Official Banker Backlash: Record Bonuses While Families Struggle to 'Stay Afloat'

The compensation changes announced by the banks thus far "are in no way sufficient" for risk management, said Nell Minow, the co-founder of the corporate governance research group The Corporate Library.

"It's a small step forward . I'm not saying they're going backward, but it's certainly inadequate," she said, adding that the bank's clawback provisions aren't strong enough and the stock the banks are awarding might make it possible for some "to ride the wave of the market without doing anything in particular for their companies."

Their compensation awards, meanwhile, don't take into account the billions in government assistance the banks received during the financial crisis, she said.

"Right now, they should be discounting the bonuses based on the support that came in through the bailout, which they're not doing, and they should be deferring a lot of bonuses in order to rebuild the credibility that they destroyed with the American people."

Some critics lay the blame largely at the administration's feet.

"President Obama voices outrage but fails to stem the abuse," wrote Peter Morici, professor at the University of Maryland's business school, this week.

"It is not surprising that their CEOs, who get the biggest paydays, claim huge bonuses are essential for rewarding talent," Morici said. "When my students grade themselves, they reach self-serving conclusions, too."

"Sadly, Obama, Geithner and [Federal Reserve chairman Ben] Bernanke could halt this madness, but don't."

The administration and the central bank have taken some steps to address compensation issues. The Fed has launched a review of pay practices at the country's biggest banks, while President Obama last June appointed Ken Feinberg to crack down on compensation at seven companies receiving what the administration deemed to be "exceptional assistance" from taxpayers.

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Feinberg in October slashed the 2009 annual salaries for the 25 highest-paid employees at these seven companies by an average of 90 percent from last year's levels. Overall compensation, including yearly bonuses and retirement pay, was cut by an average of around 50 percent. Executives who want over $25,000 in perks such as private planes, limos, or country club memberships have to apply to the Treasury Department for permission.

Then in December Feinberg capped cash salaries at $500,000 for the 26th to 100th highest-paid employees at four of these companies – AIG, Citigroup, GM, and GMAC – except in "exceptional cases", of which there were under a dozen. Chrysler and Chrysler Financial were exempt from Feinberg's rulings because they had no employees – with one exception – among their 26th-100th highest-paid that earned more than $500,000.

Bank of America was exempt from Feinberg's rulings because the bank had paid back their bailout funds. Shortly after Feinberg's December rulings, Citigroup also paid back its funds, exempting them from the pay czar's purview as well. Going forward, Feinberg will only have power over AIG, GM, GMAC, Chrysler, and Chrysler Financial.

Most recently, the Federal Deposit Insurance Commission announced that it would consider implementing penalties for banks whose pay plans encourage excessive risk-taking while the Obama administration is mulling a separate tax on banks to recoup losses associated with the federal bank bailout, the Troubled Asset Relief Program.

Talbott yesterday voiced opposition to the proposed tax.

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