Wall Street bonuses are getting a bad rap

Sunday, February 8, 2009, 1:21 AM | Leave Comment

There is an article “Greed is good” in Wall Street Journal – online – by Roy C. Smith published on February 7, 2009. Roy C. Smith is a professor of finance at New York University’s Stern School of Business, and a former partner of Goldman Sachs.

The author has vigorously justified the exuberant pay, bonuses and perks that have been lavished upon executives on Wall Street, mostly banks and investment institutions.

He states that bonuses are an important and necessary part of the fast-moving, high-pressure industry, and its employees flourish with strong performance incentives.

In another article on WSJ online by Aaron Task, published on Jan 29, 2009 with the heading “Wall Street’s $18.4B Bonus: ‘Sense of Entitlement Has Not Been Beaten Out'”, the author states that the rationale that “bonuses must be paid or we’ll lose our best people” doesn’t hold water when everybody on Wall Street is suffering and cutting back.

Similarly, the idea “there are separate pools of capital for bonuses vs. lending” doesn’t hold water when Wall Street CEOs say “money is fungible” as a way of explaining why they can’t track Troubled Assets Relief Program (TARP) funds.

Who are their best employees that they are so worried about and that they are obligated to give them such exuberant bonuses? They are the ones who made bad decisions in the first place and that their companies are losing money. Many of the companies have gone under.

Even after “slashing” their dividends to a penny per share each, Citigroup and Bank of America are set to collectively pay approximately $425 million in dividends this year and that is TARP money.

Moral of the story
If you are an employee of a company and your performance is just super, enough that you are contributing to the top and bottom lines, then your bonus can be justified.

But when the company is losing money, laying off employees and is almost going under, no employee whomsoever, on any level, can be entitled to receive bonuses and perks of any kind.

The anger at Wall Street grew at the news that Merrill Lynch, after reporting $15 billion of losses, had rushed to pay $4 billion in bonuses on the eve of its merger with Bank of America, especially when its coming from TARP money.

I guess with TARP money, John Thain’s spending over $1 million to redecorate his office, understandably provoked a blast of public outrage against Wall Street.

What do you think?

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