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"One thing is clear from this investigation to date: there is no rhyme or reason to the way banks compensate and reward their employees," the report aptly titled "No Rhyme or Reason: The 'Heads I Win, Tails You Lose' Bank Bonus Culture," says. The report surmises that the compensation system for the American banking system is broken. Financial institutions awarded huge bonuses at a time when these same banks were losing millions, even billions. Cuomo's office points out glaring problems, including the case of paying out more in bonuses at Goldman Sachs Group Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and J.P. Morgan Chase & Co. (NYSE:JPM) in 2008 than the amount of profits those banks took in for the entire year. Specifically, Morgan Stanley earned $1.7 billion, paid $4.475 billion in bonuses and received $10 billion in TARP funding. Meanwhile, J.P. Morgan Chase earned $5.6 billion, doled out $8.69 billion in bonuses and received $25 billion in TARP funding. Lastly, Goldman earned $2.3 billion, awarded $4.8 billion in bonuses and took $10 billion in TARP funding. While these numbers sound extreme, Cuomo's report found faults in the banking compensation system all too common. The result, of course, is that these banks are still suffering to varying degrees, with big bonuses carrying big stigmas. Meanwhile, the compensation system still needs fixing. - Gerald Magpily
CategoriesComments
From: John Gorman,
Can anyone explain to me why the Board of directors can not be held personnal responcible for allowing a bonus payout in excess of profit earnings.
Posted on:
July 30, 2009 4:06 PM
From: John Brownlee,
RE: John Gorman's question above In many cases, directors are indeed held personally liable for the actions -- evenir over and above what might be covered under the D&O insurance! The classic case is in Delaware's Supreme Court, Smith v. Van Gorkam I think is the citation. So yes, in some circumstances directors are precisely held liable to their shareholders, especially in cases where they did not appraise themselves of the facts needed to support or deny a payout. Bing's due-dil book has a good section on this I recall from school days. You're right on the money though, anyone on the compensation committee should be pitching kittens on the floor at the thought of that kind of liability in a shareholder suit. Food animal stupidity at its worst.
Posted on:
July 30, 2009 5:16 PM
From: Joe Stafura,
This may be an opportunity to invoke the RICO act. The banks opened the door when they put out their hands, so now let's take those hands and start cuffing some folks. For a company to pay more in bonuses than they earn is clearly a sign of a scam, another Madoff type investigation will show that the banks went public so they could get to money that had no business being involved in CDO's and MBS's. It is simple, pass a one time windfall tax on the banks that took TARP equal to the ultimate cost of the bailout. Until that obligation is fulfilled the banks pay NO bonuses. As for the comment on Government incompetence, no one has been more corrupt or incompetent than the banking industry.
Posted on:
July 30, 2009 6:10 PM
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It took New York Attorney General Andrew Cuomo and his office nearly nine months to reach a conclusion released Thursday that any average Joe on Main Street could have told him in a second. 
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Government Capping Compensation?
The government is not improving the lot of shareholders, but is escalating its own intrusion into the boardrooms of America.
http://pacificgatepost.blogspot.com/2009/07/government-capping-compensation.html
Sweeping expansion of government incompetence into corporations is an invasion that will not be reversed. In the meantime, there is need for a fix in the process of corporate governance.