Thousands of top traders and bankers on Wall Street were awarded
huge bonuses and pay packages last year, even as their employers were
battered by the financial crisis.
Nine of the financial firms that were among the largest recipients
of federal bailout money paid about 5,000 of their traders and bankers
bonuses of more than $1 million apiece for 2008, according to a report
released Thursday by Andrew M. Cuomo, the New York attorney general.
At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.
The report is certain to intensify the growing debate over how, and how much, Wall Street bankers should be paid.
In January, President Obama
called financial institutions "shameful" for giving themselves nearly
$20 billion in bonuses as the economy was faltering and the government
was spending billions to bail out financial institutions.
On Friday, the House of Representatives may vote on a bill that
would order bank regulators to restrict "inappropriate or imprudently
risky" pay packages at larger banks.
Mr. Cuomo, who for months has criticized the companies over pay,
said the bonuses were particularly galling because the banks survived
the crisis with the government's support.
"If the bank lost money, where do you get the money to pay the bonus?" he said.
All the banks named in the report declined to comment.
Mr. Cuomo's stance - that compensation for every employee in a
financial firm should rise and fall in line with the company's overall
results - is not shared on Wall Street, which tends to reward employees
based more on their individual performance. Otherwise, the thinking
goes, top workers could easily leave for another firm that would reward
them more directly for their personal contribution.
Many banks partly base their bonuses on overall results, but Mr. Cuomo has said they should do so to a greater degree.
At Morgan Stanley, for example, compensation last year was more than
seven times as large as the bank's profit. In 2004 and 2005, when the
stock markets were doing well, Morgan Stanley spent only two times its
profits on compensation.
Robert A. Profusek, a lawyer with the law firm Jones Day, which
works with many of the large banks, said bank executives and boards
spent considerable time deciding bonuses based on the value of workers
to their companies.
"There's this assumption that everyone was like drunken sailors
passing out money without regard to the consequences or without giving
it any thought," Mr. Profusek said. "That wasn't the case."
Mr. Cuomo's office did not study the correlation between all of the
individual bonuses and the performance of the people who received them.
Congressional leaders have introduced several other bills aimed at
reining in the bank bonus culture. Federal regulators and a new
government pay czar, Kenneth Feinberg, are also scrutinizing bank
bonuses, which have fueled populist outrage. Incentives that led to
large bonuses on Wall Street are often cited as a cause of the
Though it has been known for months that billions of dollars were
spent on bonuses last year, it was unclear whether that money was
spread widely or concentrated among a few workers.
The report suggests that those roughly 5,000 people - a small subset
of the industry - accounted for more than $5 billion in bonuses. At
Goldman, just 200 people collectively were paid nearly $1 billion in
total, and at Morgan Stanley, $577 million was shared by 101 people.
All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.
Some compensation experts questioned whether the bonuses should have
been paid at all while the banks were receiving government aid.
"There are some real ethical questions given the bailouts and the
precariousness of so many of these financial institutions," said Jesse
M. Brill, an outspoken pay critic who is the chairman of CompensationStandards.com,
a research firm in California. "It's troublesome that the old ways are
so ingrained that it is very hard for them to shed them."
The report does not include certain other highly paid employees,
like brokers who are paid on commission. The report also does not
include some bank subsidiaries, like the Phibro commodities trading
unit at Citigroup, where one trader stands to collect $100 million for
his work last year.
Now that most banks are making money again, hefty bonuses will
probably be even more common this year. And many banks have increased
salaries among highly paid workers so that they will not depend as
heavily on bonuses.
Banks typically do not disclose compensation figures beyond their
total compensation expenses and the amounts paid to top five highly
paid executives, but they turned over information on their bonus pools
to a House committee and to Mr. Cuomo after the bailout last year.
The last few years provide a "virtual laboratory" to test whether
bankers' pay moved in line with bank performance, Mr. Cuomo said. If it
did, he said, the pay levels would have dropped off in 2007 and 2008 as
bank profits fell.
So far this year, Morgan Stanley has set aside about $7 billion for
compensation - which includes salaries, bonuses and expenses like
health care - even though it has reported quarterly losses.
At some banks last year, revenue fell to levels not seen in more
than five years, but pay did not. At Citigroup, revenue was the lowest
since 2002. But the amount the bank spent on compensation was higher
than in any other year between 2003 and 2006.
At Bank of America, revenue last year was at the same level as in
2006, and the bank kept the amount it paid to employees in line with
2006. Profit at the bank last year, however, was one-fifth of the level
Still, regulators may have limited resources for keeping pay in
check. Only banks that still have bailout money are subject to
oversight by Mr. Feinberg, the pay czar. He will approve pay for the
top 100 compensated employees at banks like Citigroup and Bank of
America as well as automakers like General Motors.
- 106 Money & Politics
- 201 Executive Compensation
- 208 Regulation