New York Attorney General Andrew Cuomo released a report today on the compensation practices of the banking industry. The title says it all: “No Rhyme or Reason: The ‘Heads I Win, Tails You Lose’ Bank Bonus Culture.”
In the report, Cuomo says his office has been looking into the “causes” of the economic downturn and as part of that review, examining the compensation structures of various banks and firms. But his focus is on the nine original TARP recipient financial firms—Bank of America, Bank of New York Mellon, Citi, Goldman Sachs, J.P Morgan, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo—and some come out looking much better than others.
Here’s a snippet from the report:
“…one thing is clear from the investigation to date: there is no clear rhyme or reason to the way banks compensate and reward their employees…In many ways the past three years have provided a virtual laboratory in which to test the hypothesis that compensation in the financial industry was performance-based...but…when the banks did poorly, their employees were paid well. And when the banks did very poorly, they were bailed out by the taxpayers and their employees were still paid well…An analysis of the 2008 bonuses and earning at the original nine TARP recipients illustrates the point. Two firms, Citigroup and Merrill Lynch suffered massive losses of more than $27 billion at each firm. Nevertheless, Citigroup paid out $5.33 billion in bonuses and Merrill paid $3.6 billion in bonuses. Together, they lost $54 billion, paid out nearly $9 billion in bonuses and then received TARP bailouts totaling $55 billion.”
The report comes two days after the House Financial Services Committee voted 40-28 to approve H.R.3269, the Corporate and Financial Institution Compensation Fairness Act. The bill would allow banking agencies and the Securities and Exchange Commission to bar compensation practices that push financial companies to take “inappropriate risks” and would give shareholders an annual—but non-binding—vote on salary and bonuses for top executives. No Republicans voted for the bill, arguing it was tantamount to government setting pay.
The House and Senate must pass the bill before the president could sign it into law. The House may vote as early as Friday.