Wall Street Bonuses

RECENT NEWS
guardian.co.uk  Oct 21  Comment 
Supermarket group had promised to compensate Dave Lewis for share bonuses amassed during 28-year career at Unilever Tesco is poised to publish the details of its new chief executives multimillion-pound golden hello. When Dave Lewis, below, agreed...
Forbes  Oct 21  Comment 
Some college football coaches can be well-rewarded for their teams' academic achievements, but those bonuses pale in comparison to what they can get from on-field success.
CNNMoney.com  Oct 21  Comment 
The Fed official overseeing Wall Street says things need to change, and if the industry's risky culture isn't turned around, it may be time to break up the big banks. ?
Reuters  Oct 17  Comment 
The top 113 earners among staff at the Federal Reserve's Washington headquarters make an average of $246,506 per year, excluding bonuses and other benefits - more than Fed Chair Janet Yellen and nearly double the normal top government rate.
guardian.co.uk  Oct 16  Comment 
Banks starting to hand out allowances alongside traditional salaries and bonuses ... Continue reading...
Mondo Visione  Oct 15  Comment 
Responding to the European Banking Authorities report on discretionary remuneration practices, a spokesman for the BBA said: “The British banking industry has made great strides in recent years to reform the way in which highly paid staff are...
Clusterstock  Oct 13  Comment 
Why are CEOs paid so well? In part, because they constantly have the opportunity to renegotiate their contracts, which are often heavy on the stock-based bonuses. The work of Jean Tirole, the newest Nobel Prize winner in economics, helps...
guardian.co.uk  Oct 13  Comment 
IDS survey shows rise driven by 44% increase in long-term incentive share awards and 12% boost in bonuses Directors of leading companies have seen their total earnings increase sharply over the last year, according to a report. A study of the...
guardian.co.uk  Oct 12  Comment 
Bond traders at JP Morgan and Citigroup look likely to share the fastest-shrinking bonus pools Now for some cheery news from the banking sector. Bond traders at JP Morgan and Citigroup look likely to share the fastest-shrinking bonus pools on...




 
TOP CONTRIBUTORS

See also Executive Compensation.

The term Wall Street bonuses is generally used to describe the year-end cash bonuses paid to New York City bankers, brokers and traders in December and January.

Calculation

Firms on Wall Street tend to pay bonuses based on a combination of individual, unit and institutional performance. These bonuses usually represent 60% to 80% of an employee's take-home pay. For example, a Director in a Wall Street firm may have a base salary of $200,000 to $300,000, but make another $2.0 million to $10.0 million in year-end bonuses, a portion of which may be in company stock. In general, Wall Street firms pay the highest bonuses to their most successful revenue generators, often referred to as rainmakers.

History

A report issued on 28 January 2009 by the Office of the New York State Comptroller indicated that Wall Street bonuses totaled $18.4 billion in 2008, down 44.1% from $32.9 billion in 2007.[1] Although this reduction marks the largest absolute and percentage decline in more than 30 years, the 2008 bonus pool of $18.4 billion is still the sixth largest on record.[1] The report also indicated that an average Wall Street bonus amounted to $112,020 in 2008, down 36.7% from $177,010 in 2007.[1] While the 2008 pool pales in comparison to bonuses paid in 2005, 2006 and 2007, it is comparable to the 2004 pool of $18.6 billion, paid at a time when the Dow Jones Industrial Average was well above 10,000 points and on its way to a record high.[2]

Total Wall Street Bonuses from 1985 to 2008, Office of the New York State Comptroller
Total Wall Street Bonuses from 1985 to 2008, Office of the New York State Comptroller
Annual Changes in Total Wall Street Bonuses from 1985 to 2008, Office of the New York State Comptroller
Annual Changes in Total Wall Street Bonuses from 1985 to 2008, Office of the New York State Comptroller

Criticisms

On 29 January 2009, President Barack Obama refered to the 2008 bonus pool of $18.4 billion as "shameful" and "the height of irresponsibility".[3] A year ago, there were seven major firms in New York City, namely Bear Sterns, Citigroup, Goldman Sachs, J P Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley.[1] Since then, two have been acquired (Bear Sterns and Merrill Lynch), one failed (Lehman Brothers) and two have converted from independent investment banks to bank holding companies (Goldman Sachs and Morgan Stanley).[1] The remaining firms received sizable cash infusions from the Federal Government's Troubled Assets Relief Program (TARP) even as their mortgage-related losses increased to $55 billion, losses in shareholder value reached $200 billion and employment in New York City's securities industry fell 10.2% from 187,800 in October 2007 to 168,600 in December 2008.[4]

In an interview, Nassim Nicholas Taleb argued that "the current system of asymmetric compensation, in which people are rewarded when they do well and aren’t required to return the rewards when they lose money, is detrimental to society and needs to change".[5] Amid numerous reports of Wall Street excess, such as the $1.2 million that former Merrill Lynch CEO John Thain spent to redecorate his office last year or the $50.0 million business jet that Citigroup (C) had on order until the Treasury stepped in, some shareholders have argued that a fundamental overhaul of Wall Street bonuses is necessary and have called for measure like clawbacks and deferred bonuses.[3] Given that taxpayers have also invested billions of dollars via the TARP to stabilize a number of Wall Street firms, many have argued for greater transparency and accountability in the use of these funds.[2]

Legislation

On 19 March 2009, the House of Representatives voted 328-93 in favor of imposing a 90% tax on bonuses paid to employees with family incomes above $250,000 at AIG and other companies that received at least $5.0 billion in federal bailout funds via programs like the TARP.[6] If approved by the Senate, the Compensation Fairness Act of 2009 would apply to all bonuses issued since 31 December 2008.[7] The vote itself came in the midst of massive outrage surrounding approximately $165 million in bonuses paid to AIG employees, including those at the company's Financial Products unit whose misplaced bets on credit default swaps and other collateralized debt obligations almost caused AIG's collapse. Till date, AIG has received $182.5 billion in federal bailout money and is now 80% government owned.[6]

See the Senate proposal on the Compensation Fairness Act of 2009 here.

References

  1. 1.0 1.1 1.2 1.3 1.4 Wall Street Bonuses Fell 44% in 2008, Office of the New York State Comptroller
  2. 2.0 2.1 What Red Ink? Wall Street Paid Hefty Bonuses, The New York Times
  3. 3.0 3.1 Obama Blasts Wall Street Bonuses, BusinessWeek
  4. The Bonuses Keep Coming, The Washington Post
  5. Wall Street Bonuses May Go Way Of Dodo Amid Bailouts, Bloomberg
  6. 6.0 6.1 House Passes Bill Taxing Fat AIG And Other Bonuses, BusinessWeek
  7. Bonus Tax Heads To Senate After House Passes 90% Levy, Bloomberg
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki