Wednesday, August 12, 2009

Guaranteed Bonuses Back and Face Scrutiny

WSJ 8/13 $100 Million for Mr. Hall?
As trading has been the main source of recent Bank profits, the biggest bonus commitments are being made to Bond Salesman, Currency and Derivatives Traders, and computer programmers and others who support those operations. “Is Wall Street again going to overpromise, and then when the market turns down, we’ll have another set of pay problems?” asked pay consultant Alan Johnson?

Guarantees are roughly a third smaller than at the 2007 market height, although they are bigger than last year, Johnson said. “The absolute levels are by historical standards moderate, but it is a big change from where we were at the beginning of the year”.
Summary of some well-known Employers:
Citi and B of A have offered guarantees, arguing that they are necessary to attract new employees and keep existinG. Foreign banks like Nomura (Japan), Credit Suisse (Switzerland) and Barclays (Britain) making guarantees in hopes of poaching talent.

Stronger banks that have repaid bailout money and not subject to restrictions — Goldman, JPMorgan Chase and Morgan Stanley — have also begun offering guarantees.

Former Goldman partner in London, signed a multimillion-dollar contract recently with B of A that she told former associates was worth $15 million a year for two years and included a guarantee, according to a person with knowledge of her pay.

In the last few months, Citi has lured several senior derivatives traders — including Dan Petherick, Rachel Lord and Stefanos Bitzakidis — away from MS with multimillion-dollar, multiyear guarantees. Citi spokesman said that attracting and retaining the best talent was “very important” to the success of Citi and all stakeholders, including taxpayers.

Morgan Stanley, after posting dismal second-quarter trading results, has been canvassing Wall Street trading desks. After picking off currency and rate traders at JPMorgan and Deutsche Bank, MS recently used one-year guarantees to hire three Citi traders and approached several more with similar offers.

Obama administration pay czar, Kenneth Feinberg
(pictured) is preparing to review how compensation should be structured at seven companies that received two or more federal bailouts. Resurgence of bonus guarantees underscores how difficult it is to control Wall Street pay, despite the public outcry over how taxpayer money is being spent. Feinberg amust decide how much overall compensation is too much, even when the pay is tied to performance, like the $100 million package that Citi promised to trader Andrew Hall. (See WSJ 8/13)

Companies must each submit 2009 compensation plans for their top 25 earners by Thursday, and Feinberg has 60 days to rule on them. He has the authority to single out any of those employees and adjust their pay packages. Some rivals of the bailed-out have already benefited from being out of reach of the government’s pay czar. Jeff Michaels, head of Citi’s US interest rate trading, found Nomura knocking with an offer that would guarantee him as much as $10 million for 2009 and 2010. That’s nearly twice the $6 million bonus he received last year when he joined Citi from Lehman.

Summary courtesy of Dealbook. Click for access to Full NYT article here to see 293 comments as of 8/10 August 10th 3:53 pm

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