Saturday, January 31, 2009

"From 2002 to 2008, the five biggest Wall Street securities firms [Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch, and Morgan Stanley] paid an estimated $190 billion in bonuses. Those companies churned out $76 billion in combined profits during the same period. Last year, the companies had a combined net loss of $25.3 billion, yet paid bonuses of roughly $26 billion."

Lucchetti, Aaron and Matthew Karnitschnig. 2009. "On Street, New Reality on Pay Sets In: Financial Firms Race to Reset Compensation Policies as U.S. Government Aims to Set Some Limits." Wall Street Journal (31 January): p. B 1.


Shag from Brookline said...

Is it clear that the bonuses paid reduced the amount of income or increased the amount of loss during the years in question? Were the profits for 2002-7 before bonuses $266 billion? In 2008 was there income of $700 million before bonuses were paid?

Michael Perelman said...

I don't know, but the recent behavior of Thain in rushing through the Merrill bonuses is interesting.

Jack said...

What ever the relative size of the profits may have been during the period noted the bonuses were still outsized. If we assume real profits of $266 billion, which seems likely, the bonuses took over 70% of that profit. Who the devil was on the compensation committees of those firms? All five firms are public traded compaines, though Goldman Sachs is mostly closely held. How do the stock holders derive maximum value if the senior employees walk off with 70+% of the profits year after year? It appears to be a bigger share of profits than even the hedge fund managers skim off the top.