When Sallie Krawcheck (now head of wealth management at Citigroup) was an equity analyst covering Wall Street at Sanford Bernstein, she remarked, “It’s better to be an employee of an investment bank than a shareholder.” This year’s results certainly bear out her observation.

From Bloomberg:

Shareholders in the securities industry are having their worst year since 2002, losing $74 billion of their equity. That won’t prevent Wall Street from paying record bonuses, totaling almost $38 billion. That money, split among about 186,000 workers at Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., equates to an average of $201,500 per person, according to data compiled by Bloomberg. The five biggest U.S. securities firms paid $36 billion to employees last year….. Goldman’s record earnings and gains at Morgan Stanley and Lehman mean all the New York-based firms will be forced to pay more in a year when all but Goldman lost more than 20 percent of their market value, said Charles Geisst, finance professor at Manhattan College in Riverdale, New York.

C’mon, forced?. The reason to match the pay of other firms is to prevent employees from defecting to them. Do you really think Goldman, Lehman, and Morgan are going to be poaching staff in a contracting market? UBS recognized that wasn’t likely to happen when it imposed what is considered to be a low cap on cash compensation ($750,000).

Nevertheless, arguing that pay is market based seems to silence critics, even when the market isn’t trading. But it is simply a symptom of what in finance is called the agency problem, which means that the inmates are running the asylum. Shareholders are unable to make much headway against outsized CEO pay. They are similarly are unlikely to be able to influence excessive Wall Street bonuses.