The Dodd-Frank financial-reform act has shrunk once-historic Wall Street bonuses and changed the future of the banking industry and Wall Street’s business model.
On Wall Street, bonus season is a sacred ritual. It is the annual rite where net worth and self-worth get elegantly reduced to a single number. From the outside, the seven- and eight-figure payouts that star bankers earn can seem obscene, immoral even. But on the inside, the outlandish compensation reflects a strict, almost moral logic. “Wall Street is a meritocracy, for the most part,” as a senior Citigroup executive says. “If someone has a bonus, it’s because they created value for their institution.” The sanctity of the bonus is built on the idea that Wall Street pay is simply the natural order of capitalism.
And so, among the many dislocations Wall Street has suffered since 2008, none may have been more destabilizing than the headlines that flashed across Bloomberg terminals on the afternoon of January 17, 2012 when news leaked that Morgan Stanley would cap cash Wall Street bonuses at just $125,000. A week later, Bank of America announced that it would be cutting the cash portion of its Wall Street bonuses by 75 percent, giving the rest in stock. All across Wall Street, compensation is crashing.
Gabriel Sherman is a contributing editor at New York Magazine and a special correspondent for The New Republic. Excerpted from New York (February 5, 2012), which chronicles the ideas, people, and cultural currents that are forever reshaping both the city and the larger world that matters to it.
Read the rest of The End of Wall Street As They Knew It at New York Magazine’s website.