Bankers' Bonuses Beat Earnings as Industry Imploded
Friday, July 31, 2009
NEW YORK, July 30 -- The nation's nine largest banks handed out $32.6 billion in bonuses last year even as they ran up more than $81 billion in losses and accepted billions of dollars in emergency federal aid, New York Attorney General Andrew M. Cuomo says in a report released Thursday.
Cuomo's investigation into pay practices at Wall Street's largest firms found that nearly 4,800 executives and other employees were each awarded at least $1 million. Of those, more than 900 worked for Bank of America and Citigroup, which have been among the largest recipients of government bailout funds.
This latest report about Wall Street bonuses turned up the heat on lawmakers and regulators, who have been weighing how to rein in compensation practices that banking executives themselves admit contributed to the worst financial crisis in decades. The House is set to vote Friday on legislation that would give regulators authority to prohibit pay practices that they deem inappropriate and grant shareholders the right to cast non-binding votes on executive compensation.
Shortly after Cuomo released his findings, Rep. Edolphus Towns (D-N.Y.), chairman of the House Oversight and Government Reform Committee, announced a hearing to examine pay practices, particularly at companies rescued by the federal government.
"A few months ago, they were facing bankruptcy. Then, after being bailed out, they're giving huge bonuses," Towns said. "I think the American people need some answers. With the economy being the way it is, and people suffering . . . how do you still do that?"
Facing the prospect of greater government oversight, some of the biggest banks have been taking steps since late last year to restructure pay incentives as a way of keeping Washington at bay while avoiding some of the business practices that led to the financial sector's tremendous losses.
Several firms have adopted a clawback policy that allows them to reclaim bonuses if corporate or individual business decisions turn out to be costly or improper. Other firms have extended the number of years that employees have to wait before cashing in on stock awards. Still others are discussing ways to further link compensation to long-term performance.
But some prominent pay experts and investor groups question whether the measures go far enough or if any of the more ambitious proposals will ever be implemented.
"The details of design in many cases still fall short of what is necessary," said Lucian Bebchuk, a Harvard law professor who has met with Obama administration officials to discuss pay principles. "There is substantial distance we need to go before we have effective tying of pay with long-term results."
Lawmakers in Washington also are skeptical and are moving ahead with legislation that would tighten restrictions on pay.
"If I thought they were enough, why would we pass the bill?" said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who sponsored the legislation. He said the restrictions should be uniform across companies, adding that he doubted firms would be restructuring pay practices if Congress wasn't moving ahead with legislation.
The bill embodies broad compensation principles similar to those outlined last month by Treasury Secretary Timothy F. Geithner, and its adoption would represent a victory for the Obama administration. The Senate is expected to take up the measure after the August recess.