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TARP Bank CEOs Cash In

Posted by: Mara Der Hovanesian on August 03

So much for pay-for-performance reform. A new study by Presidio Pay Advisors, a San Francisco-based compensation consulting firm, looked closely at the 115 publicly traded banks’ compensation programs and found that while the bulk of them churned out negative shareholder returns and a boatload of losses, many of the senior executives have earned nifty pay hikes.

The study finds that about a third of the CEOs who held office from 2006 through the end of last year received increases in 2008 total cash compensation (base salary plus annual bonus); the increases ranged from 1% to 108% over 2006 levels, the study says. About 43% of CFOs got increases of up to 420% in the same period.

It's not as if pay gets docked when performance hits the skids. Rather, by all rights, bonuses and other incentive pay is supposed to reflect the CEO's effectiveness and should "decrease more for terrible performance than it should for merely mediocre performance relative to a defined group of peers." Makes sense, right?

About 80 CEOs from the 115 banks in question held the CEO position at the same bank for all three years. These 80 banks held a total of $7.5 trillion in assets as of December 31, 2008, and received a total of $134.6 billion in taxpayer investments from TARP.

Well clearly, that group turned out terrible results: aggregate profits of $119.3 billion in 2006 turned into an aggregate total loss of $19.3 billion in 2008. Yet the researchers found "no meaningful, statistically significant relationship between changes in pay and changes in performance from 2006 to 2008 among the 80 CEOs studied."

You could argue that bank executives who successfully navigated their institutions through financial crisis should get gold medals. But the real concern is that as a group, bank executives don't appear to making good on their promise to reform compensation schemes that incentivized the behaviors that got us into the current mess. Congress, which set conditions on the TARP money as noted here by Financial Reform Watch, will no doubt weigh in when they get a load of more results like these.

Reader Comments

Andrew Lee

August 3, 2009 07:17 PM

What else is new? Think Obama et al are in bed with Wall Street yet? While Summers and Geithner were trumpeting new taxes for middle class American's this weekend, their bed-buddies are raking in Millions in bogus bonuses based on our Billions in taxpayer bailouts.


August 4, 2009 12:06 AM

Thank you for reporting on this bonuses and payouts. Can someone please take the time to investigate how banks hold the money of their clients. How long they can do so and why it is necessary for banks to have to do the same routine in each new country even in the same bank. Sure who is getting a bonus is important but also important is how many lives are destroyed due to banks refusing to release funds...


August 4, 2009 07:55 AM

Wow! Banker's pay is just like politician's pay. When the economy gets worse the politician's give themselves pay raises and tax us more. See any parallel lines being drawn here? Maybe banker's will never be forced to lower their pay because the finger would then point back at american politicians? What a wonderful system! Wonder what the founding fathers of this country would be thinking right about now.


August 4, 2009 10:38 AM

Do you think they give a flying duck what happens after they have already received huge percentage increases on their already bloated salaries?

"I got mine, let me tell ya
I got mine.
I grabbed that money off the floor
Out the back door I went flying
Well, ever since the big TARP game
I've been livin' on chicken and wine.
I'm the leader of society
Since I got mine."

Any top financial executives who received pay increases and/or bonuses after TARP should go to jail, a poor man's jail, not the slightly inconvenienced living country clubs.


August 4, 2009 01:04 PM

There are systems that can track performance-based pay.

But I can see why they wouldn't was to install one of these systems.

Employees would be getting paid based on their performance - not good news for the CEOs when it comes to their compensation.


August 4, 2009 05:00 PM

I'd also like to get into this game of being the recipient of billions of dollars.

I have thus renamed one of my cats "Bank", claimed bank holding company status, and applied for both TARP and PPIP.


Cassius King

August 4, 2009 07:46 PM

It's heartening to see coverage like this in BW (no sarcasm).

Thank you for your interest. This blog is no longer active.



BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.

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