In case you had any doubts about the propriety of Merrill’s 2008 pay packages, this Wall Street Journal story on the continuing slugfest between Merrill’s former CEO John Thain and Bank of America’s chief Ken Lewis should put any doubts to rest:
According to a securities filing last week, Merrill’s overall compensation and benefit expenses were down by 5.7%, to $15 billion in the year ended Dec. 26, from $15.9 billion a year earlier. The average Merrill employee got $247,423 in compensation and benefits in 2008, down just slightly from 2007.
By contrast, Bank of America employees got $75,577 in average compensation and benefits in 2008, down from $89,420 in 2007.
The gap in pay between commercial bankers and investment bankers is one of the biggest sources of friction, but the fact that far less handsomely paid workers took far bigger hits is rubbing salt into an open wound.
Thain defended the Merrill pay levels by saying the discretionary bonus pool fell 41% last year. Hhm, that would seem to imply that during his tenure, there was a much higher proportion of staff with “fixed” compensation levels, meaning guaranteed bonuses. It appears that Thain and his hires shifted average comp significantly (as in skewed it considerably from what it would otherwise have been).
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Is this not what used to called a “hold up” aka “stick up your hands, or I’ll shoot”? Apart from breaking up all banks that seem to be TBTF, the IRS could take a really close look at all suspect bankers tax affairs and even using the Bush laws on homeland security on the basis that the bandits have done more than any so called terrorists could dream of to bring down the USA. I’m serious.
don’t forget that the high number of firings in 2008 would also have reduced the overall discretionary pool, even though average comp hardly budged.
On the subject of bankster pay, here’s what an opinion piece in this morning’s NY Times had to say:
Without those bonuses, firms simply couldn’t attract the best and brightest and certainly couldn’t get 100-hour work weeks out of them. And when profit is created through ingenuity and hard work, it deserves to be rewarded handsomely — that is the American way.
http://www.nytimes.com/2009/01/27/opinion/27krasne.html?ref=opinion
I wonder what talent Krasne is talking about? The talent to convince investors there is little risk in financial products that are replete with risk? Or the ability to schmooze and hoodwink regulators and politicians–insuring the golden era of bailouts and protective bubbles that these prima donnas operate in would never came to an end?
Krasne is living proof that the neoclassical Disneyland is still alive and well in America.
With respect to NYT article talking about 100 hour work week. If they would only had worked a normal 37.5 hours, losses would have been less than half. Can’t believe these idiots were doing overtime to run the company to the ground.
Merrill is likely trying to prevent a "run" by it's high-net worth clients through compensation guarantees to key advisers and brokers, don't you think? Had a number of them taken their business elsewhere, I suspect you could have had the same "overnight insolvency" we saw with Bear & Lehman.
Not that I advocate tax dollars for this purpose, natch.
1. “…the fact that far less handsomely paid workers took far bigger hits is rubbing salt into an open wound.”
Oh is it? Didn’t BofA absorb Countrywide in 2008? You sound pretty confident that the 50,000 or so Countrywide employees who joined the BofA average comp calculation in 2008 (raising BofA’s overall headcount 25% or so) didn’t “SKEW” the y/y comparison…
Either you’re pretty confident, or PRETTY OBLIVIOUS – hence unqualified to post on the subject. (My money’s on the latter.)
2. “…that would seem to imply that during (Thain’s) tenure, there was a much higher proportion of staff with “fixed” compensation levels, meaning guaranteed bonuses. It appears that Thain and his hires shifted average comp significantly”
And isn’t that what you and your ilk have been urging from the beginning? Shifting to a system that emphasizes fixed pay (equivalent to base), and less in the form of bonuses?
So, which is it? Which do you want? Or do you find it too great a challenge to make up your little mind?
What’s more – independent of the broker-retention issue cited (with good reason) by an earlier commenter, there’s also the fact that Merrill swept out its old management around the beginning of 2008. Given the firm was in trouble then and several top people (MANY FROM GOLDMAN SACHS) had to be brought in by Thain at the outset, what would you have done? Guarantees sound like wise policy to me, in those circumstances. What’s your alternative?
Reality (or shall I say Fantasy),
Oh, ad hominems attack big time, so I feel justified in engaging in a bit of my own: you have all the hallmarks of being an angry industry shill.
Your argument re the need for fixed bonuses is rubbish. The “talent” Thain brought in didn’t perform, hence the bonuses were a waste. The idea that “talent” is scarce is a myth promoted to keep pay scales inflated. Just about every study every done of HR practices says hiring practices do a dreadful job of identifying who might be good for a particular role. There are plenty of good people who retired early (voluntarily) or were forced out due to being with the wrong camp in deals (among many examples) who could have filled these Merrill roles at vastly lower cost, and it is almost impossible to imagine they could have done a worse job. But just as with his office, Thain went for the top of the market, brand options.
Second, “average employees” in SEC filings is a weighted average for the year. I would assume that is what the WSJ used, not year end. You make unwarranted assumptions and your vitriol is completely unjustified.
But it’s obvious you have an ideological bias, so no surprise you’d interpret data to fit your thesis. And I have NO doubt whether the computation of the WSJ figures is accurate to the dollar, that it is directionally correct. The article contends that BAC employees were unhappy because they took pay cuts. There is narrative information that is consistent with the data presented.
on what blog is the serious discussion about how comp in finance should be reformed? certainly not here. clearly there are huge issues that need to be addressed.
oh, and i think that guarantees were the likely culprit at ML, and it was probably a lot of the new people brought in at the start of 2008 that got them. they were trying (for the Nth time) to rebuild from within.
people i know at ML got very shit bonuses for 2008.
that being said, if you are fighting for your solvency and accepting government funds the government should be able to force down their collective throat some sort of cost restructuring.