Goldman, Morgan Stanley Say Clawbacks Will Affect Executive Pay Too
Two major Wall Street firms say their executives will face the same repercussions for misconduct as everybody else at the company -- but it's not clear how often those consequences are actually enforced.
Goldman Sachs and Morgan Stanley have both recently confirmed that their clawback policies -- the rules stipulating that an employee who takes risks that damage the company will have to give back some portion of their pay -- apply to senior members and executives in addition to workers further down the company ladder, according to The Wall Street Journal.
But at the same time, it's "rare" in practice for a bank to actually impose clawbacks, as a lawyer quoted in the WSJ notes -- news that may come as little surprise to anyone familiar with Wall Street's record of resistance on this issue.
Last year, when the Federal Deposit Insurance Corporation adopted a rule authorizing regulators to reclaim executive pay in the event of a company failure, banking groups protested, calling the move "unfair." A few months later, banks were reportedly seeking insurance policies of seven figures or more to cover salaries and bonuses threatened by clawback provisions.
In December, John Liu, city comptroller for New York, issued a call to some big banks, asking them to explicitly include executives in their clawback policies. Two of the banks Liu addressed, Goldman and Morgan Stanley, have since responded. The third, JPMorgan Chase, has not.
In general, Wall Street has been hesitent to cooperate with regulators in the years since the financial crisis, even though critics allege that a lack of oversight played a major role in the meltdown, sending the economy into a slump from which it has still not fully recovered. Regulators have tried to place special emphasis on de-incentivizing risk, something that clawbacks speak directly to, since they aim to reduce the amount bankers can earn from making dangerous trades.
At the same time, some compensation experts have argued that because bankers put up so much resistance to clawback policies -- and they're a complicated process to begin with -- it might be more effective simply to limit executive compensation in the first place instead of retroactively taking it away.
Like many industries, Wall Street has a relatively poor record when it comes to treating its higher-ups the same way it treats everyone else. Junior bankers bore the brunt of many of 2011's rounds of staff cuts, and are said to be first in line for a pay freeze at some firms. Banks have also been accused of setting up lower-ranking employees to absorb regulatory consequences, as in the case of 31-year-old Fabrice Tourre, the only Goldman Sachs employee named in a major Securities and Exchange Commission lawsuit against that company in 2010.