Even stars don’t deserve bonus pay, critics say

Bloomberg News

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, Ill. “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 A. Waxman (D-Beverly Hills) and New York Atty. Gen. Andrew Cuomo, also a Democrat. Although year-end rewards will probably 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. “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.”


But Patrick Amo, a 53-year-old retired merchant marine in Seattle, thinks there’s no good reason for bonuses at this point. “Even really sober people are saying this is the worst financial crisis since the Depression,” Arno said, “and they’re saying bonuses are just going to be reduced? 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.

The nine banks that Waxman pressed to detail their bonus plans asked for more time to respond, said his spokeswoman, Karen Lightfoot. She said they had been granted an additional two weeks. The original deadline was Monday.

Goldman paid CEO Lloyd Blankfein a record $67.9-million bonus for 2007 on top of his $600,000 salary. That was justified, he told shareholders at the firm’s annual meeting in April, because of Goldman’s superior financial results.

“We’re very much a performance-related firm,” he said. “If those results don’t come in, I assure you at Goldman Sachs you won’t see that compensation.”

Goldman’s profit is down 47% this year, and five analysts expect the company to report its first loss as a public company in the fourth quarter that ends this month.

Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment on the company’s plans for bonuses this year.

Said S. Woods Bennett, 57, a Baltimore lawyer: “The executives in companies that get bailout money should have their base salaries reduced by 10% for 2009 and they should pay back a substantial portion of their 2007 bonuses to the government for the financial devastation they oversaw, fostered and, in some cases, directly caused. Their sense of entitlement is appalling.”

In addition to Goldman, Morgan Stanley and Citigroup, the companies that received the first round of money from the government’s Troubled Asset Relief Program were Merrill Lynch & Co., JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., State Street Corp. and Bank of New York Mellon Corp.

Several of the companies, including Citigroup and Wells Fargo, have said they won’t use federal funds to pay bonuses. That’s disputed by some, including former compensation consultant Graef Crystal.

“The argument of saying we’re not using the bailout money is just crap because money’s fungible. Money’s money,” Crystal said. “It exposes them to ridicule.”

The bailout is only part of the reason that people object to Wall Street bonuses this year. The financial industry worldwide has taken more than $690 billion in write-downs and credit losses this year and cut more than 150,000 jobs, according to data compiled by Bloomberg.

“Please explain how miserable performance of biblical proportions warrants any bonuses, particularly using money from me the customer and taxpayer,” said Glenn Brown, 67, who recently retired after 21 years at Beth Israel Deaconess in Boston and as an adjunct assistant professor at Harvard Medical School.

“I don’t understand how they can even conceive of doing that.”