Obama All Talk, No Action on Wall Street Compensation, Cohan Says

Updated from 7:00 a.m. EDT

Update: "Big Pay Packages Return to Wall Street," The Wall Street Journal reports. Among the highlights of the story:

• Goldman is on track to pay out as much as $20 billion this year, or about $700,000 per employee. That would be nearly double the firm's $363,000 average last year, and slightly higher than the $661,000 for the average Goldman employee in fiscal 2007. 
• Morgan Stanley set aside $2.08 billion for compensation in the first quarter, an unusually high 68% of its revenue. The firm will likely pay out $11 billion to $14 billion in compensation and benefits this year. Credit Suisse analyst Howard Chen projects the company's average pay will approach the $340,000 paid out in fiscal 2007 and up from last year's average of $262,000.

While a weak second-half could diminish those year-end bonuses, "the comeback in compensation so far this year shows how hard it is for Wall Street to break its old habits," The Journal reports.

Earlier: There's been a lot of talk from the Obama administration about reforming Wall Street, but little or no action where it matters most -- compensation, says author and former investment banker William Cohan.

"There's a lot of nice words in the 85-page re-regulation proposal...[about] making sure compensation is tied to behavior and accountability," says the House of Cards author. "But there's not much action going on."

And where there has been action, Cohan notes, its been by Wall Street firms raising salaries to get around new restrictions on bonuses, and paying off TARP so they're less beholden to government oversight.

Cohan believes there must be significant change to the industry's compensation structure in order for any Wall Street reform to be successful. Specifically, the personal fortunes of senior executives must be tied directly to the fate of their firms, he says, echoing the views expressed here by Nouriel Roubini.

Cohan recommends a special class of stock for senior partners, who would then really be on the hook for their decision-making. The current practice of deferred common stock option grants don't really tie CEOs fates to shareholders, he says, because they aren't "material" to executives' wealth when they are getting annual multi-million-dollar cash payments.

"The way the financial reward system works [now] you get a very large short-term bonus based on the revenue you bring in," he explains. "That money goes into your pocket without any concern for the consequences of what you've done."

Furthermore, with Morgan Stanley and Goldman Sachs now bank holding companies, their "risk-taking behavior" is now backed up by the Fed, Cohan notes. "It's insane."