No CEO Bonus for 2008

Posted by: Nanette Byrnes on January 7, 2009

As evidence of contrition, finance CEOs are waiving their 2008 bonuses. But how is it possible that they’re even eligible for one?

Jan. 6 (Bloomberg) — Bank of America Corp. Chief Executive Officer Kenneth Lewis recommended that he and other senior executives not receive bonuses after five straight quarters of declining profit.

The board is likely to accept the recommendation, according to a memo Lewis sent to employees today.

Here’s who else isn’t taking money:
Citigroup’s Vikram Pandit, Goldman Sachs Group Inc.’s Lloyd Blankfein and Morgan Stanley’s John Mack, Former Merrill Lynch CEO John Thain, and Bloomberg reports, JPMorgan Chase & Co. CEO Jamie Dimon as well. Royal Bank of Scotland, Lloyds TSB, HBOS and Deutsche Bank honchos are also waiving theirs.

Which means, of course, all of these executives were set to get a bonus for the unprecedented risk-taking missteps and destruction of shareholder value that took place in 2008. Clearly those compensation plans are deeply flawed.

UBS alone seems to be moving beyond just saying no thanks to the bonus, and into a real overhaul of their executive pay plans. True improvements include blocking top managers’ bonuses for at least three years and variable pay for executives if the bank’s results warrant them. The chairman will only be awarded a fixed salary.

A sharp rethinking of these pay packages is in order across the industry. And companies would be wise to act before the drumbeat for compensation clawbacks gains thunder.

After all if Bernie Maddof’s unwitting investors have to give back their ill-gotten gains, why shouldn’t executives have to return money they didn’t deserve in the first place?

Reader Comments

VB

January 7, 2009 1:16 PM

Agreed. I'm assuming these bonuses are given to reflect company's performance. So when execs make decisions that financially bury the company, does that mean they should give money back? I think so.

mark

January 7, 2009 1:46 PM

Silly, silly, silly, VB. They don't give money BACK. That's just not the American way. They write letters of apology to the board of directors, and retire on the giga-billions they've been socking away for the past 15 years. We're not only left holding the bag, but are being asked to refill the sucker with tax money! Give it back... LOL.

zahoor Muhammad

January 7, 2009 1:48 PM

Excellent really these are executive,s qualities HIGHLY APPRECIATED

Stone

January 7, 2009 1:59 PM

This just shows the mind of entitlement amoung these executives. I truely hope the shareholders realize these people are taking away money away from them, money the executives do not, did not, and should not ever get again.

Kumar D Kapasi

January 7, 2009 2:18 PM

There should be a statutory cap on Executive Salaries, bonuses and perquisites (cars, chauffeurs, house, jets, etc.).

Also, the bonuses should be linked to (a) increase in annual profits (excluding profits on sale of business units) AND (b) increase in stock value on a y-o-y basis. "NO GROWTH, NO BONUS" should be the general principle. Besides, the real workers and people down the line should NEVER be excluded when it comes to rewarding them and they must also get their fair share of the bonuses.

It should be borne in mind always that in most cases, the top executives were not instrumental in building the company; they came in to occupy the position left vacant by the exit of their predecessors. In case of a closely held or small and medium businesses this is different as the owners have been instrumental in ensuring growth or otherwise of their businesses.

AgentG

January 7, 2009 2:24 PM

We need nothing less than clawback in the financial industry for the last three years...IT MUST HAPPEN TO INSURE OUR FINANCIAL INTEGRITY!

Scott

January 7, 2009 2:43 PM

I agree with Kumar D Kapasi... In addition, in order to prevent Executives from rising at the expense of their worker's, Executive pay should be tied to the annual increases/decrease of the bottom 50% of the wage earners in the company. If the bottom 50% only get a 2% raise this year, then that is all the executives get as well. It astounds me that through the years, execs have patted themselves on the back and handed them raises and bonuses in double digits (percent wise) while the real workers in their companies often scraped by with less than or equal to the standard of living increase of 3-4%.

Nathan

January 7, 2009 2:49 PM

"As evidence of contrition, finance CEOs are waiving their 2008 bonuses. But how is it possible that they’re even eligible for one?"

Because the board of directors, elected by the shareholders, said so. You would be mistaken if you think financial bonuses are things of the past.

When the market bottoms, people will scramble back to institutional banks to recover their losses, and the FAs, PMs, and execs will all get paid. We are greedy, and history repeats.

Why is everyone a bank basher? Since 2007, Beth Bath and Beyond is down 40% and its CEO is taking home $8 million w/ $30M in exercisable options.

Joe

January 7, 2009 3:09 PM

Correction:

Former Merrill Lynch CEO John Thain requested a 10 million USD bonus and he was rebuffed so he withdrew his request.

Kumar: Either by Federal Pre-emption or an amendment to Delaware (DE) Corporate law would need to occur in order to institute a statutory limitation on executive compensation and remove the current, inherent conflict of interest that exists b/t the board & executives in setting compensation. DE is very protective of its Corporate Law monopoly that favors corruption and greed, hence it will take Federal action to pre-empt state law on this issue. The problem is DE, and more importantly the DE State Bar, now has their rat-in-chief Joe Biden in the #2 position of the incoming administration. Look for him to quash, waterdown or stymie any attempt to pre-empt one of DE's gravy trains that feeds his friends and fellow members of the DE state bar.

FBEye

January 7, 2009 4:44 PM

I'm just a bit concerned that the executives at all of the Investment Banks will have a hard time paying for all the landscaping, and maintenance, that's required at their mansions in West Pakm Beach Florida if they don't receive their bonuses. And consider this- Those large yachts require a lot of upkeep on the teak decks, and on all of the chrome on the bow-rails!! And those 12, & 16 cylinder diesel engines that power their yachts need maintenance too!! And don't forget about the fees that are required to dock their yachts!!! I believe there was a 4 year wait back in 2005 to dock your yacht at one of the exclusive marinas in West Palm Beach! At least that's what my sister told me when she was there in February of 2005. Give these executives a 'fair shake', O.K.? There's still a couple TRILLION left in American's RETIREMENTS, 401K's, & IRA's. Let them take the rest of it! They DO deserve it, right?????????????

jasonw

January 7, 2009 5:03 PM

We should all get bonus checks for screwing over our bosses and customers lol. Its amazing people still don't understand how we got in this position.
www.foothillreptiles.com

willie

January 7, 2009 5:12 PM

Bonus $ should be returned to investors in the form of dividends!!!!!!

AJmal

January 7, 2009 5:18 PM

What about some of the middle managers who concurred all along with the upper management and failed to report the wrong doing? Shouldn't they be reprimanded as well?

Glenn

January 7, 2009 5:28 PM

Returning bonus money via dividends sounds fine which would probably amount to $1.00 to $2.00 per share. Guess who receives most of the "bonus" dividends? The executives this idea would take from them. They end up receiving much of dividend disbursement and make you temporarily happy too - just long enough to be re-elected. Not a great idea. Best idea I know of: read your darn prospectuses and proxies and VOTE! Hint: Don't vote the way the board recommends!

Short Sighted

January 7, 2009 5:36 PM

Rewarding executives for high quarterly SHORT term profits suit for stock market casino players. So executives delivering high short term profits are rewarded with hefty incentives. Unfortunately in the long term, it also killed off companies and American economy! Bucks should stop here.

Institutionalized Problems

January 7, 2009 6:19 PM

Some of the problem is unintended consequences. When laws were passed to tax excessive salaries, amounts over $1M/year, compensation programs were built to call pay something other than salary, such as guaranteed bonuses. The law seemed good, but was too simplistic and this is the unintended consequence. Then it just kept bloating. We need more standardized measuring sticks of success.

Kees Briggs

January 7, 2009 7:35 PM

executive bonuses have made investing a fool's pursuit. Best way to double your money in the stock market these days is fold it over and put it back in your pocket.

Wally Bock

January 8, 2009 6:02 PM

For years we have been giving senior execs "bonuses" that simply don't reflect the performance of their company or unit. By not holding senior execs accountable for their performance we've created the very agency problem economists used to write about so much.

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