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20 October 2008

Wall Street banks in $70bn staff payout: Pay and bonus deals equivalent to 10% of US government bail-out package

Should anyone be surprised by this?

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned.

Staff at six banks including Goldman Sachs and Citigroup are in line to pick up the payouts despite being the beneficiaries of a $700bn bail-out from the US government that has already prompted criticism. The government's cash has been poured in on the condition that excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in recent corporate statements. Pressure on the US firms to review preparations for annual bonuses increased yesterday when Germany's Deutsche Bank said many of its leading traders would join Josef Ackermann, its chief executive, in waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall Street firms on payroll, payoffs and, most controversially, bonuses appear to bear no relation to the losses incurred by investors in the banks. Shares in Citigroup and Goldman Sachs have declined by more than 45% since the start of the year. Merrill Lynch and Morgan Stanley have fallen by more than 60%. JP MorganChase fell 6.4% and Lehman Brothers has collapsed.

At one point last week the Morgan Stanley $10.7bn pay pot for the year to date was greater than the entire stock market value of the business. In effect, staff, on receiving their remuneration, could club together and buy the bank.

In the first nine months of the year Citigroup, which employs thousands of staff in the UK, accrued $25.9bn for salaries and bonuses, an increase on the previous year of 4%. Earlier this week the bank accepted a $25bn investment by the US government as part of its bail-out plan.

At Goldman Sachs the figure was $11.4bn, Morgan Stanley $10.73bn, JP Morgan $6.53bn and Merrill Lynch $11.7bn. At Merrill, which was on the point of going bust last month before being taken over by Bank of America, the total accrued in the last quarter grew 76% to $3.49bn. At Morgan Stanley, the amount put aside for staff compensation also grew in the last quarter to the end of August by 3% to $3.7bn.

Days before it collapsed into bankruptcy protection a month ago Lehman Brothers revealed $6.12bn of staff pay plans in its corporate filings. These payouts, the bank insisted, were justified despite net revenue collapsing from $14.9bn to a net outgoing of $64m.

None of the banks the Guardian contacted wished to comment on the record about their pay plans. But behind the scenes, one source said: "For a normal person the salaries are very high and the bonuses seem even higher. But in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don't do so well."

Many critics of investment banks have questioned why firms continue to siphon off billions of dollars of bank earnings into bonus pools rather than using the funds to shore up the capital position of the crisis-stricken institutions. One source said: "That's a fair question - and it may well be that by the end of the year the banks start review the situation."

Much of the anger about investment banking bonuses has focused on boardroom executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.

Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multibillion-dollar write-downs. In Britain, Bob Diamond, Barclays president, is one of the few investment bankers whose pay is public. Last year he received a salary of £250,000, but his total pay, including bonuses, reached £36m.

2 comments:

  1. This is a very stupid article as so many of this type are, written out of ignorance and jealousy. First of all bonuses are paid to nearly all employees of these firms, not just "bankers", who make up a minority. some of these banks made money this year, market "confidence" was what made trouble for them: Morgan Stanley and Goldman had a pretty good three quarters so far, should their employees not be paid because other companies did not do well? One ought to read the comp numbers a little more carefully, since they are called "comp and benefits", which includes all benefits including medical. Government money was accepted by 9 firms in order for all firms to not be stigmatized by accepting government cash. None of these firms really needed it, but again should their employees now receive a pay cut because the government asked the companies to take cash?Lastly, where does the writer of this think tax money comes from? The top 1% pay nearly 40% of the taxes while earning 20% of all income, so keeping the employees of these firms well paid hardly hurts the government, these employees are a big part of the revenue base.

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  2. What's the percentage of the pay pot going to top execs?

    Why did market "confidence" fall off a cliff, I wonder? Yes, these banks are totally innocent.

    We're not talking about employees not being paid or even receiving a pay cut; we're talking about an obscene payoff for horrible performance in the form of bonuses. That you see nothing wrong with that speaks volumes.

    Government money was given to these firms, who begged for it via Paulson, because they were terrified of going under. The government, rightly or wrongly, gave it for (they say) the greater good. Regardless of whether you buy the government's "reason" for the bailout, the money was not given so 10% of it could go to bonuses. Gee, I wish I'd get a massive bonus for fucking up royally. This is what Kool-Aid drinkers like yourself call "competitive free-market capitalism." You might want to actually read Adam Smith sometime. Start with his Theory of Moral Sentiments.

    Gee, your last bit on where tax revenues come from is interesting. Even if one accepts your numbers, surely the bottom 99%, who would then pay the other 60+% of taxes, should also receive cash payouts from the government. I mean, in order to bolster the government's own revenue stream. Your reasoning is typical socialism-for-the-rich.

    Henry Ford tried to do this at the corporate level -- he tried to "overpay" his employees so that they could afford more of his cars. This went to the Supreme Court; I leave it to you to find out what the decision was, and then to ponder why.

    As for tax revenue, just as there's no point in talking about money except in terms of real dollars (most of the time), there's no point in talking about taxation except in "effective" terms. Who -- and what institutions -- pay what effective tax rate? That is where discussion starts in the real world.

    Are we discussing all taxes, not just income tax? In the real world, that matters: payroll taxes, property taxes, etc.

    Also -- sure, rising healthcare copays and other costs that outpace inflation are not "taxes," but they take real money out of real people's pockets. So, let's add that into the mix. That is, if we actually care about fairness.

    Furthermore, no, if you're a multimillionaire, 35% (or whatever) -- even assuming you pay it all (which you won't) -- is not the same as 35% for a family of four making $50,000. I realize flat-taxers, like flat-earthers, can't compute this, strangely, but it is the case.

    Finally, worker productivity in the US has skyrocketed while job security has fallen and wages have stagnated. This fact doesn't play well with most readers of the article I posted, assuming they haven't been blinded by plutocratic propaganda or divided and ruled by race, religion, lifestyle choices, and so on.

    So, unless you're a rich person, you're allowing yourself to be deluded. If you're rich, you're slotting right into what one would expect of a member of your class.

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