Banks seek loopholes on executive pay and bonuses
Mar 17th 2009 10:00AM
Updated Dec 4th 2009 11:13AM
You would think that by now big banks would understand the outrage from the public regarding their big bonuses and paychecks. The public just can't understand how executives who lost so much money and brought the American economy to its knees still deserve their bonuses.
Now we learn that some big banks are trying to find loopholes to the bonus restrictions the Obama Administration is expected to place on banks that take bailout funds. Some banks are talking about increasing base sales for some executives and top producing employees, to offset the bonus losses. Before deciding exactly what they are going to do the banks are waiting for the official rules to be sure they are sidestepping the new rules appropriately.
Most Wall Street traders earn a base salary ranging from $200,000 for managing directors to $1.5 million for a chief executive, according to the Wall Street Journal. But most of their pay comes from bonuses on top of that base salary. This tradition of bonuses date back to when these firms were partnerships and the partners shared the annual income of the firm.
Banks fear if they must cut bonuses and don't raise salaries than they would lose their top performers to someone else who can offer them a higher pay package. But, given the lean times the banks are facing and the numbers of financial employees now on the unemployment line is that a realistic fear? I doubt it.
Some compensation experts think that limiting bonuses reverses a long trend toward pay for performance. "These are not bureaucratic positions where you're paying individuals high salaries. How can you pay a banker a really high salary without knowing what kind of revenue that person generates?" Michael Karp, chief executive of Options Group told the Journal.
The Treasury department expects to issue its guidelines on pay at banks that took bailout funds by the end of March. Maybe the good news is that if banks find the pay restrictions unworkable they'll find a way to pay back the government faster. That would be a lot better use of the money than paying million dollar bonuses. Once they pay back they government they can do whatever they want with their money, as long as their shareholders agree.
Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.