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November 18, 2009

Back to a Bonus Bonanza

By Spear's

It’s no wonder that the American people are furious, says Rob Cox: bonuses are back and bigger than ever

DUDE, WHERE’S MY bonus? That pretty much sums up the anxiety infecting the discredited masses of Wall Street this past summer. From the shores of the Potomac to the hedgerows of East Hampton and right on up to the marinas of Nantucket Sound, no subject more riveted the financial set than discussion of whether — not how much — the annual entitlement known as the bonus would come.

The reason for so much apprehension was glaringly obvious. For politicians, vilification of the Wall Street bonus has been the gift that keeps on giving. A year after the collapse of Lehman Brothers compelled the United States government to inject trillions of dollars into banks, brokerages and capital markets to keep the system afloat, the sight of thousands of executives at the very firms that taxpayer money kept alive raking in the big bucks again has proven too much for the average American to take.

The favoured whipping boy, of course, was Goldman Sachs & Co. Though the firm never faced a bank-run like the one that brought down Lehman, left American International Group, Citigroup and Bank of America on their knees and at the mercy of the federal government, it certainly benefited from the overall rescue that authorities cobbled together. Goldman also took $10 billion of capital from the Treasury’s Troubled Asset Relief Programme late last year, which it was admittedly obliged to receive.

So it is easy to see how a politician could effectively mine Goldman’s ability to reap a profit in this dank first half of the year — when unemployment has spiked to levels not seen since the early 1980s. In the second quarter alone, Goldman had a record 46 trading days when it made $100 million or more. And for the first half, one of the worst periods in the history of finance, Goldman managed to squirrel away $11.4 billion in accrued compensation and benefits — that’s more acorns than it put aside in the first half of the boom years of 2006 and 2007. It works out to $386,000 for six months’ work averaged across every banker, trader, mailman and janitor at the firm.

Other banks have set aside similarly staggering amounts of bonus to pay their people, including some who have made substantially less hay from all the turmoil than Goldman. The consequence of seeing all these banks — that in the general public’s eyes effectively caused the financial crisis — setting aside billions of dollars to pay bonuses this year has been something of a witch hunt among ambitious legislators.

IN MID-JUNE, President Obama himself hired Kenneth Feinberg as pay czar, or Special Master for Compensation. In Congress, senators and representatives kept up their steady drum beat against paying workers in the financial industry. Even state attorneys general got into the act.

Ironically, however, all this Wall Street bashing has arguably added to the industry’s allure for the best and brightest emanating from America’s top schools.

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It is no longer a secret anywhere in the country that there is no industry anywhere that offers so quick a path to riches as the finance business. This has long been clear within the halls of, say, Harvard Business School or in the salons of Manhattan. Now, thanks to politicians trying to stoke populist anger, it is an accepted fact on Main Street.

Funny thing is, that is a direct result of some high-profile attempts to tear down the bonus culture. Take the report New York attorney general Andrew Cuomo unveiled with great fanfare in late July, entitled ‘No Rhyme or Reason: The “Heads I Win, Tails You Lose” Bank Bonus Culture’.

Cuomo wouldn’t want to be regarded as an enabler of the get-rich-quick club. But his report did just that by including a count of employees at each of the nine biggest commercial and investment banks in America who made $1 million or more, $2 million or more and so on in bonus last year.

In so doing, Cuomo provided a rare tip sheet to the best path to riches in finance. The report revealed the odds of becoming rich are better at, say, JPMorgan than Bank of America. The New York bank led by Jamie Dimon paid 1,626 staffers $1 million or more. BofA, the bank that acquired Merrills and which employs more people, paid just 172 employees that much.

And for those who think million-dollar bonuses are for hoi polloi, it helps to know that the chances of receiving $8 million or more a year are double at JPMorgan, where 27 individuals feasted on them, than they are at Citigroup, where only 13 lucky employees walked away with an eight-ball — or even Goldman Sachs, where 21 did, though the firm’s smaller overall size makes it the odds-on favourite for aspiring multi-millionaires. Cuomo may hate the prospect of up-and-coming Wall Streeters benefitting from his research. But at least he now knows where to look for campaign contributions.

Illustration by Giovanni Da Re

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