There's little sympathy for Wall Street bonus babies. On Jan. 28, New York State Comptroller Thomas P. DiNapoli issued a report showing that bonuses fell 44% in 2008—yet the size of the securities industry bonus pool, estimated at $18.4 billion, was the sixth-highest on record. Considering that many Wall Street firms benefited from federal bailout dollars, the online reaction has been swift—and negative.
To many commenters, the idea of bonuses as layoffs keep mounting and businesses go bankrupt shows just how out of touch some financial firms are. As one wrote on The New York Times Web site: "This is hard to believe and impossible to read with equanimity. Wall Street should be hanging [its] head with shame. Instead, it plunges forward with mad self-enrichment at the expense of the rest of the country, even the rest of the world!" Adds another: "Take the money back and grind up the offenders into cat food," wrote a Times commenter, who identified himself as being from Montana.
Financial firms say bonuses are necessary to retain top-level employees. But to many readers, that's a nonstarter. After all, many people are worried about keeping the jobs they have—not jumping to new firms, which probably aren't hiring anyway.
They Got Us in This Mess
"These bonuses should be zero," wrote one poster on the firedoglake.com blog. "Not down 44%. Zero. These banks should be using their profits to reinvest in the shoring up of their capital reserves, so that they [can] start underwriting and lending again, not paying discretionary bonuses. It's not about keeping the "best and the brightest"…if they were that sharp, we wouldn't be in this mess, would we now?"
There are some defenders of the bonuses. A commenter, identified as Andrew Boysen, on the The Wall Street Journal's Web site, writes: "If one employee loses $500M for shareholders and gets fired, and I make $500M for shareholders and get no bonus, I'm out the door, and I will NOT have trouble finding another job or starting my own company (or getting my clients to follow me)." He adds: "Pay for performance is not welfare."
DiNapoli's estimate of bonuses is based on personal income-tax collections and other factors. He noted that the average bonus declined by 36.7%, to $112,000, in 2008. The decline is less than the absolute decline in the total pool because the money was shared by fewer workers because of widespread layoffs.
Calls for Greater Transparency
"The issue of Wall Street bonuses in general, and Merrill Lynch's bonuses in particular, is only just beginning to heat up," writes Felix Salmon on Portfolio.com. "Frankly, I too am quite shocked that the average bonus award fell only 36.7%, even as profits simply evaporated."
In Washington, Senator Christopher Dodd (D-Conn.), the chairman of the Banking Committee, said he wanted executives of companies that took bailout funds to repay bonuses, according to Bloomberg News. "I'm going to look at every possible legal means to get that money back," Dodd said at a Jan. 29 news briefing.
DiNapoli noted that the federal Troubled Asset Relief Program (TARP), which poured billions into the firms, kept many of them afloat. While the program restricted the size of bonuses for top-level employees, there was no such restriction for lower-level employees. "Taxpayers have invested billions of dollars to stabilize the nation's bank and financial institutions, and there are plans to make additional investments to shore up the banking system," DiNapoli said in news release. "There needs to be greater transparency and accountability in the use of these funds."
The report comes at a time when any report of Wall Street excess—whether it's the reported $1.2 million former Merrill Lynch CEO John Thain spent to redecorate his office last year or the $50 million business jet Citigroup (C) had on order until this week—is being used by critics as an example of unfettered greed that the financial collapse has done little to curtail.
Investigation Under Way
Thain resigned from Merrill acquirer Bank of America (BAC) on Jan. 22 following reports that Merrill paid billions dollars in bonuses late last year, even as Merrill was about to report a $15 billion fourth-quarter loss, and while Bank of America was seeking more federal funds because of the Merrill losses. New York's attorney general is probing the bonus payments, as well as executive compensation practices at firms that received federal funds.
Meanwhile, Thain has offered to reimburse Merrill for the renovation, but, in a memo to employees, defended the bonuses. "Those best people can get jobs other places, they will leave," he said, adding that on "Wall Street, people's salaries tend to be relatively small. And their bonuses are the vast majority of their compensation for the year."
DiNapoli's report noted that employment in the securities industry in New York City declined from 187,800 in October 2007 to 168,600 in December 2008, a 10.2% drop. The report estimated that traditional broker-dealer operations of member firms of the New York Stock Exchange lost more than $35 billion in 2008.
Mintz is news editor for BusinessWeek.com in New York.