Rules put in place under the Dodd-Frank financial reform law give Wall Street firms significant leeway in deciding which employees – aside from corporate executives – will have their pay tied to long-term performance, a prominent securities law expert said.
The Times spotlighted the top 50 highest-paid employees at Lehman Brothers in the years running up to the bank’s 2008 bankruptcy. The Times showed that Lehman awarded traders and managing directors hundreds of millions of dollars in compensation. In at least one case, one employee stood to get more than the bank’s chief executive.
Those noncorporate officers can pose more significant risk to a firm than top executives, said Columbia University professor John Coffee, citing cases of rogue traders in recent years.
“The people who can most severely injure them are usually the traders,” Coffee said of investment banks.
In the wake of the financial crisis following Lehman’s September 2008 collapse, Congress passed the Dodd-Frank law, and regulators have since meted out the rules. But the rules apply mainly to top corporate officers and give banks discretion on tying lower-level employees’ pay to risk.