Wall Street pay practices have improved somewhat since the global financial crisis of 2008, but banks still aren't tying compensation to long-term gains in performance, a whitepaper commissioned by the Council of Institutional Investors says.

Little or no Wall Street compensation was linked to long-term future performance measures, according to the report, "Wall Street Pay: Size, Structure and Significance for Shareowners." A lack of long-term performance measurement and high absolute levels of compensation likely helped to fuel excessive risk-taking by Wall Street executives that brought financial markets to the brink of collapse in 2008, writes author Paul Hodgson, senior research associate at The Corporate Library.

In many ways, Hodgson says the banks took a partnership approach to pay even after they became public companies, maintaining high levels of insider share ownership and "overhang" (equity reserved for use in incentive plans). Almost all the performance metrics the banks used were short-term operational measures, and most were measured absolutely rather than relative to peers, which could make performance easier to hit. None of the metrics included any form of long-term value growth measure. Most firms set initial targets at the start of the fiscal year, but used discretionary performance measures at year end to determine final amounts. Once bonus amounts were determined, compensation committees had absolute discretion over how bonuses were delivered.

Median CEO pay levels at seven major Wall Street banks from 2003-2007 was two to three times the level of pay at other Fortune 50 companies during the same period, driven mainly by large grants of time-restricted stock. Median total realized CEO compensation at the Wall Street banks was $30 million, compared with just less than $12 million for the rest of the Fortune 50 companies, according to the study.

The pay mix for the banks was similar to that of the other firms, but the balance of those elements-base salary, cash bonuses, equity awards, perks and benefits-differed significantly. Wall Street executives earned much higher variable pay, such as cash bonuses and options, but received lower fixed pay in the form of base salaries, perks and benefits. The report cites lavish cash bonuses, high absolute levels of pay and excessive focus on short-term annual growth measures as having damaging consequences for shareowners over the long-term.

The whitepaper says that more vigorous federal oversight of bank in the aftermath of the crisis, in the form of new pay rules in the American Recovery and Reinvestment Act of 2009 and other regulations, hasn't improved things. Overall compensation levels fell, but the declines were modest and the new rules resulted in a less performance-related compensation structure, according to the report.

Hodgson does cite some positive post-financial crisis changes in the pay structure on Wall Street: substantially improved clawback provisions; longer deferral periods for pay, especially equity; an increase in equity as a proportion of pay, and rebalancing of the fixed pay/variable pay mix to mitigate risk taking.

Despite those changes, he concludes that "none of the banks in the study has addressed adequately the importance of tying compensation to long-term value growth." Some banks have increased fixed pay excessively, and the effectiveness of the banks' stronger clawback provisions hasn't been tested.