Last week the New York State Comptroller announced that Wall Street bonuses fell 44% to $18.4B and the securities industry losses may exceed $35B
Troubled Asset Relief Program (TARP), which infused billions of dollars into the financial system, helped prevent more institutions from failing. TARP placed restrictions on bonuses for top executives and many have voluntarily forgone bonuses, but it did not impose limitations for lower-level employees.
State Comptroller Thomas P. DiNapoli seems to be inferring that high level executives held back and the more pedestrian lower paid employees took the money? I don’t think so. Sure, CEOs at Citi and others witheld bonus compensation, but that wasn’t in the majority. In fact 79% of all Wall Street employees got paid a bonus this year.
In fact, although the bonus pool was down 44%, it was the sixth highest payout in history.
Here’s what I wrote about bonuses last year at this time. Much has changed, other than the concepts applied to compensation (hint: they’re not correlated with performance.)
That certainly important for the New York real estate economy, but given the credit crunch, it may not prove to be much help. Each January, the bonus compensation starts the real estate market engine.
Maureen Dowd in her Op-ed piece Disgorge, Wall Street Fat Cats suggests:
The president needs to think like Andrew Cuomo. “ ‘Performance bonus’ for many of the C.E.O.’s is an oxymoron,” he said. “I would tell them, a) you don’t deserve a bonus, b) where are you going to go? and c) if you want to go, go.”
Firstly, I think we all need a refresher course on what a bonus is:
noun, plural -nusâ‹…es
1. something given or paid over and above what is due.
2. a sum of money granted or given to an employee, a returned soldier, etc., in addition to regular pay, usually in appreciation for work done, length of service, accumulated favors, etc.
3. something free, as an extra dividend, given by a corporation to a purchaser of its securities.
4. a premium paid for a loan, contract, etc.
5. something extra or additional given freely: Every purchaser of a pound of coffee received a box of cookies as a bonus.
I always saw bonus as a mislabeled compensation method – most see it as base pay plus commission. After all, the average compensation on Wall Street has averaged 40% to 50% of total compensation and bonus payouts have been at or near record levels over the past 6 years – based on nothing really. It morphed into a way to offload compensation risk to the employees. We’ll pay you half of your salary at the end of the year if we can, which morphed into no matter what.
Felix Salmon at Portfolio opines further on this point – that there is a minimum bonus payment level that must be made (seemingly contrary to Andrew Cuomo’s statement above).
Now there are good reasons for having a bonus system: it incentivizes profitable work, and it makes it easy for banks to pay less money in lean years. But as Bookstaber writes, there’s definitely an implicit minimum bonus at investment banks — a sticky level below which it’s hard to cut bonuses any further.
There are reasons to have a minimum bonus, rather than baking that money into base pay: it’s not included in pay-rise calculations, for starters. But when banks start getting multi-billion-dollar government bailouts, it looks really bad if they then just turn around and spend a similar amount of money on bonuses.
But resentment is growing and the campaign weary “Main Street vs. Wall Street” has found new life. Wall Street has lost billions, been bailed out for billions and been paid billions in bonuses. The mortgage securitization juggernaut will end up costing taxpayers trillions and the industry is whining about compensation.
Washington is angry, and perhaps embarrassed for not building this into the TARP.
But seriously, did Congress really expect Wall Street to stop paying out bonuses voluntarily? Its part of the culture, always has been. It’s like asking Congress voluntarily not to run attack ads and not be overly partisan – it’s simply built into their DNA.
No moral judgement being made here – people outside this world don’t seem to understand what makes Wall Street tick. If its not mandated, then status quo will prevail.
Even worse, the lower compensation is having an adverse effect on the social lives of Wall Street bankers, ’cause its the economy, Girlfriend.
UPDATE: Signs Wall Street may already be re-inventing itself.