Her Perks Are Not the Problem

This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.

The New York Sun

The number that triggered the attacks on the World Bank president, Paul Wolfowitz was $193,590.

The figure represented the salary that he endorsed for his girlfriend, communications adviser Shaha Riza. Even though Mr. Wolfowitz did try to recuse himself from decisions about Ms. Riza, colleagues have turned against him so violently that both his anticorruption campaign and his career at the bank are now on hold. Yesterday, the European Parliament called for his resignation.

Some observers will tell you the Wolfowitz flap is about Democrats and their allies in the blue states — including that blue state known as Great Britain — trying to bring down another neocon allied with President Bush.

This fracas is also, just as the bank staff say, about company pay. Pay can tell you a lot about company culture.

A closer look at bank pay packages suggests that the trouble here is not that Ms. Riza gets a “girlfriend” salary, a mysterious wage not quite tethered to market reality. It is that World Bank staffers also do — and almost all without spending a minute alone with the bank’s embattled president.

The bank’s administrative budget is $1 billion a year. It employs well over 10,000 people. Thousands of others consult.

The bank doesn’t publish current salaries. But according to its annual report for 2006, a senior professional, or “G” level employee, starts at $92,230 and can go up to $167,860, a little more than the $165,200 for a member of the 110th Congress. A manager, or “H” level staffer, can make $226,650. This was the category for which Ms. Riza was on the shortlist.

There are aproximately 1,000 H level staff at the bank. So the portrayal of Ms. Riza as receiving compensation unheard of is inaccurate.

The next salary level, “I,” includes directors or senior advisers, who earn up to $268,650. There are more than 200 of these, and they supervise many others. Mr. Wolfowitz stirred ire by bringing two allies into the bank at salaries of, reportedly, $240,000 and $250,000. He may have misstepped in the execution, but the “I” data suggest those pay levels were not out of line.

Move up a tier to the 25 or so professionals, the “J” level employees, or vice presidents: Top salary, $289,540. Senior vice presidents and managing directors who have made it to the “K” class received as much as $311,000. The president’s pay, when you include expenses, lands in the mid-$400,000 range.

In other words, Mr. Wolfowitz is paid like the American president, a foundation head, or a not-very-good securities analyst.

Income alone hardly tells this compensation story. In 1944, the authors of the bank’s Articles of Agreement established that “No tax shall be levied on or in respect of salaries and emoluments paid by the Bank” to those who were not “local citizens, local subjects, or other local nationals.” Non-Americans at the bank still do not pay U.S. income taxes, or Social Security. And some three-quarters of bank employees are not American. The bank’s Americans also get a break on federal taxes — they are worse off than the non-Americans, but better off than those outside the bank.

Compare that to life for the local subjects. Allowing for a $375,000, 30-year fixed-rate mortgage, a spouse, and real estate taxes of $4,000 a year, a nonbank American resident of Washington would need to earn $350,000 to net $225,000, the top of “H” level bank employees. A married New Yorker would need $364,000.

And the tax break isn’t all. The World Bank budget has historically included private-school tuition reimbursements, though it seems to be cutting back now.

Then there is the bank’s surreal job security. Of the six regional vice presidents at the bank, four joined before 1981. Gold-plated pensions complete this picture — tax-free again. What’s more, almost 1,000 retired employees have consulting agreements with the bank, sometimes lavish, that come on top of the pension.

Bank staffers might try to justify their compensation by arguing that they are more akin to Wall Streeters than Department of Agriculture paper pushers. They could note that the administrative budget comes out of profits from the bank’s investments, so what the bank pays is its own business.

But these arguments don’t hold. Most bank jobs are closer to non-profit than for-profit work — the kind of jobs that in the nonprofit world would pay in the five figures. While the bank is backed by callable capital from its member governments, those governments in turn are backed by the goodwill of the citizen taxpayers. If the world’s taxpayers evaluated the bank salaries, they would deem them askew. The only reason the World Bank can compensate as it likes is that, international as it is, it falls between jurisdictions. If no one is looking seriously at World Bank pay, no one is monitoring other aspects of bank work sufficiently either.

Hence the ferocity of the criticism — this crowd of loyal lifers thinks that by training the spotlight on Mr. Wolfowitz’s perks, or Ms. Riza’s, they can keep it off their own. Hence the critics’ new attacks on the head of the bank’s Department of Institutional Integrity, Suzanne Folsom. Ms. Folsom is an ethics lawyer. Her job is to investigate corruption allegations in bank projects abroad and to look into possible wrongdoing by staff at home.

Of course Ms. Folsom’s investigations might demonstrate that the bank performance is optimal. But the staffers fear that they won’t, and they are probably right.

Maybe the staff’s salaries should come down. Maybe the quality of their work needs to improve. Maybe crooks and laggards should leave and others should be paid still more. Maybe the bank staff should start paying U.S. taxes. Maybe the whole gray area between for-profit and not-for-profit needs readjustment. In any case, the old corporate rule holds yet again: when salaries seem odd, something is out of balance. Just not always in the way you think.

Miss Shlaes, a visiting senior fellow at the Council on Foreign Relations, is a columnist of Bloomberg News.


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