Who Really Gets Rich Off Investment Banks?

Who Really Gets Rich Off Investment Banks?

Occupy Wall Street has reawakened the negative sentiment many people in the country feel toward investment banks and those who run them. So it got me curious about how compensation on Wall Street has changed over the past decade.

I've always operated under the investing assumption that if you hate paying for something, invest in it, because it's likely the service is so needed that there is a strong competitive moat. But Wall Street is different. My perception was that the compensation had run amok on Wall Street at the expense of investors. My findings were surprisingly to the contrary.

The big man on the block
Of course, I started with a look at the biggest, and arguably baddest, investment bank, Goldman Sachs (NYS: GS) . Goldman has a notoriously high pay scale, and at least recently the stock hasn't gone anywhere. But a look at compensation, earnings, and the stock price shows that compensation has followed a consistent path relative to earnings and stock price for the past decade.

Source: SEC filings.

Source: SEC filings.

In fact, compensation has followed the stock price almost exactly, while earnings have grown faster than both. Pay may have been too high to start with, but we certainly weren't protesting that a decade ago.

At JPMorgan Chase (NYS: JPM) , the same trend emerges.

Source: SEC filings.

Source: SEC filings.

It's also is important to note that between 2001 and 2010, JPMorgan's headcount increased from 95,812 to 239,831 people, so the increased pay was spread out.

So it turns out that we can profit alongside employees when banks are successful, and the same can be said on the downside if we look at Citigroup (NYS: C) , where investors took a bath and massive layoffs ensued.

Maybe we can get rich, too
There's no doubt that pay on Wall Street is astronomically high compared with the rest of the country. But if you're mad about it, maybe investing alongside Wall Street isn't such a bad idea. It turns out that the companies are paying you back just as fast as compensation is rising.

More traditional banks such as Wells Fargo (NYS: WFC) and U.S. Bancorp (NYS: USB) may be safer bets than investment banks, but with proprietary trading and hedge funds curtailed under new regulations, maybe the risk in these big, bad banks will be slightly lower.

Our analysts have identified one banking stock that even Warren Buffett would love if he were a smaller investor. See what company I'm talking about with our new free report called "The Stocks Only the Smartest Investors Are Buying."

At the time thisarticle was published Fool contributorTravis Hoiumhas no position in any company mentioned. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdings, or follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of Wells Fargo, JPMorgan Chase, and Citigroup and has created a covered strangle position on Wells Fargo.Motley Fool newsletter serviceshave recommended buying shares of Goldman Sachs. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.