How the top bankers earn their fat salaries

Morgan Stanley's office on Times Square

Top bankers are known for their astronomical remuneration. Over the years, major executives in the financial services sector have pocketed a bundle, crisis or not.


The CEO of JPMorgan Chase, Jamie Dimon, received $24 million (Dh88.2 billion), while the CEO of Morgan Stanley earned $10.5 million, more than enough money to buy several penthouses in Dubai or pay the salaries of 1,000 Indian and Pakistani construction workers for four years.

When combined, the bonuses and compensation given away by the top six banks in the US in 2010, amounting to $142.7 billion, would have been enough to create 3.6 million new jobs and lower the unemployment rate by 2.3 per cent, according to a report by the Service Employees International Union.

Executives enjoy high remuneration packages because their job matters not just to the bank but to every man or woman on the street. They help generate billions in profits for financial institutions, and in turn boost a nation's economy.

Investment bankers, in particular, scrutinise the markets, explore new places for investment, give investment advice and raise money by seeking out venture capital or selling stocks.

When economies crashed and millions of people lost their jobs during the global recession, almost everyone pointed the finger of blame at the bankers. There were claims that the huge payouts were unreasonable and that they only encouraged bankers to take unnecessary risks that led to the global financial crisis.

Just recently, Financial Times reported that prosecutors in the US won a fraud case after two traders at Credit Suisse pleaded guilty to conspiracy and wire fraud for intentionally inflating the value of mortgage securities in order to get higher bonuses.

More an exception

Gary Dugan, chief investment officer for private banking at Emirates NBD, is primarily responsible for the investment products and portfolios of the bank's high-net-worth clients.

Dugan says that the issues with bankers in reality relate to only a very small number of individuals who earned vast sums of money and took inappropriate risks with their clients' money.

That group in particular, he says, should accept responsibility for their role in the financial crisis. However, the blame should not extend to other bankers who are doing an honest job.

"Many so-called bankers are honest employees who are focused on serving their clients. They should not be tarnished with the same brush as bankers who lost huge amounts of money through inappropriate risk taking," he says.

In the same vein, it is not fair to generalise that all top bankers are overpaid and that the work they do is not enough to justify their huge paycheques. Many bank executives like him, Dugan says, had to work hard to earn their positions.

Hard work

"In the middle of my career, I worked in a large American investment bank, and in order to move up the ladder, I had to be among the top ten experts in my field in the whole world. I tell you, it takes a lot of hard work and dedication to achieve such a standard," he says.

Dugan says people often use the word "overpaid" in an envious way. Footballers themselves have been called as such, but it does not mean they're not dedicated professionals with talent. While anyone is free to dream of becoming a footballer, only a few make it to the field, he notes.

"Banking is not a closed industry today. Anyone who works hard and achieves good academic qualifications can get an opportunity to work in a bank. Also, people should bear in mind that the industry is very competitive and to be paid well, you have to be among the best."

Before taking his post at Emirates NBD in July 2009, Dugan served as the managing director and chief investment officer at Merrill Lynch Global Wealth Management in Europe, the Middle East and Africa (Emea).

His 25-year experience in wealth management includes leading positions in global financial institutions, such as Barclays Wealth, where he led the research and investment strategy department, and JPMorgan, where his team earned S&P's ‘Best Global Balanced Group in Europe' award.

He recently landed second place in an Emea poll of ‘Industry Investor of the Year' conducted by Wealth Briefing.

Assigning blame: It wasn't me

The excessive payouts given to major bankers are not to blame for the global financial crisis, a recent study said.

Research by the University of Bath in the UK found that while compensation and bonuses in the banking industry are very high compared to other industries, there is no strong evidence to support the argument that excessive pay had led bankers to take undue risks for short-term profits.

A government-commissioned report that was released in May 2009 had highlighted the notion that bankers were over-incentivised. "The remuneration policies should be designed to avoid incentives for undue risk taking; risk management considerations should be closely integrated into remuneration decisions," the report recommended.

To verify this claim, researchers examined directors' pay in any year and the share price performance of the company in the same year. Based on the findings, professor Ian Tonks from the university's school of management said that the relationship between pay and performance in the run-up to the crisis was not significantly higher than in other sectors, and was generally quite low.

"It's difficult to see how incentive structures in banks could be blamed for the crisis since there is little hard evidence that executive compensation of bankers depended on short-term performance: they were paid high salaries irrespective of bank profits," a press statement quoted him as saying.

A report by the Service Employees International Union showed that total bonuses and compensation at Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, Goldman Sachs and Morgan Stanley jumped considerably from about $60 million (Dh220 million) in 1996 to over $140 million in 2010.

While the payouts have skyrocketed, the number of employees at these companies has dwindled by 12 per cent, as the banks have eliminated 158,800 jobs. This means that fewer people are making more money than ever before, the report said.

But while the top bankers enjoy generous compensation, the average real hourly wages for non-supervisory workers in the financial services sector have remained flat, rising less than one per cent between December 2008 and October 2010.

"Even during the boom years before the collapse, executives took home a disproportionate amount of pay. The top five executives at each of the six banks saw their average compensation more than double from $9.8 million in 2001 to $22.5 million in 2007.

"The bonuses did not trickle down to frontline bank workers, such as the tellers who saw their real wages increase only five per cent between 1999 and 2009," the report said.

By Cleofe Maceda, Senior Reporter at Gulf News

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