.


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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.