Five firms on Wall St. pay $39b in bonuses
By Bloomberg News, January 18, 2008
NEW YORK - Wall Street's five biggest firms are paying a record $39 billion in bonuses for 2007, a year when three of them suffered the worst quarterly losses in their history and shareholders lost more than $80 billion.
Bonuses for 2007 will exceed the $36 billion distributed in 2006, when the industry reported record high profits.
Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc., and Bear Stearns Cos. together awarded $65.6 billion in compensation and benefits last year to their 186,000 employees.
The New York-based firms, which shed 25 percent of their equity value in 2007, have said they're eliminating at least 6,200 jobs amid mounting losses from the collapse of the subprime mortgage market. The payouts come as the US economy slows, with unemployment rising, retail sales declining, and new home foreclosures surging to a reord.
"To many people, it will be shocking and questionable," said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. "People in New York in the world of investment banking will understand it. It's critical that pay is still there or you're going to lose really good people."
The industry's bonuses are larger than the gross domestic products of Sri Lanka or Bulgaria, and the average bonus of $219,198 is more than four times the median US household income in 2006, according the US Census Bureau.
Shareholders in the securities industry endured their worst year since 2002, as Merrill and Bear Stearns slumped more than 40 percent in New York trading. Morgan Stanley fell 21 percent and Lehman dropped 16 percent. Only Goldman rose, up 7.9 percent.
"Wall Street firms have always been run, and likely always will be run, for the upper-level management, not for the shareholders," said James Ellman, of San Francisco-based SeaCliff Capital.
"Firms shed 17,000 jobs in January: The losses, first in 4 years, point to slowing economy"
By Robert Gavin, Boston Globe Staff, February 2, 2008
Employers trimmed jobs from their payrolls for the first time in more than four years, adding to evidence that the US economy is sliding into recession - if not already there.
The Labor Department yesterday reported the nation shed 17,000 jobs in January, the first losses since August 2003. The unemployment rate slipped to 4.9 percent from 5 percent in December, but still has risen a half-point since March. Such an increase frequently signals a recession.
"The economy is weakening," said James O'Sullivan, economist at UBS AG in Stamford, Conn. "The data is consistent with the economy going into recession."
The deterioration of the labor market threatens to remove one of the last supports for the struggling US economy. As long as employment grows, economists say, consumers, who drive about 70 percent of economic activity, will spend. But if employment contracts, so will spending and the economy.
Economists, however, were reluctant to put a lot of stock into the job-loss number, which is subject to revision. Last August, for example, the Labor Department initially reported a loss of 4,000 jobs, but ultimately revised that to a gain of 74,000 jobs. And last month, the department reported the nation added just 18,000 jobs in December, but revised it to 82,000 yesterday.
But, economists said, it's clear the job market is faltering in the face of battered housing markets and high energy costs. Construction and manufacturing jettisoned a combined 55,000 jobs in January, after losing 65,000 in December. Meanwhile, the service sector, which accounts for about 85 percent of employment, also weakened. Service establishments - from retailers to universities to technology firms - added just 34,000 jobs in January, after boosting payrolls by more than 140,000 in December.
"We're clearly slowing and slowing sharply," said Nigel Gault, chief US economist at Global Insight, a forecasting firm in Waltham. "The deterioration is real, it's progressing, and if it doesn't get to a recession, it's going to be pretty close."
The Federal Reserve has moved aggressively to head off a recession, slashing its benchmark interest rate to the lowest level in nearly three years. Economists expect the Fed to keep cutting. Lower interest rates stimulate the economy by reducing borrowing costs and encouraging consumers and businesses to spend.
Also, Congress and the Bush administration are moving to enact a stimulus package that could send checks of $600 per individual and $1,200 per household to most workers. Economists, however, say the full impact of those measures probably won't kick in until the second half of the year.
"The question is: Can we make it through until they take effect?" said Gault.
Businesses, too, are wondering. Hugh Mason, president and owner of Mason Box Co. of North Attleborough, said his customers are unsure of where the economy is heading, and orders have slowed in recent months. He's cut temporary workers, who accounted for roughly one-quarter of his workforce, and is now sitting tight with about 85 employees.
"Uncertainty began creeping into the market in November," Mason said. "The economic information we're getting can be confusing, and it becomes more difficult" to make business decisions.
Yesterday, the economy sent more mixed signals. A survey of US manufacturers showed activity expanding in January after contracting in December. But other reports showed construction spending falling sharply and consumer sentiment slipping.
The muddled outlook means firms will continue to hire cautiously, with job growth flat or negative over two to three months, said John Silvia, chief economist at Wachovia Corp. in Charlotte, N.C.
"It's too uncertain of a time to have usual labor market hiring," Silvia said. "No one is going to hire in February after seeing the January employment numbers. They're just going to put it off."
Staffing firms, considered by analysts to be a leading indicator of the job market, said they, too, see employers acting cautiously. Traci Izzo, executive vice president at Vedior North America of Wakefield, said firms seem more reluctant to hire permanently, offering temporary positions with the possibility of permanent jobs later.
Beverly Benjamin, 44, of Mattapan, this week completed a five-month temp assignment at a financial services company for staffing firm Adecco. She's been looking in recent weeks for a new job in anticipation of her contract ending, but without luck.
"It's challenging out there," she said. "It's slow and a lot of people are looking."
Robert Gavin can be reached at email@example.com.
THE SAVINGS GAME, The Boston Globe Online, By Humberto Cruz, March 1, 2008
"The 'magic' of compounding is what makes retirement savings grow so much"
I feel good that, by saving regularly and staying clear of credit card debt, my wife, Georgina, and I could quit full-time work in our 50s and enjoy a fun-filled semiretirement.
And even though our combined incomes never put us beyond the middle income-tax bracket (if that high), we built a seven-figure nest egg that keeps growing thanks to the "magic" of compounding.
My point, after reading a new survey on Americans' savings habits, is that most don't understand how simple - and yes, fun - saving can be.
Admittedly, it can be tough to save if you face large regular or unexpected expenses or have low or unreliable income, the factors most often mentioned.
But social and psychological factors also play a big role, based on the survey by Opinion Research Corp. for the Consumer Federation of America and Wachovia Corp.
Of more than 2,000 adult Americans, 17 percent said they cannot save at all and another 35 percent said they are not saving enough.
Among this combined group, 37 percent said "impulse spending" was a barrier to saving. "Spending to feel good" was cited by 29 percent; "social pressure from friends or family" by 20 percent; "trips to the mall" by 15 percent; and "playing the lottery or gambling" by 8 percent.
Not surprisingly, 42 percent said credit cards make it difficult to save and 60 percent reported having large consumer debt.
Georgina and I never had those problems. Our families came to the United States from Communist Cuba in the 1960s, leaving all material possessions behind. No impulse spending for us when every penny went for basic necessities.
In the Consumer Federation/Wachovia survey, among Americans who don't save at all or not enough, impulse buying is a problem for 46 percent of those making at least $75,000 a year compared to 32 percent of those making less than $35,000.
Solutions? Leave the credit cards at home when going to the mall and volunteer your time to help others so you don't need to spend to feel good. Also, set up automatic transfers from your checking account into a savings or investment account.
Georgina and I got started by automatically depositing $100 a month into a mutual fund, increasing the amount regularly as our finances improved and watching our balance grow, thanks to compound interest.
In the survey, "knowledge of interest compounding" beat all other choices for incentives to saving, including access to workplace retirement programs, savings accounts with a 5 percent interest rate, automatic transfers from checking to savings, and encouragement from family and friends.
Unfortunately, the survey stated incorrectly that savings of $200 a month compounding at 5 percent a year for 30 years would grow to more than $300,000. Given those numbers, 80 percent of the people who don't save at all or not enough said that would be important information in persuading them to save.
In reality, it would take 40 years, not 30, to accumulate the $300,000. But it hardly matters. After I noticed the mistake, this and related questions, with the correct numbers, were asked of a similar group. This time, the percentage that said the information was important in getting them to save was even higher, at 83 percent.
"That doesn't surprise me," said Stephen Brobeck, executive director of the consumer federation. "Most people underestimate the power of compound interest."
The point: "We want to get that message out to more Americans. Small amounts of savings can add significantly over time," said Kathryn Black, senior vice president for Wachovia.
Looking over our portfolio, I know that's true.
Humberto Cruz is a syndicated columnist. He can be reached at AskHumberto@aol.com.
"States' budget crises will hurt millions"
By Aaron C. Davis, Associated Press Writer, March 17, 2008
SACRAMENTO, Calif. --Financially strapped states are looking to take away government health insurance and benefits from millions of Americans already struggling with a souring economy.
An Associated Press review of the budgets in all 50 states reveals coverage would be eliminated for hundreds of thousands of poor children, disabled and the elderly. More than 10 million people would lose dental care, access to specialists, name-brand prescription drugs or other benefits. About 20 million could see their care jeopardized by further cuts to doctors' reimbursements.
Health care is a choice target as governors and legislators confront the worst deficits they've faced in a decade or more, but that's not their only target: They're also considering cuts in aid to schools and universities, shrinking state workforces and even releasing prisoners before their sentences are completed.
Safety-net programs for the elderly, disabled and out-of-work also could be cut, even as the demand for those services is on the rise.
Despite the dire conditions, only a handful of states are seriously considering general tax increases or even modest hikes on the wealthy to close the gaps. Lawmakers say they fear such actions would only further stress the economy.
Instead, states are looking to increase lottery ticket sales, promote Indian gambling or further raise taxes on cigarettes and alcohol. Those taxes disproportionately hit the pocketbooks of the same poor and working-class that would be hurt by the spending cuts, studies show.
Nearly two dozen states are grappling with deep cuts and tax proposals to close shortfalls totaling more than $34 billion. That includes California, where lawmakers have made emergency cuts and authorized billions in bond sales to halve a deficit once projected at $16 billion through June 2009. Another dozen states are bracing for falling revenue.
In California alone, lawmakers already have cut more than $1 billion in payments to physicians caring for 6.5 million people who rely on the state for health care. The move will push untold numbers from doctors' offices to overcrowded clinics and emergency rooms.
Gov. Arnold Schwarzenegger also has proposed cutting dental care for 3 million adults on Medicaid and benefits such as foot checkups for diabetes patients to detect infections that can lead to amputations.
"We're at the edge. If the same economic news continues, we're going to see cuts as deep as in the last recession, or worse," said Cindy Mann, executive director of the Center for Children and Families at Georgetown University.
"The juxtaposition is that every presidential candidate will now tell you that addressing health care coverage is first and foremost on people's minds. But the first line of defense has to be not letting us go backwards."
Unlike the federal government, which can spend more than the revenue it takes in, almost all states are bound by their constitutions to maintain balanced budgets.
Residents of Sun Belt states that had enjoyed a boom in housing construction and rising real estate prices will be particularly hard hit. The same is true for residents in states with significant financial-service industries. Those states face their largest deficits since the recession following 2001. Some are in their worst fiscal shape in decades.
Arizona must cut about $1.2 billion, or 11 percent of state spending. Florida already has cut $1 billion and is looking to shave another $2 billion from its $70-billion budget.
Wall Street firms, once geysers of tax revenue for New York, are slumping from tight credit and the subprime mortgage crisis -- contributing to the state's $4.1 billion shortfall. Nearly $1 billion from Medicaid and other health care programs could be cut to help close the gap.
The budget pain is not spread equally from state to state, or even region to region.
Some states -- especially Alaska, New Mexico, Wyoming and others rich in oil and gas reserves -- are booming. In Wyoming, for example, a state savings fund from tax revenue from energy production will overflow with a projected $4 billion by 2010.
Farm states, by and large, also are doing well. Growing worldwide demand for grains and an expected ethanol boom have pushed corn and soybean prices to record highs, prompting a buying spree by farmers in South Dakota, Nebraska, Kansas and Iowa.
Still, those states remain susceptible to falling consumer confidence, inflation and other economic pressures if the downturn intensifies, said Arturo Perez, a financial analyst with the National Conference of State Legislatures. But for now, they are relatively safe; they never had a housing boom, so they've been spared the housing bust that has stalled economies elsewhere.
"As one of our analysts in Kansas said, 'The reasons we don't have the hangover now is we missed the party,'" Perez said.
Clearly, the party is over elsewhere.
Under plans approved or working their way through nearly a third of the nation's state legislatures, coverage will be eliminated for hundreds of thousands of poor children, disabled and the elderly, as well as the mentally ill and even pregnant mothers.
In Arizona, primary care funding for community clinics would be cut by a third, or roughly 41,000 patient visits a year. In Hawaii, care for Alzheimer's patients would be cut.
In South Carolina, 70,000 poor children could be denied regular checkups and more than 5,000 would lose meal deliveries as the state considers cutting nearly 5 percent from its current-year budget.
In Ohio, the state's job and family services agency faces cuts. In Rhode Island, one in 10 elderly patients eligible for nursing home care could be pushed to cheaper settings, forced to rely on visiting nurses or family members for care.
State budget officials say they have no choice but to make substantial cuts to health and human services when revenue falls because it is one of the largest areas of state spending.
"We need to cut billions; we can't ignore the big areas where we do our spending," said Mike Genest, state finance director in California, where Schwarzenegger has proposed across-the-board cuts to most state agencies.
The middle class will not be far behind in feeling pain. Schools and public safety programs usually exempt in the first years of a downturn also are on the chopping block. Among other proposals:
--State colleges and universities in at least six states may have to boost fees for more than 4 million students to cover funding cuts. College-bound graduates in Florida and Idaho would lose scholarships.
--K-12 students in Alabama, Arizona and Florida could face more crowded classrooms or other effects of education cuts. Some lawmakers are looking to freeze teachers' pay or halt school construction.
--New Jersey Gov. Jon Corzine -- grappling with a $3.2 billion deficit, or nearly 10 percent of the state's general fund -- wants to refinance the state's debts by targeting hundreds of thousands of commuters already hurting from high gas prices. They could pay twice as much for tolls by 2010 and see big increases every few years afterward. The cost of an average trip on the New Jersey Turnpike would rise from $1.20 to $5.85 within a decade. Corzine also wants to cut property tax rebates, and aid to localities, hospitals and state colleges and universities. He says New Jersey government must shed 3,000 jobs.
--Maryland, one of only two states to have approved general tax increases in the last year, may have to make cuts because of deteriorating revenue. University funding and money for Chesapeake Bay restoration may be cut.
--Schwarzenegger has proposed closing nearly one in five California state parks. Three other states would reduce park hours.
--Ohio and California may release tens of thousands of prison inmates before they complete their sentences.
At the same time they are considering such cuts, lawmakers are resisting broad tax increases or closing loopholes on businesses and the well-to-do to help cover the gaps.
In California, for example, Republican lawmakers blocked a measure last month to require buyers of luxury yachts, private planes and motor homes to pay state sales tax. Currently, they can avoid it by purchasing and keeping the property out of California for three months. Closing the loophole would have brought an estimated $21 million to the state.
Alabama lawmakers recently rejected tax increases on companies operating natural gas wells along the state's coast, revenue that would have gone to cover increased Medicaid and prison costs.
Other governors who are trying to buck the trend are finding it hard. Illinois Gov. Rod Blagojevich is proposing to expand health care programs with about $1 billion in new payroll taxes, but he's facing stiff resistance. And in New York, state Senate Republicans are opposing a plan to generate $1.9 billion by closing corporate tax loopholes.
To avoid draconian budget cuts, some states are seeking creative solutions. Arizona Gov. Janet Napolitano, a Democrat, has proposed adding automated speeding ticket cameras to state freeways to raise $90 million.
Diane Rowland, executive director of the nonprofit Kaiser Family Foundation's Commission on Medicaid and the Uninsured, said the current downturn could be particularly painful because there has been very little time since the last downturn for states to restore funding to benefits they cut.
Last time "they took out all the ways to make it more cost-effective," Rowland said. "Now, the only place to cut is at the core."
Associated Press Writers Seanna Adcox in Columbia, S.C., and Solvej Schou in Los Angeles contributed to this report.
"Super Rich: 'It's Not About Necessity': Economic Downturn Has Little Impact on Wealthy Americans Who Specialize in Spending"
By BIANNA GOLODRYGA and MAGGIE BURBANK, ABC News
May 16, 2008—
You probably wouldn't recognize Paul Parmar, but he is one of the fresh new faces of the super rich, and he says he's "not really" affected by the current economic downturn.
Robert Frank, the personal wealth columnist for The Wall Street Journal and the author of "Richistan," said there's a new model for wealth in America.
"Since the 1930s, more than half of America's wealth came from inherited wealth, so we all know about the Rockefellers and the Astors and the DuPonts," he said. "But in the last 10 years, it's all new money."
Parmar, 37, is a prime example of a modern-day multimillionaire, living a life most people could only dream of. Home for Parmar is a 40,000 square foot mansion in Colts Neck, N.J., complete with four swimming pools (one indoor, three outdoor), a tennis court and a two-lane bowling alley.
Watch the story tonight on "Nightline" at 11:35 p.m. ET
Residing in 'Richistan'
"They truly live in their own world or their own country that I call Richistan," said Frank. "And even I underestimated the degree to which the wealthy are almost oblivious to the fact that we are in a recession. The super rich are unaffected."
Parmar founded Pegasus Consulting Group in 1995 and, according to his firm's Web site, guided the company's growth to a staff of more than 700. Parmar is also the founder and Chairman of Pegasus Blue Star Fund, and his fortune is spread across a portfolio of investments from finance to aviation to movies, both Bollywood and Hollywood.
Most recently, he produced the movie "Before the Devil Knows You're Dead" starring Philip Seymour Hoffman.
And his new area of investment is health care.
"I say, what segment can I make the most impact in," Parmar said. "And if you look at health care, it's completely broken, it's inefficient. So we see us as someone who can make an impact on that inefficiency."
"Nightline" tagged along with Parmar and his girlfriend, Amanda, on a whirlwind weekend trip -- business mixed with pleasure (including Dom Perignon Champagne on his private jet, which took us to Orlando).
Parmar was picked up by a Rolls Royce and stopped at an exotic car club where you can rent a car so rare, you can't fill it up with regular gasoline.
"I have two aviation companies, so I have easy access to aviation fuel, which works," said Parmar. "You can put jet fuel in these cars and you'll be fine."
Then it was off to Anguilla for a two-hour business meeting before returning to New York.
The Growing Wealth Gap
As many Americans watch personal investments like their homes go belly up, many of the super rich have seen their fortunes grow.
"The median income in America is still around $48,000, and that's been flat for about the last 10 years," said Frank. "Meanwhile, the top 1 percent of Americans control 33 percent of the wealth. That top 1 percent owns $17 trillion in wealth, which for perspective, is greater than the GDPs of Japan, Germany, the U.K. and France combined."
Even the top 1 percent's dogs live well. Parmar's five purebreds are fed chicken and steak.
"I think it comes down to fundamentals of how I invest," Parmar said. "I didn't go rob a bank."
But even Warren Buffett -- the world's richest man whose estimated wealth hovers around $60 billion -- worries about the burgeoning wealth gap.
"My tax rate is courtesy of the U.S. Congress, and the people that pay very high taxes like my cleaning lady, who pays more on her payroll tax than I pay on capital gains," Buffett said. "This has been a prosperity that has been great for the super rich, and it's been bad for the middle class and I think that should be changed."
So Buffett lives modestly in a modest home and has pledged to give most of his fortune to charity. When asked if he has similar plans, Parmar said, "you're talking about Warren Buffet who is at the end of his career -- I have just started."
Parmar said that he gives 2 to 3 percent of his earnings each year to charity.
"Most of the time with me the question begins with someone who feels strongly in the story and makes me believe in it. And if that happens, I'll do a donation.
And Parmar said he is also helping in other ways, by spending more. "If everyone at my level stops spending & it's going to hurt the economy even worse," he said.
Robert Frank disagrees. He said a problem occurs "when you say your private jet is for the sake of the greater good, when you say, 'Well, I'm buying this to benefit the larger economy' or 'Look at all the jobs I support.' Forget it. You know, trickle down has its limits, and if you're living in a 45,000-square-foot house, you're doing it for yourself, not for the rest of us."
How Much Is Too Much?
As many of the rest of us struggle with the daily rigors of this economic downturn, Parmar remains a bit, shall we say, disconnected. Take his bills, for example:
"My staff pays them," he said.
And the value of his home?
"I probably think it's gone up in value," he said.
He said that the outcome of the presidential election will "probably not" change his lifestyle.
Frank said that Americans have a love-hate relationship with the rich.
"Americans have always been ambivalent about wealth," he said. "They aspire to be wealthy, but at the same time, they wonder, wait a minute, you know I'm a working schlub, I'm worried about gas prices, and this guy is making more than a billion dollars a year in some cases. They're wondering, wait a minute, how much is too much?"
Standing inside the bowling alley in his home, Parmar said his lifestyle is not a question of what he needs.
"It's not a question about necessity at all," he said. "You know if you ask the people that know me very well, there is probably less than 10,000 square feet of this house that I actually use on a regular basis."
"I think today's wealthy, in 2008, in the middle of recession, should not be parading around their wealth," said Frank. "But frankly, in their world, they don't see anything wrong with it. So, today's wealthy should be concerned about how they're perceived. For themselves, but also, for the preservation of today's wealthy. If you don't want a revolution in America, you should be quiet about your wealth."
Parmar does have some wealth management advice of his own.
When asked what he'd tell somone who said, "I have $50, what should I do with it?" he replied, "You could go skydiving."
"Yes," he said. "It's a good way to spend it."
"Fixer-up: New CEOs at troubled companies earn top pay in '07"
By Ellen Simon, AP Business Writer, June 16, 2008
NEW YORK --CEOs who take over a company in crisis are like plumbers who get an emergency call on a stormy Sunday night: They can charge whatever they want. And they usually do.
Nearly one in 10 chief executives in the Standard & Poor's 500 was new to the job last year. Many were planned successions. For instance, Ian M. Cook, 55, replaced Reuben Mark, 69, at Colgate-Palmolive Co. when Mark retired on July 1, a date set months in advance.
Homegrown replacements like Cook, who had been groomed for the job for years, don't command above-average pay packages. He earned $8.3 million as CEO in 2007, close to the median pay for the leaders of Standard & Poor's 500 companies, according to an Associated Press analysis.
But newcomers at companies in crisis -- where the previous CEO resigned hastily and the board is thrashed by red ink and beset by angry investors -- charge accordingly.
With stock prices falling and whiteboards full of hard decisions to make, boards offer rich compensation packages to get the new chief on board quickly.
Consider John Thain at Merrill Lynch & Co., Vikram Pandit at Citigroup Inc. and Glenn Murphy at Gap Inc., all of whom were well compensated in 2007 for taking what amounted to high-profile clean-up jobs.
Thain joined Merrill on Dec. 1 after former CEO Stan O'Neal was ousted following steep losses and credit write-downs. Thain's total pay was $83.9 million in 2007, making him the most highly compensated CEO of the 410 companies in the AP's database.
Pandit came to Citigroup in December after former CEO Charles Prince fell to the credit crises. Pandit's 2007 pay was $3.16 million. However, Citi's board awarded him $102 million in cash, stock and options in January. If the awards had been paid in December, it would have made him the highest paid CEO for the year.
Murphy was hired by Gap in July to replace interim CEO Robert Fisher, the company's co-founder, who took the job following the exit of Paul Pressler in early 2007. Murphy's total pay, $39.07 million in 2007, ranks No. 9.
The cheapest emergency CEO comes at just $1 for the year. It's Jerry Yang, the co-founder of Yahoo Inc., who replaced Terry Semel last June when Semel was ousted over the stock's decline -- and his hefty pay.
Semel ranked No. 1 for 2006 pay on The AP's list, with total compensation of $71.7 million. While Yang's current pay is modest, he's a man of means. His 3.9 percent stake in Yahoo is worth $1.4 billion.
While it's too soon to judge success for the new CEOs, the storms that drove the former leaders out haven't passed. Merrill, the world's largest brokerage, reported its third straight quarterly loss in April. Citigroup's first-quarter loss totaled $5.1 billion. At Gap, sales at stores open for a least a year continued to slide, but thanks to cost-cutting and inventory management, the company reported a 40 percent increase in first-quarter profits.
If the three CEOs can successfully turn around the companies, their compensation may be viewed as a footnote, a small percentage of earnings. If not, it may be viewed as another sign that the market for CEOs is far from perfect.
"It's like going out and comparing ties, or comparing laundry detergent," said Tom Donaldson, an ethics and law professor at the University of Pennsylvania's Wharton School.
"If you have some sense of what you're buying, you compare and buy the best quality for the price." But if your company is in crisis, he said "You don't have time to look, don't have time to compare. It's a strange and imperfect market."
A Boston Globe Editorial: Short Fuse, August 25, 2008
"CEO salaries: Executive excess"
Feeling poorer lately? Maybe it's just in relation to your boss. The annual survey of executive compensation is out this morning, and it finds that in 2007, the average pay of an S&P 500 company CEO was 344 times the salary of an average worker. Thirty years ago, chief executives averaged only 30 to 40 times the average American paycheck. No one begrudges people getting rich. But some compensation deals are unfairly rigged. Just look at the top 50 hedge fund managers, who earned an average of $588 million last year. That's more than 19,000 times an average worker's pay. And, these titans get to pay a lower income tax rate than their secretaries! Some people really know how to celebrate Labor Day.
"DiNapoli: Wall Street bonuses up 17 percent"
Associated Press, February 23, 2010
ALBANY, N.Y. (AP) -- Wall Street bonuses were up 17 percent to over $20 billion in 2009, the year taxpayers bailed out the financial sector after its meltdown, New York state Comptroller Thomas DiNapoli said Tuesday.
Total compensation at the largest securities firms grew beyond that figure and profits could surpass what he calls an unprecedented $55 billion last year, DiNapoli said. That's nearly three times Wall Street's record increase, a rate of growth that is boosted in part by the record losses in 2008 of nearly $43 billion, the Democrat said.
"Wall Street is vital to New York's economy, and the dollars generated by the industry help the state's bottom line," said DiNapoli. "But for most Americans, these huge bonuses are a bitter pill and hard to comprehend. ... Taxpayers bailed them out, and now they're back making money while many New York families are still struggling to make ends meet."
DiNapoli supports reforms that require Wall Street bonuses to be tied to long-term profitability, to force more stability in the volatile markets and "make sure the securities industry thrives without driving the rest of us out on a fragile economic limb."
DiNapoli reviews tax collections each year and bases his annual projection of Wall Street bonuses on income and other taxes paid in New York City.
DiNapoli notes the bonuses help state revenues tremendously as it faces an $8.2 billion deficit, but they are a "bitter pill" to most taxpayers nationwide.
The bonus estimate doesn't include compensation that Wall Streeters chose to take in stock options and other kinds of deferred payment.
He said the bonus pool is a third less than the amount paid out two years ago when Wall Street had its previously most profitable year.
The estimate does not include stock options that have not yet been realized or other forms of deferred compensation. This year's estimated bonus pool is third less than the amount paid two years ago, the previous most profitable year.
For example, Morgan Stanley CEO James Gorman could receive a stock bonus currently valued at $8.1 million for 2009 if he meets certain performance targets, the bank said in January. Gorman is getting deferred stock worth $5.4 million but no cash bonus for 2009, Morgan Stanley said in a filing. Gorman can't cash in the stock for three years.
Banks had been expected to hand out near-record compensation for last year's performance. Several banks earned huge profits in 2009, aided by billions in government bailout funds and a rebounding stock market.
State Attorney General Andrew Cuomo has pressed the nation's eight biggest banks to reveal how much they plan to pay out in employee bonuses for 2009. The Democrat also sought the size of the banks' bonus pool would have been affected if the banks hadn't received a taxpayer rescue at the height of the financial crisis in late 2008.
"Banker Bonuses See Major Comeback: New Report Shows Banker Bonuses, Compensation Saw Big Rebound in 2009"
By CHARLES HERMAN, ABC NEWS Business Unit, February 23, 2010
Wall Street profits and pay roared back in 2009 after the worst year on record, according to a new report by New York State Comptroller Thomas DiNapoli.
Bonuses rose 17 percent to $20.3 billion in 2009, with compensation at Goldman Sachs, Morgan Stanley and JPMorgan Chase rising as much as 31 percent.
Overall, compensation at Wall Street firms rose 27 percent to an average of $340,000. The average taxable bonus rose to $123,850. The annual report only calculates compensation and bonuses paid to employees of Wall Street firms who work in New York City.
"For most Americans, these huge bonuses are a bitter pill and hard to comprehend," said DiNapoli in a statement. "There's a lot of resentment against the industry over its role in the global economic meltdown. Taxpayers bailed them out, and now they're back making money while many New York families are still struggling to make ends meet."
DiNapoli's office estimates total profits at Wall Street firms will exceed a record $55 billion, compared to a record loss of $42.6 billion in 2008. That would be nearly three times greater than the previous record.
Calculating how much banks paid to employees in 2009 proved to be complicated. Banks made "unprecedented changes" in how they awarded bonuses in response to criticism about past pay practices. Banks paid more bonuses in stock rather than cash, deferred payments over several years, and included "clawback" provisions to recover bonuses related to employees engaging in excessively risky behavior.
"We cannot see a repeat of the risky behavior that crippled our economy," said DiNapoli in the statement. "Tying compensation to long-term sustainable profits is a step in the right direction."
At the same time, DiNapoli's office is concerned that state tax returns will actually decline because of compensation being deferred over several years or paid in stock instead of immediately-taxable cash bonuses.
New York state has historically relied heavily upon revenues from taxes on bonuses paid out by Wall Street firms, in some years accounting for nearly one-fifth of the total budget.
Stock Bonuses Bad for State Budget?
The decline in state revenues will worsen the state's already-strained finances -- New York faces a $21 billion budget deficit for the fiscal year that ends in April.
The state was also hurt by a drop in hiring by the financial sector. Employment at Wall Street firms fell 16.7 percent from November 2007 to August 2009, a loss of nearly 31,500 jobs. Since December, just under 4,000 jobs have been created.
For every person hired at a securities firm, three other jobs are created in New York state, according to the Comptroller's office. While Wall Street employees represent only five percent of all the jobs in New York City, they account for nearly a quarter of all the wages paid in 2008.
- Jonathan Melle
- Amherst, NH, United States
- I am a citizen defending the people against corrupt Pols who only serve their Corporate Elite masters, not the people! / My 2 political enemies are Andrea F. Nuciforo, Jr., nicknamed "Luciforo" and former Berkshire County Sheriff Carmen C. Massimiano, Jr. / I have also pasted many of my political essays on "The Berkshire Blog": berkshireeagle.blogspot.com / I AM THE ANTI-FRANK GUINTA! / Please contact me at firstname.lastname@example.org
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