Executive Compensation and the Financial Crisis: A Problem In Search of a Solution (Still) (Part 6)

by J Robert Brown Jr. for The Race to the Bottom Organization, December  17th, 2010.

How about the bonus pools and the partnership style form of compensation?

First, bonus pools of large financial firms appear to be holding steady at around 50% of net earnings (although announcements for 2010 bonuses have yet to be collectively disclosed).  Goldman did shrink the bonus pool for services in 2008 but only after tremendous public pressure.  As net earnings of these firms rise, so will the bonus pool.  Indeed, evidence of increased compensation and a return to the days of profligate spending have, at least anecdotally, alread begun to surface.  See Wallets Out, Wall St. Dares to Indulge.

This does not mean that there have been no changes in the approach to compensation.  Evidence suggests that there will be changes, but not the kind anticipated.  The partnership approach to compensation looks resilient.  But the division of the spoils may well change.  Some glimmer of this can be seen from the announcement by Morgan Stanley about the planned change in its bonus pool.

The WSJ reported that bonuses at Morgan Stanley would be 10-25% lower than the year before.   Admittedly, these look to be preliminary numbers that could easily change.  Nonetheless, they were much trumpeted as potential evidence of a change in Wall Street culture.  See Morgan Stanley Promises to Curb Pay (“All that means we may never see again the $69 million lofty level that Goldman Sachs CEO Lloyd Blankfein received for 2007, the biggest ever payday for someone in a Wall Street corner office. Blankfein’s record seems safe. Or at least until people forget about that little financial crisis.”). (continue reading… )



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