Less than a year before the 2008 collapse of Lehman Bros. plunged the global economy into a terrifying free fall, the Wall Street firm awarded nearly $700 million to 50 of its highest-paid employees, according to internal documents reviewed by The Times.
The documents, which were among the millions of pages submitted in Lehman's bankruptcy, show the list of top earners each were pledged $8 million to $51 million in cash, stock and other compensation. How much, if any, of the stock was cashed in before the bankruptcy wiped out its value couldn't be determined.
Still, the rich pay packages for so many people raised eyebrows even among compensation experts and provided fresh evidence of the money-driven Wall Street culture that was blamed for triggering the financial crisis.
"Many people are going to be stunned at how well some people were being paid," said Brian Foley, an executive compensation expert in White Plains, N.Y. "This wasn't a matter of five or six people being paid a lot."
The documents were obtained by the government-appointed court receiver overseeing the firm's bankruptcy and were reviewed by The Times.
Lehman filed for Chapter 11 protection in September 2008 in what would become the largest bankruptcy in U.S. history, sparking the biggest financial meltdown since the Great Depression. The investment bank buckled after betting heavily on subprime mortgages to people with shaky credit, which became worthless as housing prices tumbled and the borrowers stopped paying their loans.
Before the fall, when housing prices were booming, mortgage-backed securities were one of the hottest investments on Wall Street. The ravenous appetite for these securities, and the rich commissions reaped by those selling them, encouraged the underwriting of ever-riskier loans that failed when the housing bubble popped, according to the federal Financial Crisis Inquiry Commission.
The Lehman documents provide a rare peek into Wall Street compensation practices, because federal regulations require salary disclosure of only the five highest-paid officers of a corporation. The documents reveal, to the dollar, the pay packages promised to individual traders and investment bankers at Lehman — a well-kept secret up to now.
The records illustrate that enormous pay wasn't limited to top executives but was dished out to a wide range of traders and others who sometimes took home even bigger paychecks than the CEOs who ran their companies.
The documents show total compensation but don't provide a breakdown of salary levels, stock or cash bonuses. The Lehman bankruptcy meant that most of the 50 executives on the list probably did not get their full stock-based compensation.
Lehman's richest pay package in 2007 went to Robert Millard, who was in line to make $51.3 million running a group that invested the firm's own cash, according to the documents. That topped the $40 million pledged to Lehman Chief Executive Richard Fuld. Millard's pay package in 2005 was $3.8 million before catapulting 1,084% to $44.5 million the following year, according to the documents.
Now running a hedge fund, Millard said he was never fully paid in 2006 and 2007. He said more than half of the compensation came in the form of stock, which was rendered worthless by the bankruptcy.
"Lehman Bros. lost a whole bunch of money doing other things," said Millard, who now leads New York-based Realm Partners.
Wall Street critics say the rich pay deals show how the short-term trading mentality had taken over the financial industry a few years ago.
"The numbers are shocking but consistent with the fact that in some ways Wall Street has been run as a casino for extracting money from the real economy and using it to pay extraordinary high levels of compensation — one might say obscenely high — to a small number of people," said Lisa Donner, executive director of the advocacy group Americans for Financial Reform.
Marvin Schwartz, a managing director in Lehman's asset management group, was second to Millard on the newly obtained list. He was allotted $31.1 million in 2007, $27 million in 2006, and $19.3 million in 2005, according to the documents. He is now a portfolio manager at investment firm Neuberger Berman.
Jonathan Hoffman, who worked at Lehman's global rates trading desk, was awarded a $30.9-million pay package in 2007, according to documents. He was promised $19.9 million in 2006 and $14.8 million a year earlier.
Schwartz and Hoffman declined to comment.
Also among the highest compensated was Mark A. Walsh, who made $70 million over three years running the firm's global real estate business. He was allotted a pay package of $17.5 million in 2007, according to the documents.
Once considered a star, his increasingly aggressive bets eventually backfired on the firm and led to more than $30 billion in bad real estate deals by 2008. He could not be reached for comment.
The pay figures outraged Lehman alumni, who have been buzzing about what they see as the excessive compensation doled out to select people.
"Even those of us who worked on Wall Street are surprised at these numbers," said one former Lehman executive who declined to be named because of the sensitivity of the matter. "We had no idea so many people were making so much money."
The documents also demonstrate the misplaced optimism that reigned in Lehman's executive suite, with some managers pushing for the company to boost compensation to reward employees and poach talent from wounded rivals.
Among the documents reviewed by The Times was a confidential presentation that Fuld and other senior executives made to the firm's compensation committee.
The six-page report recommended that Lehman increase its compensation budget to pick off talent at rival banks that "have sustained large losses, weakening their competitive position."
One plan called for handing out an additional 25 million stock options on top of the 54 million already distributed in 2007 and the 30 million set aside for future awards.
"Banking is a cyclical business — we've been through challenging years before and we'll get through this one as well," Gary Weinstein, an executive in Lehman's investment-banking unit, wrote in a memo.
"The important thing is to not lose focus on building the franchise — we've made great strides and are well positioned heading into a period of market slowdown."
Times researcher Scott Wilson and staff writer Chad Terhune contributed to this report.