Cuomo blasts ‘no rhyme or reason’ bank bonus culture
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As Congress prepares to vote on potential new pay restrictions for banks, New York Atty. Gen. Andrew Cuomo today provided ammunition for those who say radical reform of compensation programs is overdue.
Cuomo said his office’s probe into big banks’ pay plans of the last few years found ‘no clear rhyme or reason’ to them.
‘When the banks did well, their employees were paid well. When the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by taxpayers and their employees were still paid well,’ Cuomo said in a summary of the investigation. ‘Bonuses and overall compensation did not vary significantly as profits diminished.’
The attorney general’s report -- subtitled, ‘The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture’ -- focuses in part on the 2008 bonuses paid by major banks that received government capital under the Troubled Asset Relief Program.
He found that Citigroup Inc., for example, paid out $5.3 billion in bonuses for 2008 even though the bank lost $27.7 billion and needed $45 billion in TARP capital to bolster its balance sheet.
A total of 783 Citigroup employees got bonuses of at least $1 million, Cuomo said.
Merrill Lynch & Co., which lost $27.6 billion for the year, paid bonuses of $3.6 billion, according to Cuomo’s tally.
From his report:
‘We recognize, of course, that there can be situations where the distribution of profits to employees who created real profits would be appropriate even though the overall firm may have lost money. This might be the case, for example, where one division of a firm earned large profits but another division lost profits. ‘A principled and consistent approach would, however, balance the need to reward and retain those who created profits with the need for bonuses to reflect the overall performance of the firm. ‘In any event, our investigations have shown numerous instances where large bonuses were paid to individuals in money-losing divisions at firms who saw either substantially reduced profits or losses in 2008.’
The U.S. House on Friday is scheduled to vote on a bill that would give bank regulators the ability to ban pay arrangements at financial companies that would encourage ‘inappropriate’ risk-taking.
Cuomo said he preferred that the banks act themselves to fix what’s wrong with compensation plans and abolish arrangements that effectively are ‘all ‘upside’ ’ for employees, regardless of what happens to earnings.
‘Hopefully, the private sector sees the problem and addresses it quickly,’ Cuomo said. ‘The private sector is the appropriate forum for such reform, and some firms have already taken steps in the right direction.’
But if the banks don’t act on their own, ‘Such reform should be discussed as part of the federal regulatory reform effort, and, where appropriate, taken into account by the Obama Administration’s pay czar,’ Cuomo said.
-- Tom Petruno