Wall Street bonuses

[Guest Raidne]

[quote name='nazfyratu' post='1668273' date='Jan 30 2009, 11.08']But I'm guessing those aren't the ones Obama is criticizing, from the sound of it.[/quote]

Nope, but it does look like the numbers are not at all limited to the companies that asked for bailouts: "Mr. Obama was reacting to a report by the New York State comptroller that found financial executives had received an estimated $18.4 billion in bonuses for 2008." On the other hand, 116 banks received bailout funds.

[quote name='Doran Doran' post='1668277' date='Jan 30 2009, 11.11']So Santa One is disappointed his generous handouts of other people's money encountering sticky fingers? Imagine that. Perhaps he'll solve the issue by funneling more of the "stimulus" to ACORN for services rendered.[/quote]

We're talking about the [i]Bush[/i] bailout money here.

[quote name='Ormond' post='1668290' date='Jan 30 2009, 11.22']In a TV appearance that was linked on the Huffington Post the other day, that John Thain character implied that the people getting bonuses in his organization were those who worked in divisions that were still making a profit.[/quote]

Is that his former organization or what? Does he mean Bank of America? Because if he does, yes, that would normally make sense if they were paying those bonuses with [i]their own money[/i] and not [i]ours[/i].


[quote name='palaeologos' post='1668323' date='Jan 30 2009, 11.50']The problem is that a lot of those execs' bonuses are written into their contracts, and they're not necessarily tied to the performance of the company. If their bonuses aren't paid as specified in the contracts, then lawsuits ensue.[/quote]

That's what I'm wondering - how many of those are contractually obligated? And if many of them are, shouldn't a reformation of those contractual agreements been part of the bailout? Even if they had to pass it after the initial bill?

[quote name='UltimateIceQueen' post='1668324' date='Jan 30 2009, 11.50']On the other hand, for all this outrage about firms being bailed out - not every firm was bailed out, and certainly not every department lost money. Why should those who made a lot of money for their companies be denied bonuses just because the other departments had losses.[/quote]

If they didn't receive bailout money, then I don't care. They can exercise their business judgment however they want. But if they did, again, why should [i]we[/i] pay for their bonuses just because their departments made money? That's just crazy talk. It's reverse income distribution. I never thought I'd have to tell conservatives that federal money doesn't just grow on trees.

[Frog Eater]

Guiliani, in an attempt to somehow state these bonuses are good:

[url="http://www.cnn.com/2009/POLITICS/01/30/giuliani.corporate.bonuses/index.html"]http://www.cnn.com/2009/POLITICS/01/30/giu...uses/index.html[/url]

So if I get this right, because these bonuses are good, we should mortgage the future of our nation and reward the executives who fail?

[palaeologos]

[quote name='Frog Eater' post='1668396' date='Jan 30 2009, 10.02']Guiliani, in an attempt to somehow state these bonuses are good:

[url="http://www.cnn.com/2009/POLITICS/01/30/giuliani.corporate.bonuses/index.html"]http://www.cnn.com/2009/POLITICS/01/30/giu...uses/index.html[/url]

So if I get this right, because these bonuses are good, we should mortgage the future of our nation and reward the executives who fail?[/quote]

Giuliani is a lickspittle, obeying his masters' voices and spinning their misdeeds because that's why they pay him.

[Bronn Stone]

Allowing those banks to go bankrupt would have allowed a bankruptcy judge to invalidate many of these contracts with executives. It was one of the things they feared when they forced through the bailout.

But in theory, it SHOULD be possible to genuinely earn a bonus (and a significant one) while losing money - if you lose a lot less money than other similarly-positioned executives. Bonuses SHOULD be tied to performance relative to markets. If you aren't outperforming the overall market in which you are operating, you aren't earning a bonus, IMO.

[Guest Raidne]

[quote name='Bronn Stone' post='1668404' date='Jan 30 2009, 13.09']But in theory, it SHOULD be possible to genuinely earn a bonus (and a significant one) while losing money - if you lose a lot less money than other similarly-positioned executives. Bonuses SHOULD be tied to performance relative to markets. If you aren't outperforming the overall market in which you are operating, you aren't earning a bonus, IMO.[/quote]

So, you are or aren't fine with forking over money out of your paycheck to pay for it?

[Greywolf2375]

[quote name='UltimateIceQueen' post='1668324' date='Jan 30 2009, 11.50']Why should those who made a lot of money for their companies be denied bonuses just because the other departments had losses. Retail brokerage these days is hotter than ever - why should the bonuses be taken away from them?[/quote]

I agree with this to some point - however each time that argument has been posed from one of the "worker bees" - including me - the response has been "WE are losing the money, not just ___ department even though department ___ has made money/reduced expenses/etc".

That's what has me so inflamed about this situation - the projects I (and others) did last year saved the company a nice chunk of money and we always joke, "how come I can't get 1% of what that save was." There's no I in team, but there is in Executive.

[Bronn Stone]

[quote name='Raidne' post='1668410' date='Jan 30 2009, 10.14']So, you are or aren't fine with forking over money out of your paycheck to pay for it?[/quote]

Those banks outperforming the market aren't needing bailouts. Pretty much by definition.

And even in a financial institution needling a bailout, if there were leaders of groups that were outperforming the market overall, I'd not quarrel with a bonus for those leaders. Otherwise, they simply walk to a competitor and the whole bailout collapses.

Either you pay retention bonuses to those who demonstrably exceeded market conditions or you lose them. Those are the only two choices.

[Guest Raidne]

[quote name='Bronn Stone' post='1668416' date='Jan 30 2009, 13.16']Those banks outperforming the market aren't needing bailouts. Pretty much by definition.[/quote]

Oh, I assumed you meant departments that were outperforming the market in addition to overall company performance.

[WhiteQueen]

[quote]If they didn't receive bailout money, then I don't care. They can exercise their business judgment however they want. But if they did, again, why should [i]we[/i] pay for their bonuses just because their departments made money? That's just crazy talk. It's reverse income distribution. I never thought I'd have to tell conservatives that federal money doesn't just grow on trees.[/quote]
I don't know why you think I disagree. I hate the thought that federal money went to the businesses. Government had absolutely no right to interfere with the business - they created more problems - it was like a butterfly effect. If a business fails - then it should not survive, there would be others to come and take it's place. That what happens in a real world - survival of the fittest. In the US the CEO is responsible to the shareholders - the shareholdres elect the board, the board votes on executive compensation. In Germany, a CEO is responsible to the people of Germany - for example Wallmart could not have the stores open for 7 days because Germans won't allow that. In Japan, a CEO is liable to the employees of his company. But we are not in Germany or in Japan. Shareholders voted, the compensation was decided upon. How could it be changed without changing the whole culture, nature of American capitalism, etc? Bailout was a big mistake, and I think we'll see more ill effects of it in the future.

[CloudFlare]

[quote name='Bronn Stone' post='1668416' date='Jan 30 2009, 14.16']Those banks outperforming the market aren't needing bailouts. Pretty much by definition.[/quote]

There aren't any performing banks any more. JPM is the closest to that.

[quote]And even in a financial institution needling a bailout, if there were leaders of groups that were outperforming the market overall, I'd not quarrel with a bonus for those leaders. Otherwise, they simply walk to a competitor and the whole bailout collapses.[/quote]

Let them walk then. Where are they going to walk to though?

[quote]Either you pay retention bonuses to those who demonstrably exceeded market conditions or you lose them. Those are the only two choices.[/quote]

No, we've opted for the third choice, rape the taxpayers and pay money to those that don't deserve it.

Wall Street needs to be taken behind the barn and shot.

[Bronn Stone]

[quote name='KingBread' post='1668442' date='Jan 30 2009, 10.46']There aren't any performing banks any more. JPM is the closest to that.

Let them walk then. Where are they going to walk to though?[/quote]

We are talking about people who are making money. Or if not making money, at the very least managing it in the most prudent fashion possible in a tough market. They are the ones who didn't buy crappo mortgage-based securities. Their clients will remain loyal. If the bailed-out bank is going to survive, it NEEDS them. Because other banks WILL take them.

Most investors accept the idea that there is risk and markets fluctuate. They will stay with an advisor with whom they lose less than the rest of the market is losing during a bear market. And any banker with a full portfolio of reasonably happy clients will find a job wherever they choose to. Even in this market.

[quote name='Raidne' post='1668419' date='Jan 30 2009, 10.20']Oh, I assumed you meant departments that were outperforming the market in addition to overall company performance.[/quote]

Initially I was. Then I edited in the part where I ceased to be. The logic still applies.

Imagine a (simplified) bank with ten departments.

Department 1 engaged in fraud and lost a boatload
Departments 2-5 performed stupidly and lost a boatload to someone else engaged in fraud
Department 6-8 exercised normal prudence and performed at market rates
Department 9 outperformed the market significantly, but still lost a small amount of money in the overall bear market
Department 10 had the sense to bail out of the bull market and short-sell before the bear.

The overall bank situation is a disaster - Department 10's profits and happy customers aren't enough to overcome the failures of the rest. Department 1's leadership should be getting striped suits. Departments 2-5's leaders should be instructed "Beware lest yon portal striketh thy keister as thee departeth". Departments 6-8 are worth keeping, but not rewarding. The overall leadership is responsible for the overall performance and should probably be replaced - perhaps with the leaders of Department 10.

But if you don't reward the leaders of Departments 9 and especially 10 SOMEHOW, those folks will be grabbed up by other banks desperate to replace their own Department 1-5 doofuses (doofi?). And if those folks go, you might as well shutter the doors because no restructuring can possibly succeed without them.

[RWHamel]

[quote name='UltimateIceQueen' post='1668421' date='Jan 30 2009, 11.22']I don't know why you think I disagree. I hate the thought that federal money went to the businesses. Government had absolutely no right to interfere with the business - they created more problems - it was like a butterfly effect. If a business fails - then it should not survive, there would be others to come and take it's place. That what happens in a real world - survival of the fittest. In the US the CEO is responsible to the shareholders - the shareholdres elect the board, the board votes on executive compensation. In Germany, a CEO is responsible to the people of Germany - for example Wallmart could not have the stores open for 7 days because Germans won't allow that. In Japan, a CEO is liable to the employees of his company. But we are not in Germany or in Japan. Shareholders voted, the compensation was decided upon. How could it be changed without changing the whole culture, nature of American capitalism, etc? Bailout was a big mistake, and I think we'll see more ill effects of it in the future.[/quote]

And of course, the argument against this is that when a similar occurrence took place in 1929, and many financial institutions went under, the result was called "The Great Depression". On the other hand, maybe we should embrace you Darwinist view. Obviously, the system is seriously broke.

[CloudFlare]

[quote name='Bronn Stone' post='1668448' date='Jan 30 2009, 14.51']We are talking about people who are making money. Or if not making money, at the very least managing it in the most prudent fashion possible in a tough market. They are the ones who didn't buy crappo mortgage-based securities. Their clients will remain loyal. If the bailed-out bank is going to survive, it NEEDS them. Because other banks WILL take them.[/quote]

Departments are part of a corporation. As the corporation goes, so do all the departments. If this was a normal downturn, w/o government intervention your argument could be valid. It isn't a normal downturn. Organizations taking TARP and other taxpayer money are effectively wards of the state, or should be.

There are certainly auto plants in GM and Ford that are more profitable than others. Do you see any talk of how the government should reward those, instead of the less productive/profitable ones?

Life isn't fair, even for money makers. I've worked for many a company and seen my bonus disappear do to fuckups in the other department.

As to BACand MER, MER is/was effectively BK. Why do they get their bonuses when they are being cut, bigtime, at BAC? That's backwards!

This is all part of a larger trend of how the incentive structure in America has become corrupted. At the top we have over educated and connected elites who have a nasty entitlement mentality. They've really run this country off the rails. It's going to be ugly when the system comes down.

[Frosty]

[quote name='Lyanna Stark' post='1668288' date='Jan 30 2009, 09.20']. Why are these people getting bonuses when the companies are being bailed out by the government?[/quote]


Exactly my sentiments! I just gotta say.......oh hell nevermind!

I got to calm down.

[WhiteQueen]

[quote name='Raidne' post='1668419' date='Jan 30 2009, 13.20']Oh, I assumed you meant departments that were outperforming the market in addition to overall company performance.[/quote]
I actually have a perfect example: Smith Barney is a part of Citi. Citi lost gazzilions of dollars, while Smith Barney and its formidable retail made a lot of money and is a highly profitable business. So, should Smith Barney people get penalized by seeing nothing, even though they worked their asses of all year, just because the bank lost the money. Broker/dealer employees have no interaction with the bank side, if anything they get screwed twice - (1) Vikram Pundit, Citi's CEO, is selling them to Morgan (they should call the new company Citi Morgue, very appropriate) with Morgan Stanley calling all the shots, (2) they carried the bank through the crisis; (3) they get screwed on Citi stock devaluing to almost nothing, and they had all previous years' bonuses paid in the god damned thing; (4) now they are going to get nothing because the bank lost money and they, although, made a lot, are not going to see it as it went to the bank's rescue.
My point being - it's not even a different department - it's a different business, entirely different, but still under the umbrella of a behemoth corp.

[Bronn Stone]

I am not arguing as to whether or not the bailouts were a good idea.

My only point is that if you do the bailouts without the bonuses, the bailouts are doomed to failure. Unless you come up with some other plan AND the successful players (who DO have other choices available to them) accept the alternatives. There are simply some players out there who cannot be told "Take it or leave it" without actually leaving. And the ones worth keeping are the ones most likely to leave. "Take it or leave it" only results in the dregs remaining behind while those with better choices exercise them.

[WhiteQueen]

[quote name='RWHamel' post='1668450' date='Jan 30 2009, 13.54']And of course, the argument against this is that when a similar occurrence took place in 1929, and many financial institutions went under, the result was called "The Great Depression". On the other hand, maybe we should embrace you Darwinist view. Obviously, the system is seriously broke.[/quote]
And? It is not just me but a lot of economists think that the New Deal damaged America. (i could elaborate if anyone is interested). Do we want it to be damaged even further?

[CloudFlare]

[quote name='UltimateIceQueen' post='1668462' date='Jan 30 2009, 15.08']I actually have a perfect example: Smith Barney is a part of Citi. Citi lost gazzilions of dollars, while Smith Barney and its formidable retail made a lot of money and is a highly profitable business. So, should Smith Barney people get penalized by seeing nothing, even though they worked their asses of all year, just because the bank lost the money. Broker/dealer employees have no interaction with the bank side, if anything they get screwed twice - (1) Vikram Pundit, Citi's CEO, is selling them to Morgan (they should call the new company Citi Morgue, very appropriate) with Morgan Stanley calling all the shots, (2) they carried the bank through the crisis; (3) they get screwed on Citi stock devaluing to almost nothing, and they had all previous years' bonuses paid in the god damned thing; (4) now they are going to get nothing because the bank lost money and they, although, made a lot, are not going to see it as it went to the bank's rescue.
My point being - it's not even a different department - it's a different business, entirely different, but still under the umbrella of a behemoth corp.[/quote]

Like it has been said earlier, Citi and Smith Barney can do whatever they want using THEIR money. When the taxpayers are footing the bill, we get upset.

If the SB employees don't like it, they can leave or strike out on their own. Creative destructionism and all that.

Here's a hint though: the future for stock brokers is going to be bleak. The Baby Boomers are going to be withdrawing and moving to safer investments as they retire. With the upcoming depression there isn't going to be nearly as much need for brokers etc.

[quote](2) they carried the bank through the crisis;[/quote]

Yeah, the billions from the Fed and Treasury had nothing, nothing to do with it! It was all the valiant SB employees. Snort.

[quote](3) they get screwed on Citi stock devaluing to almost nothing, and they had all previous years' bonuses paid in the god damned thing;[/quote]

Should have put their bonuses in cash when they signed their employment contacts. Or sold it when they got it. They were greedy though, and expected the stock to go up.

[WhiteQueen]

[quote name='KingBread' post='1668476' date='Jan 30 2009, 14.18']Like it has been said earlier, Citi and Smith Barney can do whatever they want using THEIR money. When the taxpayers are footing the bill, we get upset.[/quote]
Yeah, and they are tax payers, too. Have you thought about that? They probably contributed more to taxes than you ever will.
[quote name='KingBread' post='1668476' date='Jan 30 2009, 14.18']Here's a hint though: the future for stock brokers is going to be bleak. The Baby Boomers are going to be withdrawing and moving to safer investments as they retire. With the upcoming depression there isn't going to be nearly as much need for brokers etc.[/quote]
You are uninformed and are very wrong. Retail sector is hotter than ever and people are making a lot of money these days. Volatility is conducive to money making, all you have to do is just to be on the right side of the market. So I won't be so sure making unsubstantiated predictions if I were you.
[quote name='KingBread' post='1668476' date='Jan 30 2009, 14.18']Yeah, the billions from the Fed and Treasury had nothing, nothing to do with it! It was all the valiant SB employees. Snort.[/quote] Citi stayed afloat when Lehman, Merrill, and AIG went down, before the bailout, before the billions, it had money because of SB.
[quote name='KingBread' post='1668476' date='Jan 30 2009, 14.18']Should have put their bonuses in cash when they signed their employment contacts. Or sold it when they got it. They were greedy though, and expected the stock to go up.[/quote]
Again, you are so obviously uninformed, it is painful to even address it. The stock needs to be vested to be sold, otherwise, they could not sell it. Greed has nothing to do with it - cash is king, everyone would rather have cash, but the company prefers to give parts of bonuses in the stock, which vests based on the years of service (i.e., you stayed with the company for a full year, you could sell 33% of your last year's bonus. If you leave the firm, you forfeit your money). Is it clearer now, or do I also need to ship an introduction course in Finance and Economics to you as well? Or a subscription to a good newspaper, or a magazine? Please let me know, that's the least I could do after getting my bonus hitting my bank account today?

[Guest Raidne]

[quote name='UltimateIceQueen' post='1668421' date='Jan 30 2009, 13.22']In the US the CEO is responsible to the shareholders - the shareholdres elect the board, the board votes on executive compensation. In Germany, a CEO is responsible to the people of Germany - for example Wallmart could not have the stores open for 7 days because Germans won't allow that. In Japan, a CEO is liable to the employees of his company. But we are not in Germany or in Japan. Shareholders voted, the compensation was decided upon. How could it be changed without changing the whole culture, nature of American capitalism, etc? Bailout was a big mistake, and I think we'll see more ill effects of it in the future.[/quote]

I see your point, truly. The default position is that a corporation is responsible to its shareholders. Once in awhile though, the government wants to tinker with business in a way that is thought to be better for the general public, and regulations are enacted that supersede the duty to shareholders, or rather, rewrite the framework in which the business can exercise its judgment as to what is best for the shareholders.

Here, all Congress had to do was make bailouts conditional on certain factors. Like, no bailout money if [i]any[/i] bonuses are paid without Congressional approval for a specified term (which would be however long the bailout was intended to help float the companies, and I surely hope there's some kind of figure for [i]that[/i]). If companies don't want those restrictions, well, nobody's forcing them to take the bailout. We already, like you say, threw off a big chunk of general capitalist rationale by paying it out in the first place, and opting in is strictly voluntary. But I don't think we should throw out the duty to shareholders, even in the short term. Just set regulatory limits, like Congress always does, but for a fixed term, like one year.

And I see Bronn's point about using taxpayer dollars to pay bonuses for well-performing departments, but it still smacks of upside down income redistribution to me. And the job market sucks. Nobody's leaving their job for anywhere for at least six months, especially in the financial sector. They're not going to lose all their talented people right off the bat. And the whole idea behind the bailout was not to have a total and unanimous collapse of the financial system. That's not going to happen because some companies didn't pay bonuses, even if they do lose a bunch of talent. I mean, I'm far from convinced that it's in the best interest of the shareholders, much less the American taxpayer, as I imagine that money was supposed to go toward credit lines or some such instead of bonuses.

[quote name='UltimateIceQueen' post='1668462' date='Jan 30 2009, 14.08']I actually have a perfect example....[/quote]

I feel for them, I do. But everyone paying taxes to pay for their bonuses works really hard too. And they probably make (far) less money than the base salaries of those people.

ETA: I'm going to send your example to my husband though and see what he thinks about it as an HR expert.