Financial companies' workers reassured about bonuses
— -- The growing cry on Capitol Hill to prohibit or cancel bonus payments is sending a chill across the big financial services companies that have received government bailout money.
CEOs of Citigroup, c Bank of America, bac JPMorgan Chase jpm and Fannie Mae, fnm firms that together received over $100 billion in taxpayer money, sent out memos or held conference calls with employees Friday to try and calm fears that they would have to return their bonus payments.
"If Congress imposes a special tax ... it would affect countless number of people who will find it difficult, if not impossible, to pay back the bonuses that they earned," said Citi CEO Vikram Pandit in a memo to employees that Citi provided to USA TODAY.
Last week, a firestorm of outrage took hold of America after $165 million in bonuses were paid out at 80% government-owned American International Group. aig Since October, over $170 billion of taxpayer money has gone to save AIG.
On Thursday, the House of Representatives passed legislation to place a 90% tax on the bonuses of AIG and other companies that receive federal funds. And Wednesday, the House Financial Services Committee will hold a hearing to consider legislation to prohibit any bonus payments or "excessive compensation" at companies that have received money from the government since last fall.
Leaders of several major financial service firms said that they are talking to lawmakers to work out a resolution. Bank of America CEO Kenneth Lewis said in a memo to employees that he has written to members of Congress expressing concern. And JPMorgan CEO Jamie Dimon held a conference call in which he said he was focused on the legislation, said spokesman Joseph Evangelisti.
However, populist anger over the bonuses continues to rage. Iowa Sen. Chuck Grassley, top Republican on the Finance Committee, appeared on CBS' Face the Nation, where he said: Iowans "just don't understand how people that make $20 million a year can drive a corporation into the ground, go suck off the taxpayers for bailouts, and then give out millions of dollars of bonuses."
The controversy over the bonuses snowballed last week and soon engulfed several financial firms that have received billions of dollars from the government. Rep. Barney Frank, D-Mass., who heads the House Financial Services Committee, called for an end to bonus programs at mortgage giants Fannie Mae and Freddie Mac, which together have needed $400 billion in financial support from the government.
Fannie CEO Herb Allison also sent an e-mail to employees saying he was concerned about the effect of eliminating bonuses.
Still, there's building concern over using tax law to deal with the bonus flap. "Let's not overreact in a way that basically has the Congress grabbing its pitchforks ... and abusing what is a core authority of a government, which is the authority to tax its people," says Sen. Judd Gregg, R-N.H., who appeared on CNN's State of the Union on Sunday.
Compensation experts, like Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, say tax policy is meant to raise revenue, "not to punish a particular group of people."
Besides, Elson says, such broad changes in compensation could have a damaging effect on the psyche of the American worker, and ultimately the economy. "Removing bonuses goes against the idea of individual achievement and reward, which form the core of the principles of our country," says Elson.
Already some banks, such as Sun Bancorp and Northern Trust, are saying that they will return the government's money as soon as possible.
"It will have a chilling effect on recovery efforts and the willingness of companies to participate in any government relief effort," says Scott Talbott, senior vice president at the Financial Services Roundtable, which represents the banking industry.
Contributing: Sue Kirchhoff