Wages abound

1 Jan 10    Global super-rich no longer look so benign, FT, Chrystia Freeland
11 Nov 09   Virtuous or Vicious Bankers?, NYT, MAUREEN DOWD
30 sep 09   Les salaires et bonus font aussi jaser en Chine, Le Temps, Ram Etwareea
18 Aug 09   Supreme Court to Hear Case on Executive Pay, NYT, ADAM LIPTAK
31 Jul 09   Big Banks Paid Billions in Bonuses Amid Wall St. Crisis, NYT, LOUISE STORY et al.
27 Jul 09   Of Banks and Bonuses, NYT, editorial
16 juin 09   Insulte, ça s'écrit avec combien de zéros?, Le Matin, Stéphane Berney, editorial
16 juin 09   Les écarts de salaires se creusent chez les géants suisses, Le Matin, ats
11 May 09   The wages of sin, China Daily, Bi Xiaoning
31 mar 09   Gros salaires en Suisse: où sont les banquiers?, Le Matin Bleu, G.C., réactions
20 Feb 09   Plan to cap pay for SOE executives, China Daily, Tan Yingzi
10 Feb 09   China sets limit on executive pay, China Daily, Bi Xiaoning
7 Feb 09   Hefty payout deals draw public anger, China Daily, Bi Xiaoning

China Daily    7 February 2009

Hefty payout deals draw public anger
By Bi Xiaoning

While America's "Gilded Age" is ending with US President Barack Obama's announcement of compensation caps on financial companies being bailed out by public funds, some Chinese State-owned financial firms are still testing public tolerance with astronomical executive packages.

The main target of a public outcry is Guotai Jun'an Securities Co, one of the largest brokerages in China, which is reportedly ready to give its executives hefty pay rises for 2008, when the financial services industry suffered major losses and the company itself saw a 24.24 percent decline in net profit, according to the Securities Association of China.

Guotai Jun'an announced it would earmark 3.2 billion yuan ($470 million) for "compensation and welfare expenses" for the past year, 57 percent higher than its compensation budget at the beginning of the year.

The decision, pending approval from its board of directors, was immediately chastised by the Chinese media as a move State broadcaster China Central Television described as "causing harmful social influence".

Guotai Jun'an employs a staff of 3,200 and is one of the largest firms in the country in both regular brokerage services and an investor in other companies.

If the earmarked amount is spent entirely as compensation and welfare expenses, the company's employees would each receive 1 million yuan, or 88 times an average urban worker's annual income in 2007.

According to a survey by Shanghai Securities News, 44 brokerage and financial companies spent roughly 20.9 billion yuan in compensation last year and some firms paid their staff 400,000 yuan each on average.

However, it is common for top executives in financial firms to earn in multiples of what regular staff are paid. The highest pay package in the industry in 2007 was as much as 66 million yuan for Ma Mingzhe, chairman of Ping An Insurance (Group) Co, which drew great ire on Internet forums.

This time, amid even more widespread public anger, an online survey conducted by Sina.com showed that about 90 percent of netizens said Guotai Jun'an's move was "outrageous" and "disgraceful".

When stock investors incurred losses of 200,000 yuan each on average in 2008, Guotai Jun'an's pay package is tantamount to robbery and is immoral, commented the Chinese-language newspaper Legal Daily.

"The compensation policy in State-owned companies should not be handled at will," said Professor Li Shuguang with China University of Political Science and Law.

Among Guotai Jun'an's shareholders, the largest two are in the State sector: Shanghai State-owned Assets Management Co and Central Huijin Investment Co. They hold more than half of the company's stock.

On Friday, the Ministry of Finance announced it would soon release new standards for evaluating performances of State-sector financial institutions and link them to compensation schemes.

On Jan 13, the ministry issued a circular suspending State-sector financial companies' stock option incentives and employee stock ownership plans; and told them to act "reasonably" to avoid widening income gaps.

China Daily    10 February 2009

China sets limit on executive pay
By Bi Xiaoning

Compensation caps for China's State-sector financial companies will be set at 2.8 million yuan (pre-tax revenue), the Economic Observer Online reported yesterday.

The Ministry of Finance has drafted a salary management circular for executives with State-sector enterprises. The annual salary of top executives would be limited within 2.8 million yuan, the online newspaper said, citing sources with an unnamed State-sector enterprise.

According to the draft, the caps of pay packages for executives are four times their annual salary, which ranges between 50,000 yuan and 700,000 yuan.

While the nation's stock investors incurred losses of around 200,000 yuan each on average in 2008, some executives in financial institutions enjoyed huge pay packages.

According to a survey by Shanghai Securities News, 44 brokerage and financial companies spent roughly 20.9 billion yuan in compensation last year, with some firms paying their staff 400,000 yuan each on average.

"The compensation caps in the US are set at $500,000, which is about five times that of a university professor's annual income. In China, the limit can be set at 500,000 yuan, since it's already five times higher than the income of a professor," said Yi Xianrong, a researcher with the financial research center under the Chinese Academy of Social Sciences, the government thinktank.

Meanwhile, the State Assets Supervision and Administration Commission (SASAC) has conducted salary self-review activities among 230,000 executives with State-owned enterprises.

Those executives are required to review their shares on hand, investment and income last year and refund their illegal shares and income. About 56 top executives in 19 companies reported 13.49 million yuan in illegal shares, Xinhua News Agency reported yesterday.

Through this review, about 6,990 people with 96 companies have cleared their illegal shares, while 338 middle-level executives with 61 companies reported 13.02 million yuan in income from part-time jobs. Most executives have refunded the income, the report said.

China Daily    20 February 2009

Plan to cap pay for SOE executives
By Tan Yingzi

A draft of a general regulation to cap salaries of high-level executives in State-owned enterprises (SOEs) will be submitted to the State Council for approval soon, an expert said yesterday.

The new regulation, drafted by the Ministry of Human resources and Social Security, also clarifies the system to assess performance and rules for expenditure, Liu Junsheng, a researcher with the ministry, who has participated in the discussion of the draft over the past six months, said.

"The new regulation provides a guideline and legal basis for supervising the salary structure of high-level management of all SOEs," he said.

The Ministry of Finance earlier this month solicited views on measures to regulate salary management in State-owned financial enterprises, which reportedly plans to set a ceiling of 2.8 million yuan on the annual pretax salary.

"Recent media reports on the fat salary packages of SOE executives have drawn the attention of the central government," Liu said.

"So they have asked related departments to put a limit on the amount."

The new regulation limits the salary ratio between high-level and low-level executives to 10 to 12, the National Business Daily quoted sources as having said yesterday.

However, Liu said a final decision was yet to be taken. "The current average ratio is 10 to 14."

According to the National Bureau of Statistics, in the first three quarters of 2008, the average income of SOE employees was 20,576 yuan.

The 2006 statistics from the State-owed Assets Supervision and Administration Commission show that the average salary of principals with 149 large SOEs was 531,000 yuan.

Liu said the salaries of SOE executives should be controlled "because they are appointed by the government, and not chosen by their market value, and SOEs enjoy more favorable policies and resources than their private counterparts".

Dong Xian'an, a senior macro-economic analyst with the State-owned Southwest Securities, said the increasing income gap between high-level executives and common employees has affected the social stability, especially amid the global financial crisis.

"This regulation draft has come a little late. The gap has already grown too huge in recent years," he told China Daily.

"The salaries of high-level executives in SOEs should be made transparent to the public," he said.

However, industry experts said that a ceiling on salaries might affect the ambitions of some enterprising SOE executives.

"The government should pay attention to the incentive system in order to encourage SOEs to play a bigger role in the Chinese economy," Ma Guangyuan, a business commentator, was quoted as saying in the Information Times.

Earlier this month, the State-controlled Guotai Jun'an Securities was reported to have a 320-million-yuan salary plan in 2008, an average of 1 million yuan for each member of the staff.

Le Matin Bleu    31 mars 2009

Gros salaires en Suisse: où sont les banquiers?
 Daniel Vasella a gagné en 2008 huit fois plus que le financier le mieux rétribué

Image © Keystone
Le Fribourgeois Daniel Vasella (Novartis) domine largement le classement des patrons les mieux payés en Suisse.

Frappés par la crise, les dirigeants des grandes banques ne figurent plus parmi les patrons les mieux payés du pays. Ils sont devancés par les managers de l'industrie et des assurances, relève «Blick» dans son classement des gros salaires 2008.

A la tête de Novartis, Daniel Vasella a touché plus de 40 millions de francs (un salaire moyen de 110'400 francs par jour!), contre «seulement» 5 millions (à peine 13'700 francs par jour...) pour le premier banquier classé, Johannes de Gier, le CEO de Julius Bär.

Vos réactions

 Gagner tant d'argent pour un seul homme.... juste parce que Novartis fait de somptueux bénéfices !!! c'est indécent en pensant au prix des médicaments en Suisse. Mais là...personne ne fait le lien !!!!
30.03.2009 - 23:55 par Leanne

Vraimenr des salaires indècents
31.03.2009 - 05:14 par CATOGNE DEN HAUT

Je ne vois pas le problème, si ce n'est d'éveiller l'envie chez le péquin qui gagne quelques milliers de francs, un footballeur le mieux payé gagne 50 mio de fr. pour donner des coups de pieds dans un ballon, j'aime encore mieux quelqu'un qui produit de la richesse dont le bénéfice net était de 8500 millions !
31.03.2009 - 05:33 par TM

Cette fois les banquiers ont été plus malins que les journalistes. Leurs salaires sont déguisés sous la forme d'actions, d'obligations et autres juteux titres divers. Le cash est une chose qui s'impose, d'autres formes sont passées sous silence. En ce temps de crise, ils font profil-bas mais reviendront vite sur la scène du m'as-tu-vu et du je-t'en-fous-plein-la-vue. .. Vasella et consort, pas dégueu, simplement (préférable de ne pas l'écrire pour éviter la censure...).
31.03.2009 - 06:16 par Salegosse

Ouais ben, être riche et le montrer dans quelques temps, va devenir risquer. Avec tous ces workings poors qui hantent les rues...
31.03.2009 - 07:29 par Darkmouton

Quand les statistiques ne tiennent pas compte des "à coté" elles sont fausse. Ces messieurs des banques et des assurances ont presque tout sans payer (assurances sociales, indemnités pour tout, etc...)et ne produisent rien sinon du fric pour eux-mêmes.
31.03.2009 - 08:29 par Romarin

Si l'information est accessible dans tous les cantons, il serait intéressant de faire figurer en parallèle le montant d'impôt payé par jour, sachant que ce montant est calculé sur les revenus globaux qui comprennent ceux de la fortune et de l'épouse quand elle travaille.
31.03.2009 - 08:55 par zekoze

en effet c'est pathétique et cela reflète l'indécence de la société d'aujourd'hui !
31.03.2009 - 09:21 par révolution

A vous les médias qui faites del'information à sens unique, pouvez-vous nous dire quels sont les impôts payés en rapport avec ces énormes salaires. Là se trouve peut-être le scandale. Sur le plan des salaires, celui du CEO des CFF par exemple me choque plus car cette entreprise d'état est perpétuellement en faillite (ou à la charge des contribuables.
31.03.2009 - 09:41 par descartes

Du moment que Novartis paye les salaires de tout le monde, ne licencie pas, et ne fait pas perdre aux actionnaires, le salaire de ce monsieur n'est pas un problème. Le hic c'est de payer de hauts salaires pour de l'incompétence. Le hic c'est de mettre une banque ou une société en faillite, de demander l'aide de l'état pour la sauver et de se prendre un bonus faramineux. Mais c'est à l'état à dire stop et à reprendre son pouvoir.
31.03.2009 - 10:57 par La pâtissière

Je trouve scandaleux qu'une personne touche + de 110 0000 fr par jour, alors que cette somme représente 2 années de travail et de frustations pour plus de la majorité des travailleurs.
31.03.2009 - 10:57 par ricounet43

C'est encore plus à vomir quand on sait que Novartis vends ces médicaments plus cher en Suisse qu'à l'étranger... Ce type m'inspire le dégout. Un Rat.
31.03.2009 - 12:37 par ddgrochon

Ce qui est scandaleux c'est qu'un Couchepion ne soit pas assez commnet dire honnête pour ne pas prendre son tel et lui dire tout simplement qu'il a un mois pour réfléchir a l'image de son salaire et de novartis faute de quoi les importations de médicaments seront autorisés. Simple et efficace sans loi.... on évitera ainsi le coup de rage a la lecture de cette article ou meiux si rein n'est fait on aura un vbaisse des primes maladies
31.03.2009 - 13:34 par web007

Bande de jaloux ... Vive les gens qui réussissent !!! Ces personnes ne méritent peut-être pas autant de millions, mais sachant qu'on parle de 20 personnes sur les environ 4 milions (0.0005%) travaillant en Suisse, je ne pense pas que c'est un gros problème. Il y a des centaines de milliers de patrons/chefs/managers qui ne gagnent pas autant mais vivent bien. Et à tous ceux qui ont loupé leurs études et végétent à 4000 franc/mois, un seul message : bien fait !
31.03.2009 - 14:05 par reaction

réaction: vous portez bien votre pseudo en effet et si c'est ça pour vous la réussite alors mieux vaut vivre avec 4000.- par mois.
31.03.2009 - 15:21 par révolution

@reaction : Et vous dites quoi à ceux qui ont fait des études et qui sont à 4000.- CHF par mois ? Je suis bien d'accord avec révolution..
31.03.2009 - 16:25 par Aiji

Que les journalistes arrêtent de dire "les patrons touchés par la crise".Nous nous sommes touchés,car on a du mal à finir le mois,on part moins en vacances et c'est nous qui allons renflouer les caisses par de nouvelles taxes et autres...Eux,ils jouent et ils gagnent tout le temps.Avez-vous vu un patron se faire virer,sans rien et finir à la rue...Plaisanterie....Avec des salaires comme ça,en un an ils gagnent notre salaire pour toute notre vie.
01.04.2009 - 23:58 par che

En plus à ce niveau,à part faire bla-bla-bla et ne rien voir venir,se foutre de notre gueule,ils ne font plus rien.C'est les ouvriers qui font tourner leurs entreprises.Ils l'oublient et j'espère qu'avec la crise il y aura enfin des représailles...
02.04.2009 - 00:00 par che

China Daily    11 May 2009

The wages of sin
Bi Xiaoning

In an economic downturn, it seems that the top executives of publicly listed companies in China can do nothing right.

A case in point is the controversial and highly publicized executive pay issue. It is easy to understand why investors are outraged by reports of senior executives of loss-making companies rewarding themselves with huge compensation packages. Investors are also not too enthused by senior executives in loss-making firms planning to forego compensation altogether.

Even in the worst of times for the economy, senior executives in Chinese enterprises have never felt deprived. Despite some heavily publicized wage cuts, the annual income of top compensated executives of Chinese listed companies in 2008 averaged nearly 10 million yuan, or 345 times that of an average urban worker, according to a survey by Internet portal NetEase.

Ping An Insurance was widely criticized for its excessive compensations as eight of its executives were on the list of the 10 most compensated among the listed companies for 2007. The insurance giant's profit in 2008 plunged more than 97 percent from a year before and prompted Chairman Ma Mingzhe, who took home 66 million yuan in 2007, to make a high-profile announcement in February that he had skipped his entire pay for 2008. However four Ping An executives still figure in the 10 most compensated executives list for 2008.

Since Ma's announcement, more than 100 top executives of publicly listed companies have followed suit.

But such seemingly selfless gestures haven't made corporate heroes of them all. On the contrary, the actions have solicited a host of cynical comments in both print and electronic media by skeptical investors as well as unconvinced market operators.

"It's all a fake," said Pi Haizhou, a freelance stock analyst. To him and other self-styled market "gurus", who gain popularity with sharply critical commentaries in their blogs, such an act of self-denial by corporate executives is nothing but a show that impresses no one.

As shareholders, Pi said, "we don't want them (corporate executives) to work for free." If they do, "we can no longer hold them responsible for their mistakes", he said.

At the other end of the Chinese corporate spectrum, there are executives who have continued to reward themselves with extravagant pay packages in seeming disregard of investor sentiment.

Senior executives of companies in industries like energy, metals, securities and real estate enjoyed hefty increases in compensation in 2008 while their net profits declined, according to a survey by the official Shanghai Securities News.

"Executive pay should be linked to company performance," said Zheng Wei, managing director, Asia executive remuneration business, Mercer.

In these trying times, big increases in compensation are unacceptable, he said. But the other extreme of pay denial seems equally bizarre, he said.

Zheng said that market-oriented compensation mechanisms and strong corporate governance would help better protect the minority shareholders' rights, including the right to information, to participate in decision-making and, most importantly, to enjoy equitable distribution of gains. As it stands now, the rights of minority shareholders are quite limited because control of many Chinese listed companies is in the hands of the majority shareholders.

Indeed, the controversy surrounding executive pay was widely seen as an outburst of minority shareholders' frustration about insufficient protection of their rights.

Of the top 100 companies based on market value, 77 are controlled by their top five shareholders. What's more, 86 percent of the largest shareholders are State-owned entities, global risk management consultancy Protiviti said in a recent report.

In China, "the majority shareholders actually control the boards of directors, as they can nominate candidates for posts like directors, supervisors and even independent directors", said Lu Tong, professor, Chinese Academy of Social Sciences.

Corporate governance at Chinese listed companies has been lagging international standards, according to Protiviti.

The deficiencies in corporate governance also saw some listed companies skipping dividends, thus denying the minority shareholders a share of the profits.

According to the Chinese-language newspaper Beijing News, 732 listed companies, or nearly 46 percent of the 1,602 listed companies in China, did not pay any dividend to its shareholders. Surprisingly nearly 480 companies were profitable in 2008.

Shenyang Jinbei Automotive Company Ltd, which has not paid any dividend for 15 years, has become the butt of jokes on the Internet. According to Protiviti, only about one-tenth of the listed Chinese companies pay dividends regularly. The ratio of cash dividend to net profit of Chinese listed companies has remained at 29 percent in recent years, much lower than those in the mature markets.

"The high executive compensation and low dividend payment reflects that there is no effective market monitoring system to keep senior management remuneration in check," said Christopher Low, president, Protiviti Greater China.

"Highly concentrated shareholdings remain a hindrance for effective corporate governance. There is need to hasten the progress of shareholding diversification, strengthen information disclosure and the responsibility of the board of directors in ensuing the appropriate remuneration of senior management," Low said.

Chinese executive pay is still modest when compared to Western standards. But seen in the context of the average workers' income, executive compensation can look whopping.

In April, the Ministry of Finance directed executives of State-owned financial institutions to cut their salaries. Under the new directive, the total executive pay for 2008 at financial institutions must not surpass 90 percent of the 2007 levels.

"The government will soon release new standards for evaluating the performances of State-sector companies and link them to compensation schemes," said Su Hainan, head of the Institute for Labor and Wage Studies with the Ministry of Human Resources and Social Security.

According to Su, certain supervision departments, rather than an approval from the board of directors would further review executive compensation. The independent directors should report their work to State-owned assets management and supervision departments and get paid by them instead of listed companies.

"The new regulations are likely to be kicked off in the second half. It could be helpful for protecting the minority shareholders' rights and strengthening the corporate governance of State-owned companies," said Su.

Le Matin, ats    16 juin 2009

Les écarts de salaires se creusent chez les géants suisses

Image © Keystone
Joseph Hogan

Les écarts salariaux ont bondi de 72% depuis 2002. Ils ont même augmenté de 264% chez ABB et de 259% chez l'assureur Bâloise, montre une enquête menée par Travail.Suisse. Le président-directeur général de Novartis, Daniel Vasella, gagne 720 fois plus que le salarié le moins bien payé de son entreprise!

Globalement, les rémunérations de la direction des grands groupes helvétiques ont crû de 83%. Tandis que les salaires nominaux des travailleurs se sont améliorés de 8,4%, et seulement de 1,3% en pourcentage réel, a précisé devant les médias à Berne Matthias Humbel, collaborateur projets du syndicat Travail.Suisse.

Les écarts salariaux se sont certes amenuisés dernièrement: de 2007 à 2008, le salaire moyen d'un topmanager a regressé de 4% et la différence salariale s'est réduite de 6%. Dans onze sociétés suisses néanmoins (ABB, Bâloise, Clariant, Nestlé et Novartis notamment), celle-ci s'est accrue.

Subsiste ainsi un "cartel salarial", et ce en dépit de la crise, a souligné le représentant de l'organisation faîtière indépendante de travailleurs et de travailleuses.

ABB a montré l'éventail salarial le plus large l'an passé. D'un rapport de 1 contre 93 auparavant, la différence entre le salaire le plus bas du groupe industriel zurichois et la rémunération moyenne d'un membre de la direction est passé à 1 contre 158.

Record également pour ABB au niveau des salaires de la haute hiérarchie. La rémunération du directeur général, Joe Hogan, atteint un montant 427 fois supérieur au salaire le plus bas versé au sein du groupe. Celle de son prédecesseur Fred Kindle était de 211 fois plus élevée.

La palme des rémunérations les plus élevées revient cependant au président-directeur général de Novartis, Daniel Vasella. Son salaire de plus de 40 millions de francs correspond à un écart de 1 contre 720.

Selon Travail.Suisse, "les excès salariaux des managers ont carrément conduit à l'effondrement de l'économie". "Il faut faire sauter ce cartel", a lancé son président, Martin Flügel. L'association prône la restauration du partenariat social, via l'admission des employés au sein des conseils d'administration.

Autre revendication: la limitation des boni, et cela à un mois de salaire environ. Il est d'autre part "évident" que les parachutes et hélicoptères dorés doivent être interdits, a martelé Martin Flügel. Davantage de transparence est "nécessaire" également.

Le Matin    16 juin 2009

Insulte, ça s'écrit avec combien de zéros?
Stéphane Berney

Les faits
Qui?    Daniel Vasella, président-directeur général de Novartis.
Quoi?    Daniel Vasella a le salaire le plus élevé des géants suisses avec 40 millions de francs par an, soit 720 fois plus que le salarié le moins payé de son entreprise.

    Par année, le big boss de Novartis gagne 40 millions de frans, soit 720 fois plus que le plus petit salaire versé dans son entreprise.
    Injuste? Allons donc! Il a trois enfants! Ca coûte cher, l'époque a évolué. Chacun doit avoir sa piscine, sa voiture de sport, son paddock à chevaux, son chalet à la montagne, sa résidence secondaire à la mer et son hélicoptère.
    Finalement, à la fin du mois, il ne lui reste certainement pas de quoi faire le malin. Non, la vie ne doit pas être facile tous les jours pour ce sacré Dany.
    Alors que dire de ces pères de famille qui se retrouvent au chômage par milliers en raison de la crise et qui devaient déjà compter les glaces qu'ils pouvaient offrir à leurs enfants?

Langage international
    Comment leur expliquer un salaire 720 fois plus élevé qu'eux pour un dirigeant, oui, mais pour un homme aussi, avec ses qualités et ses défauts?
    Comment leur raconter tout ça sans parler d'insulte? Et en langage international, pour orthographier insulte, c'est le nombre de zéros qui compte.


July 27, 2009

Of Banks and Bonuses

Earlier this month, when Goldman Sachs reported record quarterly profits — and prepared to pay juicy bonuses — it was widely, and correctly, noted that the firm was leading the way back to a future in which outsized pay for short-term gains could once again foster excessive risk taking.

Sure enough, last week, Morgan Stanley explained its quarterly loss by saying that some of its traders were still “gun shy” after last year’s near-death experience in the financial markets, but that the firm now planned to increase its risk taking. To try to stay competitive with Goldman and other banks, Morgan Stanley has also allocated a big chunk of its net revenue for compensation.

This from a couple of firms that 1) probably wouldn’t even be around today were it not for ongoing government rescues of the financial system and 2) by dint of being too big to fail, now enjoy an implicit guarantee of future bailouts if their bets go wrong. The financial system may be stabilizing for now, but the danger to taxpayers if markets were to buckle again is at least as great as ever.

Financial regulatory reform is supposed to control that danger. For example, both the Obama administration’s proposal and ideas from Congressional committees sensibly call for banks to hold more capital with which to absorb losses. A wise variation on that basic notion is that the bigger the bank, the higher the capital requirement should be. Insurance premiums paid to the government could also increase along with a bank’s size. Such provisions would create incentives for banks to limit their size and in so doing, reduce the risk they pose to the system.

The problem is that the bonus-driven risk culture is reasserting itself now, while comprehensive reform will probably take until next year, if it occurs at all. A solution is for Congress to handle bankers’ compensation as a stand-alone issue, as the House Financial Services Committee has said it is ready to do. There is no question about the need to end the perverse incentives that helped to set off the financial crisis. There is ample, and justified, anger among Americans about outsized pay — often to the very same bankers who profited from the bubble — to warrant fast-tracking the issue.

Among the needed pay reforms are rules to tie executive payouts to long-term results, like prohibitions against cashing out equity-based compensation until many years after options or shares have vested. Bonuses need to be delayed to ensure that the profits on which they are based do not prove transitory. An insightful reform recommended by Lucian Bebchuk, a Harvard Law professor and director of the law school’s Program on Corporate Governance, would require that executive compensation be tied not only to the company’s stock performance, but also to the long-term value of the firm’s other securities, like bonds. That would encourage executives to be more conservative about using borrowed money to juice returns to capital, because it would expose them to the losses that leverage can exert on all the firm’s investors.

Reforming the way bankers and traders are paid needs to be part of a newly regulated financial system. But it needn’t and shouldn’t wait for comprehensive reform to see the light of day.

July 31, 2009

Big Banks Paid Billions in Bonuses Amid Wall St. Crisis

Thousands of top traders and bankers on Wall Street were awarded huge bonuses and pay packages last year, even as their employers were battered by the financial crisis.

Nine of the financial firms that were among the largest recipients of federal bailout money paid about 5,000 of their traders and bankers bonuses of more than $1 million apiece for 2008, according to a report released Thursday by Andrew M. Cuomo, the New York attorney general.

At Goldman Sachs, for example, bonuses of more than $1 million went to 953 traders and bankers, and Morgan Stanley awarded seven-figure bonuses to 428 employees. Even at weaker banks like Citigroup and Bank of America, million-dollar awards were distributed to hundreds of workers.

The report is certain to intensify the growing debate over how, and how much, Wall Street bankers should be paid.

In January, President Obama called financial institutions “shameful” for giving themselves nearly $20 billion in bonuses as the economy was faltering and the government was spending billions to bail out financial institutions.

On Friday, the House of Representatives may vote on a bill that would order bank regulators to restrict “inappropriate or imprudently risky” pay packages at larger banks.

Mr. Cuomo, who for months has criticized the companies over pay, said the bonuses were particularly galling because the banks survived the crisis with the government’s support.

“If the bank lost money, where do you get the money to pay the bonus?” he said.

All the banks named in the report declined to comment.

Mr. Cuomo’s stance — that compensation for every employee in a financial firm should rise and fall in line with the company’s overall results — is not shared on Wall Street, which tends to reward employees based more on their individual performance. Otherwise, the thinking goes, top workers could easily leave for another firm that would reward them more directly for their personal contribution.

Many banks partly base their bonuses on overall results, but Mr. Cuomo has said they should do so to a greater degree.

At Morgan Stanley, for example, compensation last year was more than seven times as large as the bank’s profit. In 2004 and 2005, when the stock markets were doing well, Morgan Stanley spent only two times its profits on compensation.

Robert A. Profusek, a lawyer with the law firm Jones Day, which works with many of the large banks, said bank executives and boards spent considerable time deciding bonuses based on the value of workers to their companies.

“There’s this assumption that everyone was like drunken sailors passing out money without regard to the consequences or without giving it any thought,” Mr. Profusek said. “That wasn’t the case.”

Mr. Cuomo’s office did not study the correlation between all of the individual bonuses and the performance of the people who received them.

Congressional leaders have introduced several other bills aimed at reining in the bank bonus culture. Federal regulators and a new government pay czar, Kenneth Feinberg, are also scrutinizing bank bonuses, which have fueled populist outrage. Incentives that led to large bonuses on Wall Street are often cited as a cause of the financial crisis.

Though it has been known for months that billions of dollars were spent on bonuses last year, it was unclear whether that money was spread widely or concentrated among a few workers.

The report suggests that those roughly 5,000 people — a small subset of the industry — accounted for more than $5 billion in bonuses. At Goldman, just 200 people collectively were paid nearly $1 billion in total, and at Morgan Stanley, $577 million was shared by 101 people.

All told, the bonus pools at the nine banks that received bailout money was $32.6 billion, while those banks lost $81 billion.

Some compensation experts questioned whether the bonuses should have been paid at all while the banks were receiving government aid.

“There are some real ethical questions given the bailouts and the precariousness of so many of these financial institutions,” said Jesse M. Brill, an outspoken pay critic who is the chairman of CompensationStandards.com, a research firm in California. “It’s troublesome that the old ways are so ingrained that it is very hard for them to shed them.”

The report does not include certain other highly paid employees, like brokers who are paid on commission. The report also does not include some bank subsidiaries, like the Phibro commodities trading unit at Citigroup, where one trader stands to collect $100 million for his work last year.

Now that most banks are making money again, hefty bonuses will probably be even more common this year. And many banks have increased salaries among highly paid workers so that they will not depend as heavily on bonuses.

Banks typically do not disclose compensation figures beyond their total compensation expenses and the amounts paid to top five highly paid executives, but they turned over information on their bonus pools to a House committee and to Mr. Cuomo after the bailout last year.

The last few years provide a “virtual laboratory” to test whether bankers’ pay moved in line with bank performance, Mr. Cuomo said. If it did, he said, the pay levels would have dropped off in 2007 and 2008 as bank profits fell.

So far this year, Morgan Stanley has set aside about $7 billion for compensation — which includes salaries, bonuses and expenses like health care — even though it has reported quarterly losses.

At some banks last year, revenue fell to levels not seen in more than five years, but pay did not. At Citigroup, revenue was the lowest since 2002. But the amount the bank spent on compensation was higher than in any other year between 2003 and 2006.

At Bank of America, revenue last year was at the same level as in 2006, and the bank kept the amount it paid to employees in line with 2006. Profit at the bank last year, however, was one-fifth of the level in 2006.

Still, regulators may have limited resources for keeping pay in check. Only banks that still have bailout money are subject to oversight by Mr. Feinberg, the pay czar. He will approve pay for the top 100 compensated employees at banks like Citigroup and Bank of America as well as automakers like General Motors.

August 18, 2009

Supreme Court to Hear Case on Executive Pay

Last summer, Richard A. Posner, a federal appeals court judge, issued a surprising and prescient dissent. Executive pay is out of control, he said, and the marketplace cannot be trusted to rein it in.

Judge Posner is a conservative with libertarian leanings, and he is a leader of the law and economics movement associated with the University of Chicago. He often relies on economic analysis in his judicial decisions, and he believes that many questions are best sorted out by the marketplace.

But corporate America has insulated pay decisions from market discipline, Judge Posner wrote. “Executive compensation in large publicly traded firms often is excessive,” he added, “because of the feeble incentives of boards of directors to police compensation.”

The Supreme Court will hear the case this fall, as anger over huge bonuses paid to the executives of failing companies continues to grow. The case, Jones v. Harris Associates, may turn out to be the court’s first significant statement on the corporate culture that helped lead to the Great Recession.

The case arose from the enormous fees mutual funds pay to their investment advisers. A three-judge panel of Judge Posner’s court, the United States Court of Appeals for the Seventh Circuit, in Chicago, threw out a lawsuit brought by the investors in three Oakmark mutual funds who said the funds had overpaid their investment adviser, Harris Associates.

The panel decision, written by Chief Judge Frank H. Easterbrook, another leader of the law and economics movement, said the marketplace could be trusted to regulate fees. Judge Posner, dissenting from the full court’s decision not to rehear the case, said competition had not been effective in keeping the compensation under control.

Before last year’s market collapse, the mutual fund industry held more than $11 trillion in retirement and personal savings, and it paid advisers perhaps $100 billion in fees.

Mutual funds are odd enterprises. They are typically formed and run by their investment advisers, which select the fund’s board of directors. That board then negotiates the adviser’s fees.

Here is how Warren Buffett analyzed the situation in his 2003 letter to shareholders: “Year after year, at literally thousands of funds, directors had routinely rehired the incumbent management company, however pathetic its performance had been. Just as routinely, the directors had mindlessly approved fees that in many cases far exceeded those that could have been negotiated.”

The plaintiffs in the case before the Supreme Court claimed that Harris Associates had charged their funds twice as much as it charged its unaffiliated clients, like pension funds.

The Oakmark funds paid Harris Associates 1 percent of the first $2 billion in assets; independent clients were charged roughly one-half of 1 percent of the first $500 million. One percent of a billion dollars is nice work if you can get it.

“Mutual funds rarely fire their advisers,” Judge Easterbrook acknowledged. But, he continued, “investors can and do ‘fire’ advisers cheaply and easily by moving their money elsewhere.” A 2007 study from John C. Coates IV and R. Glenn Hubbard supported this conclusion, finding that mutual fund fees are kept in check by the movement of investors’ money.

But a brief supporting the plaintiffs filed in the Supreme Court by three economists, Ian Ayres, Robert E. Litan and Joseph R. Mason, questioned that study. New research in behavioral economics, the brief said, showed that most investors had a very poor grasp of rudimentary truths about probability and a disproportionate aversion to taking losses.

Mutual fund investors thus tend to look at past performance rather than fees. And they have a tendency to sell winning investments too early and hold losing ones too long.

Even if mutual fund investors could be counted on to act rationally, the economists’ brief said, they do not have ready access to the information they need to make sensible choices.

Instead of counting on investor behavior to keep fees in check, the brief concluded, courts should look to how much advisers charged independent clients like pension funds. A supporting brief from the federal government made the same point.

There is academic research to support this view, too.

“In contrast to mutual fund investors,” Diane Del Guercio and Paula A. Tkac wrote in a 2002 study, “pension clients punish poorly performing managers by withdrawing assets under management and do not flock disproportionately to recent winners.”

But Judge Easterbrook questioned the value of such comparisons. The two kinds of clients, he said, may have different needs. In its brief urging the Supreme Court not to hear the case, Harris Associates added that the Oakmark funds had outperformed “virtually every fund in their peer groups.”

Still, the tide seems to be turning toward skepticism about outsize compensation. In April, a month after the Supreme Court agreed to hear an appeal from Judge Easterbrook’s decision, the federal appeals court in St Louis allowed a suit against another investment adviser, Ameriprise Financial, to go forward. It was the first ruling in favor of unhappy mutual fund investors suing over advisers’ fees since Congress imposed a fiduciary duty on advisers in 1970.

Judge Easterbrook said the law had only a minor role to play, requiring no more than making sure that advisers “make full disclosure and play no tricks.”

But when public sentiment, economic research and even Judge Posner argue for more vigorous judicial examination of whether compensation is fair, the Supreme Court may just agree.

Le Temps    30 septembre 2009

Les salaires et bonus font aussi jaser en Chine
Pékin propose de limiter la rémunération dans les entreprises financières aux mains de l’Etat
Ram Etwareea

La rémunération des chefs de la finance et de l’économie, sujet populaire voire populiste en Europe et aux Etats-Unis, fait aussi jaser en Chine. Délaissant les préceptes du communisme, certains dirigeants touchent des salaires et des bonus à la hauteur des risques assumés. La concurrence entre entreprises pour attirer les managers les plus doués y a également contribué à la surenchère.

Les très hautes rémunérations chinoises n’ont bien entendu rien de comparable à ce que peuvent toucher les «golden boys» à New York, à Londres ou à Genève. Le directeur de l’Industrial and Commercial Bank of China, la première banque au monde, a perçu 166'600 euros en 2008. Le président de l’assureur Ping An, l’un des plus hauts salaires, avait touché 7,3 millions d’euros en 2008.

Ces temps sont révolus. Au nom de la recherche d’une société plus juste, Pékin veut mettre fin aux excès et compte, pour commencer, réduire les écarts salariaux au sein des 135 entreprises financières publiques. Tant pis pour les cadres insatisfaits qui seraient tentés de partir. Les remplaçants ne manqueront pas.

November 11, 2009

Virtuous Bankers? Really!?!

The Great Vampire Squid has gotten religion.

In an interview with The Sunday Times of London, the cocky chief of Goldman Sachs said he understands that a lot of people are “mad and bent out of shape” at blood-sucking banks.

“I know I could slit my wrists and people would cheer,” Lloyd Blankfein, the C.E.O., told the reporter John Arlidge.

But the little people who are boiling simply don’t understand. And Rolling Stone’s Matt Taibbi, who unforgettably labeled Goldman “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” doesn’t understand.

Banks, Blankfein explained, are really serving the greater good.

“We help companies to grow by helping them to raise capital,” he said. “Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle. We have a social purpose.”

When Arlidge asked whether it’s possible to make too much money, whether Goldman will ignore the people howling at the moon with rage and go on raking it in, getting richer than God, Blankfein grinned impishly and said he was “doing God’s work.”

Whether he knows it, he’s referring back to The Protestant Ethic and The Spirit of Capitalism — except, of course, the Calvinists would have been outraged by the banks’ vicious — not virtuous — cycle of greed and concupiscence.

Blankfein’s trickle-down catechism isn’t working. Now we have two economies. We have recovering banks while we have 10-plus percent unemployment and 17.5 percent underemployment. The gross thing about the Wall Street of the last decade is how much its success was not shared with society.

Goldmine Sachs, as it’s known, is out for Goldmine Sachs.

As many Americans continue to struggle, Goldman, Morgan Stanley and JPMorgan Chase, banks that took government bailout money after throwing the entire world into crisis, have said they will dish out $30 billion in bonuses — up 60 percent from last year.

The saying used to be, whatever happens, the lawyers win. Now, it’s whatever happens, the bankers win.

Under pressure from regulators, who were trying to ensure that long-term performance was rewarded, the banks agreed to award more in stock, deferring cash payments.

But as The Times reported this week, the Goldman executives who got stock options instead of bonuses last year, at market lows, got a windfall — so it had nothing to do with bank employees’ performance.

“The company gave its general counsel, for example, 104,868 stock options and 14,117 shares in December, when the bank’s stock was around $78,” Louise Story wrote for The Times. “Now the bank’s shares have more than doubled in value, making that stock and option award worth nearly $12 million.”

As one former Goldman banker told Arlidge, the culture there is “completely money-obsessed. ... There’s always room — need — for more. If you are not getting a bigger house or a bigger boat, you’re falling behind. It’s an addiction.”

It’s an addiction that Washington has done little to quell. President Obama has not been strong on the issue, and Timothy Geithner coddles the wanton bankers whenever they freak out that they might not be able to put in their new pools next summer.

The bankers try to dismiss calls for regulation as populist ravings, but the insane inequity of it cannot be dismissed.

No sooner had the Senate Banking Committee Chairman Chris Dodd announced his plan to overhaul financial regulation Tuesday than compensation experts declared it toothless.

The banks and their lobbyists wheedled concession after concession out of Washington and knocked down proposed inhibition after inhibition. Now the banks are laughing all the way to the bank.

“Saturday Night Live” was tougher on Goldman Sachs than the government, giving the firm flak about commandeering 200 doses of the swine flu vaccine — the same amount as Lenox Hill Hospital got — while so many at-risk Americans wait.

“Can you not read how mad people are at you?” demanded Amy Poehler. “When most people saw the headline ‘Goldman Sachs Gets Swine Flu Vaccine’ they were superhappy until they saw the word ‘vaccine.’ ”

Seth Meyers chimed in: “Also, Centers for Disease Control, you sent the vaccine to Wall Street before schools and hospitals? Really!?! Were you worried the swine flu might spread to the Hamptons and St. Barts? These are the least contagious people in the world. They don’t even touch their own car-door handles.”

And as far as doing God’s work, I think the bankers who took government money and then gave out obscene bonuses are the same self-interested sorts Jesus threw out of the temple.

Financial Times    January 1 2010

Global super-rich no longer look so benign
By Chrystia Freeland

The big challenge of this new decade will be coping with the emergence of a global plutocracy – the hyper-educated, internationally minded meritocrats who have been the chief beneficiaries of globalisation and the technological revolution.

The rise of the plutocracy is an unexpected and still largely unnoticed consequence of the powerful political and economic changes shaping our young century. These revolutions – the collapse of communism, the spread of economic globalisation and the impact of the internet and mass computing – were, after all, about breaking barriers. The Berlin Wall fell; trade restrictions were eased; technology made information and communication free, or nearly so.

Thomas Friedman was right: as these political, economic and social barricades came down, the world really did become flatter. Older, established institutions – ranging from the music business to traditional media and Detroit carmakers – found themselves outmanoeuvred and out-priced by entrepreneurs in Silicon Valley, Mumbai and Shanghai.

Even in finance, which brought the phrase “too big to fail” into the public discourse, smart insurgents have been out-playing – and out-earning – corporate armies. Lloyd Blankfein, whose commercially brilliant leadership of Goldman Sachs earned him this newspaper’s acknowledgment as Person of the Year, had a good war. But John Paulson, the hedge fund manager who shorted subprime, emerged from the crisis a billionaire.

We live in an age of unprecedented opportunity for the smartest, most persistent, and most cunning among us – and, incredibly, today’s rags-to-riches stories are emerging not just from Harvard dorm rooms, but also from the software centres of Bangalore and the oil fields of Siberia.

Our cultural reflex is to assume that this weakening of old hierarchies and removal of traditional bars to economic and social entry will have an egalitarian effect: think of the fondly recalled Little House on the Prairie equality of the American frontier, in contrast to the gently mocked My Fair Lady divisions of the old world.

This time, though, the same forces that have allowed the super-talented to claim a reward that is richer and can be earned more swiftly than ever before have also made society more unequal. Globalisation and its enabling technologies have had a winner-takes-all effect: the gap between Oprah Winfrey and Chicago’s third or fourth best talk show host is far greater than it would have been 40 years ago. Both globalisation and technology have had a punishing impact on those without the intellect, luck, or chutzpah to profit from them: median wages have stagnated as machines and developing world workers have pushed down the value of low-skilled labour in the west.

This dynamic has been most pronounced in the US: between 1997 and 2001, the top 10 per cent of US earners received 49 per cent of the growth in aggregate real wages and salaries, while the top 1 per cent received an astonishing 24 per cent. Meanwhile, the bottom 50 per cent received under 13 per cent, just over half of what went to the top 1 per cent.

For anyone who values openness as a core political goal, this increase in income inequality is a troubling conundrum. We live in an age of unprecedented openness – of ideas, of people, of trade. But for the middle class, these opportunities have been largely theoretical: in America, social mobility has actually declined.

Until 2008, none of this seemed to matter much. The wondrous inventions of the plutocracy – iPhones, Google, Amazon – improved everyone’s life. The less wondrous inventions – particularly the explosion of subprime credit – masked the rise of income inequality for many of those on the losing end of the global shift.

But the financial crisis, and the economic recession it triggered, have made the gap between the super-rich and the rest of us a pressing political issue. It is one thing to lionise multi-millionaire financiers when you have a job and have just used the exploding value of your house to enjoy a home-equity-loan-funded vacation; but when unemployment is at 10 per cent and house values have plummeted, Wall Street’s nearly instant return to pre-crash compensation levels seems a lot less benign.

One sign of the sudden political salience of income inequality is that it has become a focus not just for the left but also the right. Former Republican vice-presidential candidate Sarah Palin is regularly dismissed by the chattering classes for being provincial and lightly schooled – but these qualities endear her to an American conservative base that has realised it has been left behind by globalisation and technological change.

Rightwing intellectuals, who before the crisis tended to deny that income inequality was increasing or argue that it did not matter, are beginning to pay more explicit attention to the issue, too. Jim Manzi, a software entrepreneur and fellow at the Manhattan Institute, a conservative think-tank, worries in a new essay that “if we let inequality and its underlying causes grow unchecked, we will hollow out the middle class – threatening social cohesion and eventually surrendering our international position”.

One of Mr Manzi’s fears is that income inequality has created a social and cultural gap between the highly educated, hard-working elite and everyone else. He compares the personal and family customs of America’s new super-rich with those of the old Wasp ascendancy. The genius of that elite was its ability to bring the American dream within reach of nearly everyone. If it hopes to emulate the longevity of America’s Wasps, and, more importantly, the political system they created, today’s global plutocracy must figure out how to do the same.

The writer is the FT’s US managing editor