However, studies have found that there is little correlation between pay and performance on Wall Street, and bankers win no matter which way the market goes. On July 30, New York Attorney General Andrew Cuomo released results of a nine-month investigation of the first nine banks that received bailouts from the government's Troubled Asset Relief Program (TARP). His report found that banks paid out bonuses even while running at a loss, and at those that did post positive income, annual bonuses exceeded the entire year's profit.
At Citigroup, despite the $27.68 billion in losses last year, the bank paid out $5.33 billion in bonuses, of which about 738 employees each received $1 million or more. JPMorgan earned $5.6 billion in the year and paid out $8.69 billion in bonuses. The bank also had more seven-figure earners than any of its competitors — 1,148 employees received $1 million or more. Goldman earned $2.3 billion and paid out $4.8 billion in bonuses, with 212 employees earning $3 million or more.
Cuomo says his analysis makes it clear that "there is no clear rhyme or reason to the way banks compensate and reward their employees. ... Compensation for bank employees has become unmoored from the banks' financial performance."
Throughout this year, there have been plenty of other revelations about Wall Street excesses. One example that only seemed to get uglier as more details emerged was what happened at Merrill Lynch before and after it was forced to sell itself to Bank of America to avoid collapse.
In the final three months of 2008, as BofA was trying to close the purchase, Merrill lost $15.3 billion — bringing its losses for all of 2008 to a record $27 billion. Yet, Merrill CEO John Thain pushed through $3.6 billion in bonuses to Merrill employees days before the merger with BofA closed on Jan. 1, 2009. The merger cost American taxpayers $20 billion in cash and an agreement by the government to share in losses that totaled $118 billion.
It also damaged the reputation of BofA CEO Kenneth Lewis. He had to relinquish the title of chairman in April and since then has faced calls to step down as CEO. The bank is being investigated by Cuomo and by Congress because of the Merrill bonus payments and losses that weren't disclosed to shareholders. Last week it paid a fine of $33 million to the Securities and Exchange Commission to settle a court complaint that BofA had misled shareholders about what it knew about the bonuses.
Lawmakers don't want to rock economy's boat
Even as Wall Street is increasing its compensation and lawmakers are criticizing it for doing so, Washington, too, seems to be shying away from imposing harsh curbs on pay. The key reason is that lawmakers are fearful that tough pay curbs might get in the way of the financial services industry helping foster an economic recovery.
"It is a nightmare situation — nobody wants these firms to fail, which would lead to a bigger economic and political disaster; on the other hand it's embarrassing that they are already deciding to pay themselves more for doing well," says Alan Johnson of compensation consultant Johnson Associates.
Critics say the compensation-reform bill lacks teeth. Sponsored by Rep. Barney Frank, D-Mass., the Corporate and Financial Institution Compensation Fairness Act of 2009 has provisions that affect all publicly traded companies, and there are special provisions for financial institutions.