POLITICS

Menendez To Treasury: Investigate Morgan Stanley Bonuses Too

04/17/2009 05:12 am ET | Updated May 25, 2011

Senator Bob Menendez is urging the Treasury Department to look at the retention bonuses issued not just by AIG, but those handed out by fellow bailout recipient Morgan Stanley.

In a letter to Secretary Timothy Geithner, the New Jersey Democrat urges the administration to live by a clear standard that any company that needed rescue by TARP or bailout funds be prohibited from using that money on financial bonuses.

"As I explained in my previous letter, Morgan Stanley plans to pay out $3 billion in retention awards and went to great lengths to ensure that such payouts are not labeled as 'bonuses,' presumably because of the negative connotations associated with that title. The retention payments at AIG and Morgan Stanley are both essentially the same form of extra compensation, and they are not fully necessary to retain executives in this tough financial market. I urge you to use every legal means available to stop these retention awards at Morgan Stanley, so long as those firms are in receipt of taxpayer dollars.

"These payouts constitute misuse of taxpayer money and are an insult to hardworking families who are saving every penny and changing their way of life just to keep their heads above water. Some on Wall Street don't understand that they, more than anyone, cannot be permitted to carry on with business as usual. These times demand shared sacrifice, and since it seems that they will never take it upon themselves, we have to bring them to such an understanding."

On February 11, the Huffington Post reported that the merged entity of Morgan Stanley and Citigroup's Smith Barney, which had received a combined $50 billion in taxpayer funds, had rewarded financial advisers with "retention awards." The company, as Menendez notes, insisted on this phraseology, in large part because of its less controversial connotation.

"There will be a retention award. Please do not call it a bonus," said James Gorman, co-president of Morgan Stanley. "It is not a bonus. It is an award. And it recognizes the importance of keeping our team in place as we go through this integration."

Read the entire letter: here.

The revelation of these payments sparked a bit of anger from Congress, though nothing like the reaction to news that AIG had paid $165 million in bonuses to senior advisers. The two payouts are similar in that the goal of the bonus program is to both honor labor contracts and keep employees in their current capacities. Officials at both Morgan Stanley and AIG have insisted that without such payments, critical members of their work forces would leave in droves to higher paying firms. In private, officials with Morgan Stanley noted that the salaries of financial advisers are largely dependent on the bonuses that they receive.

"Keep in mind, wealth management divisions at Merrill and at Smith Barney have never shown an operating loss," one employee at a brokerage firm told the Huffington Post. "These are very profitable organizations because there is a very talented sales force who do very well for their clients. We are being paid retention deals so those talent advisers don't leave and become independent advisers. So you understand the benefit for an adviser to going independent, you need to understand how they are paid -- they keep approximately 90% of whatever commissions are generated. A wire house financial adviser keeps around 43-46%. Is it more profitable to go independent -- yes. That is the reason why these retention deals are being done."

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