Other Types of Bonuses Deserve an Examination

The well-justified furor over executive bonuses at banks that receive taxpayer money, which has been reignited over the weekend by the reports of AIG bonuses, is rooted in two entirely valid issues. One is the very appropriate concern over the wisdom of these payouts from a business perspective -- Americans have major ownership stakes in these banks and want a return on their investment.

The other is something that is even more visceral: It's about a sense of fairness. Families who have had to trim their budgets, tighten their belts and change the way they live just to get by are understandably furious when they see these banks carrying on with business as usual.

Because of that, positive balance sheets aren't the only things that would be good to see coming out of Wall Street. There would be enormous substantive and psychological value in seeing bank executives proactively demonstrate that they know we're all in this together, that they too have changed their way of life and that they too can sacrifice in times of crisis.

This is why I'm unsettled by the recent reports of banks giving out deferred or creatively-titled bonuses, even as Congress was passing legislation to ban bonuses in banks that receive federal assistance under TARP.

A big part of the concern is about whether these payouts constitute misuse of taxpayer money. Banks have argued that deferred bonuses can be kept completely separate from taxpayer money, though it's been said that money moves around like water at these firms. And banks have also argued that "retention awards" will help keep skilled brokers from jumping to a rival firm, though I doubt there are many jobs on Wall Street to jump to these days.

But beyond whether or not these payouts make for smart business, I am concerned that these actions merely reinforce the perception that Wall Street will go to great lengths to preserve an out-of-touch way of life, even as it stays afloat on taxpayer money.

From a personal perspective, financial institutions have laid off thousands of workers in my home state of New Jersey. It would be comforting to know that their former employers are doing everything they can to get credit flowing, become viable again and start re-hiring -- and it would be comforting to know that that my constituents' jobs weren't lost to save a CEO bonus.

I have asked the Treasury Department to examine whether these alternative bonuses violate the letter or spirit of the law. I would think that if the banks believe these payouts to be necessary and productive, they would welcome this examination wholeheartedly.

But it's really about more than the legality of these bonuses. It's also about whether banks "get it," even after all the controversy.

Do they understand that it seems like they're pulling out all the stops to hang on to the status quo? Do they understand how this looks to families who are feeling a financial squeeze? Do they understand that they are held to a new standard of responsibility that comes with taxpayer money?

The answers to these questions would help us understand if the banks are doing what they're supposed to be doing with taxpayer dollars: jump-starting the lending that allows homebuyers to get responsible mortgages, families to get auto loans, students to pay for their education and small business to create jobs and grow the economy.

Banks need to show they understand what's going on in this economy -- that if your business is in trouble you can't just go about business as usual, that as families tighten their belts, banks have to tighten the reins on their internal expenses. All across America, this is a time for shared sacrifice. Whether they're using taxpayer dollars or not, banks need to focus their resources on lending -- for the sake of their future and for ours.

Comments

[ObjectiveRealist]

It's an insider system in which productive ability does not count. They are paid bonuses for cutting corrupt deals, a very risky game in which few have the necessary mix of avarice and nihilism. Large bonuses are indeed necessary, to attract such personnel. Obviously, they are neither the brightest nor the best -- at anything worthwhile. We have to put an end to the game, not _ask_ them to be more "fair" about the way they play it.

[Robertx5]

I realise my comment will be at a slight tangent, but the underlying issue of executive pay and bonuses will not be resolved until shareholder power and decisions are taken back from institutional investors. I suspect that an individual who owns shares is more likely to insist on a ' restrained ' level of total compensation at any company, but they will always be outvoted by the sheer muscle of the institutional investor, who actually like high renumeration because they want the same for themselves.
But the shareholdings of the institutional investors are merely the aggregation of millions of individuals who entrust them with their savings to invest, and those individuals if asked would probably also expect ' restrained ' compensation levels.
So I would be more impressed by the Senator if he introduced legislation into the House firstly giving shareholders binding rights on renumeration levels, but also restricting institutional investors rights on various company issues unless their depositors­/savers/in­vestors have been allowd to vote on it,
I realise complying with any legislation would be onerous for the institutional investors so likely they will just abstain on certain votes.

[marika]

Whatever happened to that old fashioned idea of earning your salary before receiving a bonus?
Does bankrupting the world economy really deserve a BONUS?
It is really time to do a reality check.

[d2e2]

Mendez is in shock over the bonus plans of the financial industry. Most of us are in shock over the base pay these creeps have. We now have minimum wage laws which are ridiculously low. Is it now time to institute a maximum wage law be based on a multiple of the minimum wage, say four times the minimum.

[JBS]

You know ... speaking of "bonuses".

Whatever happened to the tax cut or whatever that was supposed to help working stiff's like me so we'd have a little more money to spend and help stimulate the economy?

Last I heard, it was supposed to be a cut in the payroll withholding tax. When is that supposed to start?

It won't be enough to offset the 6-1/2% pay cut I got at the beginning of the year, but it'd maybe pay for lunch ... as long as I don't get sick and tired of eating peanut butter sandwiches every day.

[usedtowander]

Golly Senator. You're really out there free-floating aren't you?

There is no question that this crisis was created by the long-term effort of Republicans, in concert with Wall Street, to eliminate regulations that could have prevented this and eliminate any real enforcement of what rules were left.

But, now you and the rest of the Democrats will soon own the problem because you're throwing so much more money at the problem without substantive changes from what Henry Paulson, the patron saint of wall street, created. Not even a little bit of innovation and discipline.

The bonus system within AIG is not the point. The point is that these individuals are being paid as much as $6.8M as a bonus, on top of a base salary - for an unknown amount. All in a company that shouldn't still exist and is only being kept alive with your (collectively) assistance.

The Democratic Party and the Obama administration has decided it is more important to keep these institutions working than anything else. The side effect is a horrible unfairness - the very individuals who created the problem are getting paid monster compensation to continue to rip the taxpayers off - with the taxpayers money. There were lots of other alternatives - the Obama administration chose the one that was most expedient for them - knowing that right now they could even do Monica Lewinsky on cable shows and it wouldn't hurt them.

You Democrats have shown the ultimate in disregard for the people.

[Lemon722]

What about our elected officials taking a pay cut too. I'm sure they can afford to give a little back instead of raising taxes, cutting back hours and employees -- waiting for Congress to make the proposal -- one city council guy in LA has suggested it and was booed by his cronies who jealously guard each penny as if it has their name on it.

[radicalcentrist44]

Why talk about it? You are a powerful U.S. Senator who can do something about it.

[panAmerican]

Sen. Menendez, I live in your home state. While I have seen ads urging me and other constituents to call and thank you (and others in Congress) for "delivering" health care for millions more of children, the ads never attributed what you did other than vote yes to make that happen.

Along the same lines, I'd like to know what YOU did to try and curb large compensations at the firms receiving bailouts? Not simply executive compensation, mind you, but compensation of so-called "talent" who generated mind-bending losses, and yet without whom those companies simply cannot survive and compete.

Your "investigations" and "examinations" mean NOTHING to us. We want you to attach strings BEFORE the money is doled out. Fire the losers, put compent people in their place, and only then and in the light of day, give them money if needed. Every dollar given and spent must be made public. I don't want to hear that this event or that bonus was paid for out of normal revenue channels and not out of public funds. That is a disingenuous distinction that doesn't hold water with anyone except you politicians.

[howcome]

You know what also deserves to be examined..­. Auto Pay raises for Congress that go in effect AFTER elections.­.. exorbitant perks and expenses and staffs for Congress ... Pensions and double dipping pensions that are more than what they were paid in congress .... jobs and lobbyists and special interests $$$$$ and nepotism and patronage

[Truby]

"We must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debt, as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our calling and our creeds... Thomas Jefferson

"I have two great enemies, the southern army in front of me and the financial institutions in the rear. Of the two, the one in the rear is the greatest enemy. The money power preys upon the nation in times of peace, and conspires against it in times of adversity. It is more despotic than monarchy, more insolent than autocracy, more selfish than bureaucracy. It denounces, as public enemies, all who question its methods or throw light upon its crimes." Abraham Lincoln

Shall we not heed this advice and endeavor to control these corporations while we still can, for if we do not do it now, while they need us more than we them, we will likely never again have the opportunity.

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[Truby]

As a member of the banking committee, you are well aware that the issue is greater than bonuses. What is at stake is the very control of our nation. The need to rein in the power these multinational corporations have over our government is apparent when they can commandeer billions of tax dollars to prevent them from suffering the same fate that would normally befall a poorly run company.
Our past leaders where very clear on our need to prevent the very situation we have today from occurring.

"And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." Thomas Jefferson

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[Mnemanth]

Senator Menendez-
Before you, or any of your contemporaries, start waving your flags on what's right and wrong, before you start talking "fairness", before you grace us with another letter, you can start by addressing your own salary practices.
Do something worth while and introduce a bill that makes your own raise a matter of public vote. Allow the people- your constituents- to decide whether you've been doing your job or not. Allow the people to reward you for your work accordingly.
As it stands, you and your fellows simply take your "raise" without anyone saying a word to the contrary and, frankly, Sir, that isn't fair. There is no incentive for you to do a better job, to strive for excellence; you just sit back and let the money come.
Don't tell us about "fair". Right now I'm sure you'll understand if the American People feel that you all deserve a stiff pay cut. You can write a letter to Huffington Post, but you can't put regulation in these "hand out"- I mean, "bail out"- proposals?
Please.

[Republicrats]

If a bank took our money, then climb up their colon and see what is going on, if they did not, then push for shareholder reform...

[USA1776]

Oh, please --- the banks have a sense of fairness. You have got to be kidding. The only way TARP money will hit Main Street is through the court system.