Goldman's Wake: Other Banks Mull Bonus Plans
Will other banks follow Goldman Sachs' lead and forgo bonuses for top executives?
Over the weekend the bank announced that Goldman CEO Lloyd Blankfein and six other top executives will not be receiving cash or stock bonuses for 2008. (Read about the move here) The action was in response to Goldman's struggles this year with soaring mortgage defaults and the seize-up of the credit markets.
The move immediately prompted questions in the investor community about whether or not other banks would follow suit, particularly Morgan Stanley. Morgan and Goldman are the only investment banks left standing after a tumultuous year that saw Merrill Lynch and Bear Stearns sold, and Lehman Brothers go bankrupt.
A spokesman for Morgan Stanley says the company is still in deliberations about its executive and employee bonuses for fiscal year 2008. A decision will be made in the next two weeks.
Morgan Stanley has posted a profit for the first three quarters of this year. Last year, after Morgan Stanley posted a multibillion dollar loss in the fourth quarter, company CEO John Mack decided to forgo his bonus for fiscal 2007.
Through the third quarter, Morgan's revenue was down 20 percent from the same period last year. Bonuses are based on revenue and through the third quarter the former investment bank had accrued a compensation and benefits pool that was 20 percent smaller than the one accrued at the same time last year.
Most of that pool goes to pay for among other things, health care benefits, salaries and commissions for its brokers. Bonus money is not a majority of the accrued compensation.
JPMorgan Chase declined to say if its top executives would forgo bonuses this year.
People close to the bank, which is profitable through the third quarter, note the company pays for performance. Given the firm is making less money this year it is not a stretch to realize bonuses will be down.
CNBC reported several weeks ago managing directors of the firm's investment banking division were told bonuses would be down 30 percent to 50 percent from last year.
Bank of America's board has not made any final decision regarding executive compensation, though compensation is expected to be down from last year.
At a hearing before the Senate Banking Committee last week, Bank of America Chief Marketing Officer Anne Finucane said 2008 compensation for senior executives will be down more than 50 percent from last year.
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At Citigroup , the board of directors released a statement saying it will put off a decision about compensation until 2009. Citigroup has faced direct pressure from New York Attorney General Andrew Cuomo to declare that its top executives will not be getting bonuses this year.
"The Citi Board of Directors will make decisions about the structure and level of compensation after the end of the year," the bank's board said. "The factors that the Board takes into account in making its decisions are set out in our Senior Executive Compensation Guidelines, which emphasize pay for performance. As previously announced, we will not use TARP funding for compensation."