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Wall Street banks in $70bn staff payout: Pay and bonus deals equivalent to 10% of US government bail-out package


Ohanian Comment: Here
is the corporate version of merit pay."For a
normal person the salaries are very high and
the bonuses seem even higher. But in this world
you get a top bonus for top performance, a
medium bonus for mediocre performance and a
much smaller bonus if you don't do so well."
This world means, of course, the
corporate world of the Fortune 500, the world
to which both Republicans and Democrats are
beholden up past their eyeballs.


By Simon Bowers

Financial workers at Wall Street's top banks
are to receive pay deals worth more than $70bn
(£40bn), a substantial proportion of which is
expected to be paid in discretionary bonuses,
for their work so far this year - despite
plunging the global financial system into its
worst crisis since the 1929 stock market crash,
the Guardian has learned.

Staff at six banks including Goldman Sachs and
Citigroup are in line to pick up the payouts
despite being the beneficiaries of a $700bn
bail-out from the US government that has
already prompted criticism. The government's
cash has been poured in on the condition that
excessive executive pay would be curbed.

Pay plans for bankers have been disclosed in
recent corporate statements. Pressure on the US
firms to review preparations for annual bonuses
increased yesterday when Germany's Deutsche
Bank said many of its leading traders would
join Josef Ackermann, its chief executive, in
waiving millions of euros in annual payouts.

The sums that continue to be spent by Wall
Street firms on payroll, payoffs and, most
controversially, bonuses appear to bear no
relation to the losses incurred by investors in
the banks. Shares in Citigroup and Goldman
Sachs have declined by more than 45% since the
start of the year. Merrill Lynch and Morgan
Stanley have fallen by more than 60%. JP
MorganChase fell 6.4% and Lehman Brothers has
collapsed.

At one point last week the Morgan Stanley
$10.7bn pay pot for the year to date was
greater than the entire stock market value of
the business. In effect, staff, on receiving
their remuneration, could club together and buy
the bank.

In the first nine months of the year Citigroup,
which employs thousands of staff in the UK,
accrued $25.9bn for salaries and bonuses, an
increase on the previous year of 4%. Earlier
this week the bank accepted a $25bn investment
by the US government as part of its bail-out
plan.

At Goldman Sachs the figure was $11.4bn, Morgan
Stanley $10.73bn, JP Morgan $6.53bn and Merrill
Lynch $11.7bn. At Merrill, which was on the
point of going bust last month before being
taken over by Bank of America, the total
accrued in the last quarter grew 76% to
$3.49bn. At Morgan Stanley, the amount put
aside for staff compensation also grew in the
last quarter to the end of August by 3% to
$3.7bn.

Days before it collapsed into bankruptcy
protection a month ago Lehman Brothers revealed
$6.12bn of staff pay plans in its corporate
filings. These payouts, the bank insisted, were
justified despite net revenue collapsing from
$14.9bn to a net outgoing of $64m.

None of the banks the Guardian contacted
wished to comment on the record about their pay
plans. But behind the scenes, one source said:
"For a normal person the salaries are very high
and the bonuses seem even higher. But in this
world you get a top bonus for top performance,
a medium bonus for mediocre performance and a
much smaller bonus if you don't do so well."

Many critics of investment banks have
questioned why firms continue to siphon off
billions of dollars of bank earnings into bonus
pools rather than using the funds to shore up
the capital position of the crisis-stricken
institutions. One source said: "That's a fair
question - and it may well be that by the end
of the year the banks start review the
situation."

Much of the anger about investment banking
bonuses has focused on boardroom executives
such as former Lehman boss Dick Fuld, who was
paid $485m in salary, bonuses and options
between 2000 and 2007.

Last year Merrill Lynch's chairman Stan O'Neal
retired after announcing losses of $8bn, taking
a final pay deal worth $161m. Citigroup boss
Chuck Prince left last year with a $38m in
bonuses, shares and options after multibillion-
dollar write-downs. In Britain, Bob Diamond,
Barclays president, is one of the few
investment bankers whose pay is public. Last
year he received a salary of £250,000, but his
total pay, including bonuses, reached £36m.


— Simon Bowers
The Guardian

2008-10-18


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