retirement

It's business as usual on Wall Street

Tuesday, Jan. 26
Posted 3 p.m. EST

It's surreal to read about the generous bonuses going to employees of Wall Street banks.

Example: Goldman Sachs has been in the hot seat since October, when the firm revealed its intention to reward its 31,700 workers an average of $700,000 each in bonuses for their performance in 2009. This would have been on top of their six-figure base salaries.

The revelation sparked a public outcry and derogatory remarks about "fat cat bankers" from the President because, after all, Wall Street banks caused the economy to drop to its knees. These same banks received TARP bailout funds because they were deemed "too big to fail." For its part, Goldman Sachs received $10 billion in TARP money, which it since has paid back.

It's hard to imagine how these banks can justify such generous bonuses in the context of dire economic times. One in 10 Americans is out of work. That doesn't include the millions of other unemployed people who have stopped looking for a job. These people have no income, other than unemployment compensation, which is ridiculously low in some states. And which is taxable.

Even for middle class workers who remain gainfully employed, it's hard to fathom getting this kind of payout for one year's worth of work. Most people have to work a lifetime to accumulate $700,000, and only if they're diligent savers. What a windfall to get these outsized bonuses each and every year!

So last week, during its earnings call, in a spirit of conciliation and so-called self-restraint, Goldman Sachs announced that it had reduced its bonus payout. The reduction amounts to a mere $498,000 per employee on average, according to the Wall Street Journal. That represents 35.8 percent of net revenues, or $16.19 billion -- $3 billion less than what they had planned to pay out. That's substantially less than the average of 46.86 percent of revenues that the firm had paid out each year since 1999, when the firm went public.

According to the Deal Journal blog, Goldman's finance chief said the reduced payout was "an attempt to be 'fair' to employees and shareholders but also show 'restraint.'"

Goldman's senior executives won't get cash bonuses and will instead be paid in stock shares that can't be sold for five years. And in a magnanimous gesture, Goldman executives pledged to pay out another $500 million in charitable donations, for a total of more than $1 billion for 2009.

Foul play

But shareholders are not placated. Earlier this month, Illinois' Central Laborers' pension fund and Illinois shareholder Ken Brown filed lawsuits against the firm, calling its bonuses a waste of shareholder money, according to the Huffington Post. And last Tuesday, two days before the firm's earnings call (during which the reduced bonus pool was announced), the pension fund for the Southeastern Pennsylvania Transit Authority filed suit against Goldman Sachs over its executive pay and bonus program, according to Bloomberg.

It's true that long-term shareholders have suffered. Goldman Sachs shares closed near $250 in October 2007. Just over a year later, it had fallen to less than $50 a share. Recall that in fall 2008, the sky was falling. Shareholders of Lehman Brothers and Washington Mutual were completely wiped out, and share prices of all banks fell precipitously as America's financial giants appeared to be on the brink of total collapse.

So far this year Goldman Sachs has been trading between $155 and $177 a share, a nice bump-up from its low but still well below its peak. Says one disgruntled shareholder in the Wall Street Journal's Letters: "Sure, we could sell our stock to express our displeasure, but at greatly reduced prices because of the bankers' actions. Bankers should be giving something back to shareholders and reducing bonuses proportionately to do so, before rewarding more risk-taking by their staffs."

I can't help but wonder how Goldman's execs arrived at the conclusion that a half-million dollar bonus to each of thousands of employees is fair in light of these tough economic times. I'm all for rewarding talent, but these people played a big role in this country's financial crisis. Don't they have a conscience?

I'm reminded of Huckleberry Finn's definition of conscience: "It don't make no difference whether you do right or wrong, a person's conscience ain't got no sense, and just goes for him anyway. … It takes up more room than all the rest of a person's insides, and yet ain't no good, nohow."

Huck was conflicted because of his great love for his slave friend Jim. If he were to follow society's mores of the time, he would have had to turn Jim in to his rightful owner rather than help him escape.

Wall Street's mores regarding fairness seem topsy-turvy today, though in a different way obviously. And conscience seems to occupy very little room in a person's insides in our capitalistic system.

Questions? Comments? E-mail boomerbucks@bankrate.com.

Read more Boomer Bucks blogs.

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