Nov 12 2008
What happened to compensation for good performance?
U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700 billion bailout for the industry, don’t want executives’ bonuses reduced. They want them eliminated.
“I may not understand everything, but I do understand common sense, and when you lend money to someone, you don’t want to see them at a new-car dealer the next day,” said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Illinois. “The bailout money shouldn’t have been given to them in the first place.”
Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry Waxman, a California Democrat, and New York Attorney General Andrew Cuomo, also a Democrat. President-elect Barack Obama cited the program at his first news conference on Nov. 7, saying it will be reviewed to make sure it’s “not unduly rewarding the management of financial firms receiving government assistance.”
While year-end rewards are likely to decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms’ most productive workers.
“There are instances where bonuses are justified, deserved, and in the best interests of the investment bank involved,” said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc., the investment bank acquired by Credit Suisse Group AG in 2000. “Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance.”
`Your Jaw Drops’
The companies, which set aside revenue throughout the year to pay bonuses, haven’t commented on plans for year-end awards, typically decided this month or next. A study released last week said the firms are likely to cut bonuses for top executives by as much as 70 percent.
“Even really sober people are saying this is the worst financial crisis since the Depression, and they’re saying bonuses are just going to be reduced?” saidPatrick Amo, a 53-year-old retired merchant marine in Seattle. “Oh my God, you read that and your jaw drops.’‘
Wall Street firms’ pay has traditionally been tied closely to performance of the companies, which is why employees receive most of their compensation at the end of the year after final results are known. Depending on seniority and performance, bonuses for traders, bankers and executives can be a multiple of their salaries, which range from about $80,000 to $600,000.
Read more here.
[From me]
How in the world should people in companies that have been “bailed out” get bonuses? People are losing jobs and foreclosing on houses that actually worked hard. Others, like myself have cashed out retirement to make ends meet and people who ran our retirement plans in the ground and are “bailed out” with our tax dollars are going to get a bonus! Something is not right. The government should make sure no one gets a bonus in any corporation that got “bailed out.” Those executives should be thankful they still have a job. Bonuses are not suppose to be expected unless you perform. Companies that have lost money don’t deserve bonuses. I respect Philadelphia Mayor Michael Nutte who recently took a pay cut because his city is in a financial crisis. Leaders sacrifice in times of crisis not pad their own accounts! Come on! If our leaders expect us to sacrifice–they need to do so also. How about Congress taking a pay cut!
What do you think?
