Bonus Uproar Shifts Wall Street Pay Practices - 11 Jan 2010

Bonus Uproar Shifts Wall Street Pay Practices

Filed by KOSU News in Business.
January 11, 2010

It’s bonus season on Wall Street and Washington is poised for outrage.

On Sunday, White House economic adviser Christina Romer said that
big bonuses at banks are “ridiculous”. And on Monday, White House
spokesman Robert Gibbs said: “There are folks who just continue not to
get it.”

It’s reported that Goldman Sachs, Morgan Stanley and JPMorgan Chase
combined have set aside $47 billion for bonuses. Why do these big banks
pay so much in bonuses when they know they’re unpopular with the
public?

“The way in which that total number is derived … is based on a
sharing of the profits that the employees generate for shareholders,”
says Steven Hall, managing director of Steven Hall and Partners, an
executive compensation consulting firm.

It’s been a “good year on Wall Street,” Hall tells NPR host Robert
Siegel. But these executive bonuses can be based on smart thinking by
executives as well as economic factors, interest rates and other issues
that worked in their favor, Hall says.

Stock Bonuses

Banks are expected to pay more of the bonuses in stock rather than
cash this year. Hall says some on Wall Street rely on the cash bonuses
for living expenses — to pay for schooling for their children, a second
home or other expenses.

“Finding that you’re not going to get the cash could be a little bit
of a surprise,” Hall says. “But I think Wall Street firms have been
telegraphing this to their employees for a while — expect a lot more
and in some cases expect all of it in the form of stock that you won’t
be able to get for three to five years.”

Hall says he doesn’t think the public’s anger and frustration over
bonuses would subside if the compensation was reduced by 25 percent or
even if it was cut in half.

Wall Street firms often make the argument that they need to pay big bonuses to retain talent.

Some of the biggest bonuses exceed $10 million. Is this a
gold-plated labor market where individual bankers can command this much
money and walk out the door to work for a competitor if they aren’t
given their bonus?

“I realize it’s not the answer that people want to hear, but the
people being paid those kinds of levels of compensation are being paid
it because of the production that they’ve had a hand in generating and
the value they’ve created,” Hall says.

An executive could leave and make $30 million across the street, he says.

“It’s amazing to think about. It’s another world from what most of
us are used to dealing with, but these are people who become superstars
at what they do,” Hall says. “And there are firms that have lists of
people that they’d like to go after in the event that they thought that
they were recruitable.”

The attraction of these superstar bankers is that they can create
revenue and profit to benefit shareholders. Still, some on Wall Street,
including Morgan Stanley’s chief executive John Mack won’t take any
bonus. (The Wall Street Journal says this is the third consecutive year
that he’s not taken a bonus).

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