Wall St defends bonus culture

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Executives at the Reuters Global Finance Summit rallied to the defense of the industry's resurgent bonus practices, arguing that there was no clear link between generous compensation and last year's market meltdown.

Bonuses have long been a part of Wall Street's culture, dating back to a time when partnerships dominated the industry. Recent reports indicating that near-record amounts will be paid out just months after many firms benefited from government bailout moves have raised public outrage.

But executives at the summit in New York have argued that the anger is misplaced.

"The focus on bonuses as the cause of risk-taking is just wrong," former Merrill Lynch chief executive John Thain told the summit.

Wall Street bankers and traders historically have looked to their bonuses as a major piece of the yearly income. For high-ranking executives, bonuses can be more than $1 million.

A year removed from the heart of the financial crisis, Wall Street's dominant banks are preparing to give massive year-end paydays to their employees.

Goldman Sachs Group Inc, for example, has already has set aside nearly $17 billion to pay its people at the end of the year. Goldman earlier this year repaid $10 billion it borrowed from taxpayers during last year's bailout.

As bonus pools mount, regulators are looking for ways to discourage wildly extravagant paydays.

U.S. pay czar Kenneth Feinberg, picked by the Obama administration to rein in pay at seven companies that received extraordinary government assistance, told the summit that in many cases, bank pay just was not sensible.

Companies under Feinberg's jurisdiction include Bank of America, Citigroup Inc, and American International Group Inc.

During his first review, Feinberg said he saw too many retention payments, too many guarantees regardless of performance, and too much emphasis on short-term performance.

"We are going to try to address all of those issues for these seven," Feinberg said at the summit.

But Feinberg said it is for other regulators, like the U.S. Federal Reserve, to address banks outside his jurisdiction. The Fed has announced proposals that would tie pay to long-term performance for the banks it regulates.

Thain, who was fired after a scandal over the payment of billions in bonuses to Merrill employees by Bank of America Corp, said such regulations are a good idea -- but they will not prevent another crash.

Thain also said the rules restricting pay at companies with significant debt to taxpayers could render them "unable to compete for talent." 

The pay clampdown could cause bankers and traders to flee the large banks after this year's bonuses are doled out, especially once they see their pay is largely in long-term stock with looming clawbacks, said Lee Fensterstock, chief executive of boutique bank Broadpoint Gleacher Securities Group Inc.

"Frankly, people who work in New York, they've got to send kids to school and they have real financial obligations," Fensterstock told the summit. "A lot of what has been articulated as a way to change compensation is inconsistent with that.

- Reuters