Should banking execs get paid a lot?

Justin Fox recently gave a pretty good brief overview and explanation of the high compensation of banking executives — see “Pay Them Less? Hell, Yes.” Fox writes a column inTime magazine called “The Curious Capitalist.”

Fox says that in 2006 the 148,361 taxpayers in the top 0.1 percent of U.S. income distribution took in 11.6 percent of personal income. This ratio has climbed from 2.7 percent in 1978.

The biggest contributor to this shift was “rising pay on Wall Street,” says Fox.

University of Chicago finance professor Steven Kaplan describes this rise as “market-oriented,” says Fox:

Top-performing investment bankers and traders were paid big sums because otherwise they might jump ship to a rival bank or a hedge fund….

Now, though, the scads of lushly paid Wall Streeters have driven the financial sector into a ditch, and taxpayers around the world are spending trillions of dollars to fix the problem. This chain of events has, understandably, focused big-time scrutiny on financial-sector compensation. 

Fox thinks that if in fact this distortion was a “market phenomenon,” it should correct itself. “Overall income inequality is likely to drop sharply as well.”

AB — 10 March 2009


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