The Shareholder ForumTM


"Say on Pay" Proposals

Forum Home Page

"Say on Pay" Home Page

Program Reference


Bloomberg, October 30, 2008 article


Wall Street Won't Surrender Bonuses Amid Outcry, Veterans Say

By Christine Harper

Oct. 30 (Bloomberg) -- Wall Street's chief executives will hunker down and pay bonuses this year in the face of the worst financial crisis since the Great Depression, a taxpayer bailout and mounting political outcry, industry veterans say.

Odds that Wall Street will forgo the payouts are ``slim to none,'' said John Gutfreund, 79, president of New York-based Gutfreund & Co. and the former chief executive officer of Salomon Brothers Inc. ``They're going to have to be a little bit sensitive because politicians, whether they like it or not, are part of their lives now.''

Year-end payments at the nine banks that received $125 billion from the U.S. Treasury are under investigation by U.S. Representative Henry Waxman and New York Attorney General Andrew Cuomo, who are demanding details on companies' compensation plans. Three of the firms, Goldman Sachs Group Inc., Morgan Stanley and Merrill Lynch & Co., have already set aside $20 billion to pay bonuses this year.

The payouts typically account for about two-thirds of compensation at the biggest Wall Street firms. The bonuses are accrued throughout the year in line with revenue.

``Financial institutions that have accepted federal assistance should be required to face consequences from their earlier bad decisions and cancel those bonuses,'' Senator Olympia Snowe, a Maine Republican, said in a statement on Oct. 28.

Few of the nine companies receiving money from the U.S. Treasury are performing well this year. Only Well Fargo & Co. has a higher share price, up 6 percent this year, with the rest showing declines ranging from 18 percent at JPMorgan Chase & Co. to 72 percent at Morgan Stanley. State Street Corp. is the only firm to report increased profits. Merrill Lynch has reported five straight quarterly losses.

`Bonus Season'

``The public pressure might mitigate against bonuses at the levels we've seen recently and that's in sync with the economic issues,'' said Fred Joseph, 71, co-head of Morgan Joseph & Co. in New York and the former CEO of Drexel Burnham Lambert Inc. ``There will be bonuses this year, but I think they may be reduced by a larger percentage.''

Waxman, a California Democrat and chairman of the House Committee on Oversight and Government Reform, sent letters on Oct. 28 to the nine banks that are receiving money in the U.S. Treasury's capital purchase program requesting details of their compensation plans.

Cuomo sent letters yesterday to the nine companies requesting detailed accounting of expected payments to top executives in the ``upcoming bonus season,'' including information on the expected bonus pool for this year.

House Speaker Nancy Pelosi of California and Senate Majority Leader Harry Reid of Nevada, both Democrats, urged Treasury Secretary Henry Paulson to put restrictions on severance pay for executives that participate in the bailout.


The nine companies receiving the initial $125 billion from the Trouble Asset Relief Program, of TARP, are Goldman Sachs, Morgan Stanley, Merrill Lynch, Citigroup Inc., JPMorgan, Wells Fargo, Bank of America Corp., Bank of New York Mellon Corp. and State Street.

``Wall Street bank executives are set to walk away with billions of bonuses at the end of this year,'' Barack Obama, the Democratic presidential candidate, said in a campaign speech on Oct. 28. ``We call that an outrage.''

Citigroup, in an e-mailed statement, said it will cooperate with ``federal and state inquiries about our global expenditures for wages, health insurance and other benefits, which we believe reflect compensation best practices.''

The New York-based bank said it will also adhere to constraints on executive pay imposed under TARP. Spokespeople for the other firms targeted by Waxman and Cuomo either declined to comment yesterday or said they will cooperate with the inquiries.

`Serious Exodus'

John McCain, Obama's Republican opponent, told supporters in Miami yesterday that ``I'm going to make sure we take care of the working people who were devastated by the excesses, greed and corruption of Wall Street and Washington.''

Joseph, the former Drexel CEO, said companies that don't pay bonuses risk losing employees who are unwilling to settle for salaries. Salaries in the industry range from about $80,000 to $600,000 a year.

``A lot of guys wouldn't want to work this hard just for salaries,'' he said. ``You'd have a serious exodus from the business by a lot of really talented people -- they'd become CFOs of companies, go to firms that didn't participate in the TARP program, go to hedge funds, or start hedge funds.''

Gutfreund, the former Salomon CEO, said Wall Street executives are likely to find ways to pay bonuses and manage the political uproar.

``I'm sure there are creative ways,'' he said. ``There are all kinds of devices to cover yourself in terms of paying people.''

To contact the reporter on this story: Christine Harper in New York at

Last Updated: October 30, 2008 00:01 EDT





This Forum program is open, free of charge, to anyone concerned with investor interests relating to shareholder advisory voting on executive compensation, referred to by activists as "Say on Pay." As stated in the posted Conditions of Participation, the Forum's purpose is to provide decision-makers with access to information and a free exchange of views on the issues presented in the program's Forum Summary. Each participant is expected to make independent use of information obtained through the Forum, subject to the privacy rights of other participants.  It is a Forum rule that participants will not be identified or quoted without their explicit permission.

The organization of this Forum program was supported by Sibson Consulting to address issues relevant to broad public interests in marketplace practices, rather than investor decisions relating to only a single company. The Forum may therefore invite program support of several companies that can provide both expertise and examples of performance leadership relating to the issues being addressed.

Inquiries about this Forum program and requests to be included in its distribution list may be addressed to

The information provided to Forum participants is intended for their private reference, and permission has not been granted for the republishing of any copyrighted material. The material presented on this web site is the responsibility of Gary Lutin, as chairman of the Shareholder Forum.