New York: Early in his presidency, Barack Obama called big bonuses paid to bankers at the height of the financial crisis “shameful” and “outrageous.”
In March, public outrage turned to AIG after the insurance company, bailed out with $180 billion in taxpayer money, paid $165 million in bonuses. In response, Obama told chief executives of the country’s major banks that out-sized bonuses were “just not acceptable.”
After a Group of 20 summit in April, Obama joined other world leaders in calling for “transparency and accountability” in executive compensation.
Obama’s comments raised hopes among Americans losing their jobs and homes that he would crusade against mega bonuses in the financial community. But eight months later, the big paydays are still around and lately there has been barely a whisper about them from the White House.
“The numbers of the bonuses have gotten larger in relation to the earnings and the overall business profits. Nothing has changed very much,” said John Gutfreund, Salomon Brothers CEO in the 1980s, who was once known as the “King of Wall Street.”
Gold on the street
AIG’s CEO Robert Benmosche, interviewed in August at his luxury villa in Croatia, slammed the “pitch fork” mentality that prompted busloads of people to demonstrate in communities where bankers live.
He appeared to ignore public sensitivities about displays of excess by showing off his 12-bathroom villa overlooking the Adriatic sea.
In one meeting with employees, he called New York attorney general Andrew Cuomo a “criminal.” Cuomo has been critical of AIG’s pay practices.
Beyond AIG, as the financial crisis deepened, banks took billions from public coffers. A year later, the bonuses go on.
According to reports, Citigroup plans to pay energy trader Andrew Hall more than $100 million this year.
In July, Goldman Sachs Group Inc said it had set aside $11.3 billion in the first half of the year toward bonuses for its employees.
CEO Lloyd Blankfein warned employees that they should steer clear of flashy purchases because it is not the time to be “seen living high on the hog,” the New York Post reported.
Goldman, facing intense criticism for reporting billions in profit soon after paying back $10 billion it had borrowed from taxpayers, was jabbed in an online Goodfellas parody dubbed “Goldfellas.” In the video, the CEO chastised employees for buying cars and jewelry so soon after its “heist” against the government for billions of dollars.
The average bonus at Goldman is on track to be $768,000 if the company continues setting aside bonus money at the pace it did in the first half of 2009.
Morgan Stanley is on track to pay an average bonus of $189,000, even though it reported losses in the first two quarters of 2009.
And although the biggest bonuses go to senior bankers, star traders and partners, they trickle down.
“If you are an analyst out of a good business school or an associate with a couple of years of experience, you are still making hundreds of thousands of dollars,” said John Carter, a recruiter at New York’s Hagan-Ricci Group Inc. “You can do pretty well.”
Bonuses on the rise
In 2008, Wall Street cash bonuses totaled $18.4 billion, down from 2007’s $32.9 billion, according to the New York State comptroller’s office. This year, pay consultants expect those figures to rise as markets recover.
Major US banks have argued that they need to pay market rates to retain and attract top talent, or risk losing out to foreign competitors, hedge funds and others.
Arguments abound against government intervention in the compensation U.S. companies give their employees.
Some banks have rewritten employment contracts to include claw-back provisions tied to performance, and they have restructured pay packages to put more emphasis on base salary and less on bonuses.
Wall Street pay consultant Alan Johnson said his banking clients recognize the “anger in the public domain”.
“You have to be aware of it,” Johnson said. “It is real and important. Any public company has to be concerned about how the different audiences are going to perceive what they do.”
A study this year by New York’s Cuomo said there was “no rhyme or reason” to the way banks pay millions to their employees. Another report by compensation consultant James Reda said that aligning pay to short-term performance, also known as rewarding risk, is in vogue.
Another report titled, Sold Out: How Wall Street and Washington Betrayed America, was done by Wall Street Watch.
“You could see it on the street in any city or town in the United States. Things are really bad,” said Harvey Rosenfield, co-author of the report and also president of California-based non-profit Consumer Education Foundation. “But they are just as hunky dory as ever for the hedge funds and Goldman Sachs.”
America’s Bailout Barons, a report released last week by the Institute for Policy Studies, a Washington-based non-profit that has long criticized Wall Street pay, said the top five executives at 10 banks bailed out by taxpayers were rewarded with stock options at the height of the crisis that have grown in value by $90 million.
“There have been a lot of beautiful speeches here in Washington about the need to crack down on out of control pay and to make sure taxpayers aren’t subsidizing executive pay, but we still haven’t seen meaningful restrictions,” said Sarah Anderson, lead author of the report.
Interest in curtailing executive pay extends to other countries, but G20 leaders have not been able to build consensus about capping bonuses. The G20 is planning to further consider the issue before its summit in Pittsburgh this month.
In the United States, the most visible sign of action has been Obama’s appointment of a pay czar, and Congress arming him with wide powers to clamp down on executive pay.
But the relationship between pay czar Kenneth Feinberg, a Washington lawyer, and Obama has been arm’s length. Feinberg said in a recent interview that he has not spoken with the president about his task.
A few weeks ago, Feinberg told a standing room-only audience on Martha’s Vineyard, Massachusetts, that he senses the public’s anger about bonuses.
“There is a Populist strain out there that says we want punishment - we are vindictive,” Feinberg said in his only public remarks to date about executive pay.
He said the prevailing sentiment that “we do not want to see these salaries even if it means their companies go belly-up,” is one factor making his job more difficult