U.S. taxpayers, who feel they own a stake in Wall Street after funding a $700-billion bailout for the industry, don't want executives' bonuses reduced. They want them eliminated.
"I may not understand everything, but I do understand common sense, and when you lend money to someone, you don't want to see them at a new-car dealer the next day," said Ken Karlson, a 61-year-old Vietnam veteran and freelance marketer in Wheaton, Ill. "The bailout money shouldn't have been given to them in the first place."
Compensation at Goldman Sachs Group Inc., Morgan Stanley, Citigroup Inc. and the six other banks that received the first $125 billion of the federal funds is under scrutiny by lawmakers, including Rep. Henry A. Waxman (D-Beverly Hills) and New York Atty. Gen. Andrew Cuomo, also a Democrat. Although year-end rewards will probably decline with a drop in revenue this year, industry veterans say that eliminating them risks driving away the firms' most productive workers.
"There are instances where bonuses are justified, deserved and in the best interests of the investment bank involved," said Dan Lufkin, a co-founder of Donaldson Lufkin & Jenrette Inc. "Your very best people are people you want to hold, and your very best people will have opportunities even in this environment to transfer allegiance."
But Patrick Amo, a 53-year-old retired merchant marine in Seattle, thinks there's no good reason for bonuses at this point. "Even really sober people are saying this is the worst financial crisis since the Depression," Arno said, "and they're saying bonuses are just going to be reduced? Oh my God, you read that and your jaw drops."
Wall Street firms' pay has traditionally been tied closely to performance of the companies, which is why employees receive most of their compensation at the end of the year after final results are known.
The nine banks that Waxman pressed to detail their bonus plans asked for more time to respond, said his spokeswoman, Karen Lightfoot. She said they had been granted an additional two weeks. The original deadline was Monday.
Goldman paid CEO Lloyd Blankfein a record $67.9-million bonus for 2007 on top of his $600,000 salary. That was justified, he told shareholders at the firm's annual meeting in April, because of Goldman's superior financial results.
"We're very much a performance-related firm," he said. "If those results don't come in, I assure you at Goldman Sachs you won't see that compensation."
