Wall Street Returns to Controversial Practice of Guaranteed Bonuses

August 10, 2009

(ChattahBox)—With Wall Street profits making a rebound, many banks have resumed the controversial practice of offering guaranteed multimillion-dollar bonuses to top executives that are not tied to performance, according to a recent piece in the New York Times.

Some analysts are concerned this practice of runaway bonus pay could set the stage for another round of financial losses for banks, in the wake of another market turn down.

As banks scramble to obtain top trading talent, they are increasingly offering employees guaranteed bonuses in the millions, regardless of the financial performance of the employee or the bank. Even banks that are the recipient of TARP bailout funds, have returned to paying out guaranteed bonuses, albeit on a smaller scale than last year.

Banks that have paid back TARP funds to the government, such as Goldman Sachs, JPMorgan Chase and Morgan Stanley are free to run wild paying out guaranteed bonuses. Other banks still in receipt of bailout funds, must answer to Kenneth Feinberg, the White House appointed pay czar. Feinberg is poised to review the compensation plans of seven banks receiving two or more federal bailouts.

The banks are required to submit compensation plans for their top 25 earners by Thursday. Feinberg is empowered to adjust the pay of individual employees in the top group. The banks then are required to submit the compensation plans of the next 75 highest earners to Feinberg. The pay czar has the authority to make across the board changes to compensation of the second tier of employees, but not on an individual basis.

Among the bailout banks, Citigroup, Bank of America, A.I.G. and GMAC have returned to offering guaranteed bonuses to keep and obtain top talent. Banks receiving bailout funds claim they must operate at a disadvantage, because banks not constrained by Fed compensation rules can lure away their top employees with multi-million dollar guaranteed bonuses.

None of the top traders at any of the Wall Street banks are suffering. Andrew J. Hall, a top trader with Citigroup, has been promised a compensation package worth $100 million, which the White House pay czar will be reviewing in the upcoming weeks, to decide if the amount is subject to reduction.


One Response to “Wall Street Returns to Controversial Practice of Guaranteed Bonuses”

  1. mortgage leads on August 11th, 2009 12:42 pm

    Offering huge Bonus to the staff was the problem that triggered economic problem. The Financial services do not seem to have learned their lesson. You must use the hard times to learn a lot of things. At the times when Government is spending a lot of money to resurrect the companies , these companies are spending a lot on themselves.

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