Corporate Governance

From the Pages of The Pomerantz Monitor: The Party Continues on Wall Street

By Carolyn Moskowitz

As Shaheen Rushd reports in the September/October issue of The Pomerantz Monitor, analysts and public officials have blamed the near-collapse of the financial system in large part on excessive pay, both its outsized amount and the fact that short-term risk-taking was rewarded. Despite the public outcry, it is business as usual at the country?s biggest corporations, including those that were bailed out with taxpayer money. The pay frenzy continues.

According to a recent report by the Institute for Policy Studies: ?The 20 U.S. financial firms that have received the most bailout dollars from taxpayers awarded their top five executive officers, in the three years through 2008, pay packages worth a combined $3.2 billion. These 100 financial executives . . . averaged $32 million each. One hundred U.S. workers making the 2008 average wage would have to labor over 1,000 years to make as much as these 100 executives.?

New York Attorney General Cuomo has uncovered even more shocking facts ? nine banks that received bailout money paid an astounding $33 billion in bonuses for 2008. These same nine banks had combined 2008 losses of almost $100 billion. The banks set aside a higher percentage of their revenues for compensation in 2008 than in 2007: 45% in 2008 from 41% the year before. Where is the link between compensation and performance? Significantly, despite the fact that short-term risk-taking was a big cause of the financial meltdown, the NYT reports that a study by James F. Reda & Associates of the 200 largest U.S. companies reveals that they have made ?short-term incentives a bigger component of compensation.?  

Don?t expect restraint any time soon. Goldman Sachs, a bailout recipient, has already set aside a whopping $11 billion for this year?s payouts, and Morgan Stanley is not far behind ($6 billion).  Executives are also poised to receive windfalls because, as the Institute of Policy Studies Report finds, ?firms lavished new stock awards on their executives earlier this year, as share prices hit bottom, and these awards ? thanks to the bailout ? have inflated in value.?  

Full post as published by PomTalk on November 12, 2009 (boomark / email).