New York Attorney General Andrew Cuomo’s report on the bonus
structures of the banking industry is out and — oh my— it’s damning.
The AG says that 3 banks, Goldman Sachs , Morgan Stanley , and JP.
Morgan Chase, paid out bonuses that ” were substantially greater than
the banks’ net income.” The report says that combined, these three
firms earned $9.6 billion, paid bonuses of nearly $18 billion, and
received TARP taxpayer funds worth $45 billion. Why did this happen?
Because, according to Cuomo, when times were good the bankers rewarded
themselves based on performance. When the economy started to sour —
they decoupled the bonus structure from reality and kept rewarding
themselves. From the report: As one would expect, in describing their
compensation programs, most banks emphasize the importance of tying pay
to performance. Indeed, one senior bank executive noted recently that
individual compensation should not be set without taking into strong
consideration the performance of the business unit and the overall
firm. As this executive put it, “employees should share in the upside
when overall performance is strong and they should all share in the
downside when overall performance is weak.” But despite such claims,
one thing is clear from this investigation to date: there is no clear
rhyme or reason to the way banks compensate and reward their employees.
In many ways, the past three years have provided a virtual laboratory
in which to test the hypothesis that compensation in the financial
industry was performance-based. But even a cursory examination of the
data suggests that in these challenging economic times, compensation
for bank employees has become unmoored from the banks’ financial
performance. Thus,

more...http://financialtipsandtricks.com/2009/07/ny-ag-banks-paid-bonuses-that-were-substantially-greater-than-the-banks-net-income-failure/