Taxpayers: No bonuses for Wall Street execs
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.''
``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?'' said Patrick 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.
The nine banks that Waxman pressed to detail their bonus plans asked for more time to respond, according to his spokeswoman, Karen Lightfoot. She said they've been granted an additional two weeks. The original deadline was Monday.
Goldman, the largest and most profitable U.S. securities firm in the world last year, paid Chief Executive Officer 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 company'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 percent so far 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. The stock price has dropped 67 percent this year and Goldman received $10 billion from the U.S. government in the bailout last month. Michael DuVally, a spokesman for Goldman Sachs in New York, declined to comment on the company's plans for bonuses this year.
``The executives in companies that get bailout money should have their base salaries reduced by 10 percent 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,'' said S. Woods Bennett, a 57-year- old lawyer in Baltimore. ``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 U.S. 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.
``Bonuses and severance packages will obsess the American public'' and become ``a humiliation and embarrassment,'' said Arthur Levitt, a senior adviser to the Carlyle Group, former chairman of the Securities and Exchange Commission, and a board member of Bloomberg LP, the parent company of Bloomberg News. ``Compensation committees, believe me, are paying close attention to this.''
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,'' said Crystal, who writes the newsletter graefcrystal.com. ``It exposes them to ridicule.''
A renegotiated government rescue for American International Group Inc., which was once the world's largest insurance company, includes a freeze on the bonus pool for 70 top executives and imposes limits on severance benefits, the Treasury said in a statement Monday. AIG's bailout is separate from the $125 billion being invested in nine banks.
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 writedowns and credit losses this year and cut more than 150,000 jobs, according to data compiled by Bloomberg.
A decline in lending has caused the wider economy to contract: the U.S. gross domestic product shrank at a 0.3 percent annual pace in the third quarter, consumer spending fell at its fastest pace since 1980 and unemployment jumped to 6.5 percent, the highest since 1994.
``This is the real economy these vultures have wrecked once again,'' said Leo Gerard, president of the Pittsburgh-based United Steelworkers, which represents 1.2 million active and retired members. ``Workers are taking it on the chin through no fault of their own.''
``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 as a researcher in the department of surgery 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.''