NEW YORK -- Wall Street bonuses, the object of much criticism in recent years, are coming under even more intense scrutiny now that billions of taxpayer dollars are being used to bail out the industry's biggest players.
On Wednesday, New York Attorney General Andrew Cuomo sent letters to the boards of the USA's nine largest banks, warning that using the $125 billion in bailout money targeted for those banks for bonus payments could be illegal under state law.
The warning comes after Rep. Henry Waxman, D-Calif., chairman of the House Committee on Oversight and Government Reform, sent a similar round of letters Tuesday to top bank executives. "I question the appropriateness of depleting the (taxpayers') capital … through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," Waxman wrote, demanding detailed information on employees receiving over $500,000 in compensation.
The letters likely will weigh heavily on decisions regarding bonuses for Wall Street financiers. No one expects the huge bonuses seen recently. Last year, Goldman Sachs CEO Lloyd Blankfein earned a record bonus of $67.9 million, while co-presidents Gary Cohn and Jon Winkelried each received bonuses of $66.9 million. Richard Fuld, CEO of the now-bankrupt Lehman Bros., got $34.4 million.
However, experts say that even a lower number would look bad, given the current crisis. "Bonuses are going to be a lot less than in previous years, but higher than Waxman would prefer," says Alan Johnson, managing director of compensation consultant Johnson Associates. Wall Street compensation packages are usually structured with a relatively low salary base of up to $250,000; the bulk of the compensation, often in millions of dollars, is in bonuses.
Scott Talbott, chief lobbyist for the financial-services industry, admits big bonuses would be out of sync with the downturn, and that it is in the banks' best interests to use the money for lending. "The entire world is watching, as is the Congress, regulators, investors and depositors to see where the money goes," he says.
Critics say the current crisis exposes a flawed system. "There is an enormous gap in compensation between a Wall Street executive and a regular American," says David Friedrichs, law professor at the University of Scranton. "At the higher end, compensation has expanded exponentially with little evidence that it's warranted and sometimes to catastrophic effects like it has currently."