Banks getting U.S. help face new heat over bonus plans
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Just include the words ‘bonus’ and ‘banker’ in the same sentence, and it’s guaranteed you’ll trigger a political dog pile these days.
Bloomberg News on Monday published a story about the billions of dollars that major investment banks have set aside for employee bonuses this year -- despite the firms’ financial woes and despite the government help that many of them have been getting in one form or another.
That provoked a letter from Rep. Henry Waxman (D-Calif.) to nine major banks on Tuesday, asking them to justify their bonus plans, considering the Treasury’s program to inject a total of $250 billion in taxpayer funds into financial companies.
Today, New York Atty. Gen. Andrew Cuomo jumped into the fray, demanding that the biggest banks participating in the U.S. capital infusion program detail their plans for bonus payments to top executives.
From Bloomberg News:
Cuomo said he wanted a ‘detailed accounting’ of expected payments to top executives in the ‘upcoming bonus season,’ including information on the expected bonus pool for this year. He requested information on bonuses from before and after the banks knew they would receive funds from the [Treasury’s] Troubled Asset Relief Program. Cuomo told the boards of directors he thought they were in the best position to respond to the requests because top management has a ‘significant interest in the size of the bonus pools.’ He said he would have ‘grave concerns’ if the expected bonus pool increased in any way as a result of the receipt of taxpayer funds. ‘In this new era of corporate responsibility we are entering, boards of directors must step up to the plate and prevent wasteful expenditures of corporate funds on outsized executive bonuses and other unjustified compensation,’ Cuomo wrote.
Ah, but how to judge what’s ‘outsized’ or ‘unjustified’ in the financial services industry, where bonus payments are standard operating procedure? Do regulators just default to Supreme Court Justice Potter Stewart’s famously simple definition of hard-core pornography: ‘I know it when I see it’?
The Treasury’s bailout plan places specific restrictions on certain elements of executive pay (particularly golden parachutes) for banks that get taxpayer funds.
But as for compensation overall, the statute governing banks that participate in the program is pretty fuzzy. It says that any bank receiving taxpayer money must ensure that ‘incentive compensation for senior executives does not encourage unnecessary and excessive risks that threaten the value of the financial institution.’
As for those golden parachutes, check out this story on the payout to a retiring CEO of a mid-size South Carolina bank that has applied for a federal capital injection.