Whatred ink? Wall St. paid hefty bonuses

By BenWhite

Thursday,January 29, 2009

By almost any measure, 2008 wasa complete disaster for Wall Street — except, that is, when the bonusesarrived.

Despite crippling losses,multibillion-dollar bailouts and the passing of some of the most prominentnames in the business, employees at financial companies in New York, thenow-diminished world capital of capital, collected an estimated $18.4 billionin bonuses for the year.

That was the sixth-largest haulon record, according to a report released Wednesday by the New York Statecomptroller.

While the payouts paled next tothe riches of recent years, Wall Street workers still took home about as muchas they did in 2004, when the Dow Jones industrial average was flying above10,000, on its way to a record high.

Some bankers took home millionslast year even as their employers lost billions.

The comptroller's estimate, aclosely watched guidepost of the annual December-January bonus season, is basedlargely on personal income tax collections. It excludes stock option awardsthat could push the figures even higher.

The state comptroller, ThomasDiNapoli, said it was unclear if banks had used taxpayer money for the bonuses,a possibility that strikes corporate governance experts, and indeed manyordinary Americans, as outrageous. He urged the Obama administration to examinethe issue closely.

"The issue of transparencyis a significant one, and there needs to be an accounting about whether therewas any taxpayer money used to pay bonuses or to pay for corporate jets ordividends or anything else," DiNapoli said in an interview.

Granted, New York's bankers and brokers are farpoorer than they were in 2006, when record deals, and the record profits theygenerated, ushered in an era of Wall Street hyperwealth. All told, bonuses fell44 percent last year, from $32.9 billion in 2007, the largest decline in dollarterms on record.

But the size of that downturnpartly reflected the lofty heights to which bonuses had soared during the bullmarket. At many banks, those payouts were based on profits that turned out tobe ephemeral. Throughout the financial industry, years of earnings havevanished in the flames of the credit crisis.

According to DiNapoli, thebrokerage units of New Yorkfinancial companies lost more than $35 billion in 2008, triple their losses in2007. The pain is unlikely to end there, and Wall Street is betting that theObama administration will move swiftly to buy some of banks' troubled assets toencourage reluctant banks to make loans.

Many corporate governanceexperts, investors and lawmakers question why financial companies that haveaccepted taxpayer money paid any bonuses at all. Financial industry executivesargue that they need to pay their best workers well in order to keep them, butwith many banks cutting jobs, job options are dwindling, even for stars.

Lucian Bebchuk, a professor at Harvard Law Schooland expert on executive compensation, called the 2008 bonus figure"disconcerting." Bonuses, he said, are meant to reward goodperformance and retain employees. But Wall Street disbursed billions despitestaggering losses and a shrinking job market.

"This was neither thesixth-best year in terms of aggregate profits, nor was it thesixth-most-difficult year in terms of retaining employees," ProfessorBebchuk said.

Echoing DiNapoli, ProfessorBebchuk said he was concerned that banks might be using taxpayer money tosubsidize bonuses or dividends to stockholders. "What the government hasbeen trying to do is shore up capital, and any diversion of capital out ofbanks, whether in the form of dividends or large payments to employees, reallyundermines what we are trying to do," he said.

Jesse Brill, a lawyer andexpert on executive compensation, said government bailout programs like theTroubled Asset Relief Program, or TARP, should be made more transparent.

"We are all flying in thedark," Brill said. "Companies can simply say they are trying to dotheir best to comply with compensation limits without providing any of thedetails that the public is entitled to."

Bonuses paid by one troubledWall Street firm, Merrill Lynch, have come under particular scrutiny during thelast week.

Andrew Cuomo, the New Yorkattorney general, has issued subpoenas to John Thain, Merrill's former chiefexecutive, and to an executive at Bank of America, which recently acquiredMerrill, asking for information about Merrill's decision to pay $4 billion to$5 billion in bonuses despite new, gaping losses that forced Bank of America toseek a second financial lifeline from Washington.

A Treasury Department officialsaid that in the coming weeks, the department would take action to furtherensure taxpayer money is not used to pay bonuses.

Even though Wall Street spentbillions on bonuses, New Yorkfirms squeezed rank-and-file executives harder than many companies in otherfields. Outside the financial industry, many corporate executives receivedfatter bonuses in 2008, even as the economy lost 2.6 million jobs. According todata from Equilar, a compensation research firm, the average performance-basedbonuses for top executives, other than the chief executive, at 132 companieswith revenues of more than $1 billion increased by 14 percent, to $265,594, inthe 2008 fiscal year.

For NewYork State and New York City, however,the leaner times on Wall Street will hurt, DiNapoli said.

DiNapoli said the average WallStreet bonus declined 36.7 percent, to $112,000. That is smaller than theoverall 44 percent decline because the money was spread among a smaller poolfollowing thousands of job losses.

The comptroller said thereduction in bonuses would cost New YorkState nearly $1 billion in income taxrevenue and cost New York City$275 million.

On Wall Street, where money isthe ultimate measure, some employees apparently feel slighted by theirdiminished bonuses. A poll of 900 financial industry employees released onWednesday by eFinancialCareers.com, a job search Web site, found that whilenearly eight out of 10 got bonuses, 46 percent thought they deserved more.