Investment Bankers: Get Used To New Pay Structure


Like a married man being interrogated by his wife about an alleged extramarital affair, Lehman Brothers CEO Dick Fuld sat in front of the House Committee on Oversight and Government Reform on Monday for nearly two hours.

He was deflecting accusation after accusation that he misled and profited at the expense of shareholders, holding firmly to the advice given to me by a college roommate with questionable ethics on what to do if a significant other ever accuses me of cheating: Deny Till You Die.

It was clear that the members of Congress cross-examining Fuld weren’t buying his innocence, and in closing, Rep. Henry Waxman, chairman of the committee, told Fuld, “You don’t seem to acknowledge that you did anything wrong.” Indeed, Fuld did an outstanding job of dodging just about every question he was asked, performing especially well on ones merely calling for a yes or no answer, better than any political debate question evader I’ve seen in a long time. However, Fuld did acknowledge one thing, which will go a long way to cut into compensation on Wall Street.

When asked if he’d support the much talked about clawback provisions—in which employees could be forced to give back part or all of their annual incentive bonuses if their performance lags in subsequent years—Fuld refused to answer in the affirmative or negative but did offer his support for “a longer-dated payout system,” alluding to a bonus system based on not one year of performance but several (or, at least, more than one). This was an oblique way of admitting that incentives are currently in place for investment bankers to make short-term gains at the expense of their firm’s shareholders.

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Congress, which was outraged with the millions of dollars Fuld made prior Lehman going bankrupt (you could almost see the representatives imagining how much Fuld’s compensation dwarfed theirs as they grilled the Lehman CEO), is eager to find ways to curtail the compensation structure now ruling Wall Street, and with clawbacks seeming to be a tough sell, a longer-dated payout system just might prevail—and for good reason.

It would allow bankers to keep their incentives to drive up deal volume and their firm’s profits, while maintaining the possibility of big paydays. This would be attractive to bankers and investors alike, and though it wouldn’t create accountability for possible losses several years out (which would certainly cut into bankers incentives and thus investors’ pockets), it offers a solid alternative to giving bonuses in stock, a practice Congress seems less than interested in, given their comments.

When Fuld told the committee he lost millions of dollars in stock after Lehman failed (stock he accepted as part of his compensation) and was perhaps the shareholder who took the biggest hit, Waxman told him, “I don’t accept the fact that you assert the system worked when you lost your stock.”

To be sure, it’s becoming clearer and clearer that about the only thing Congress is willing to accept with respect to Wall Street compensation is the current system doesn’t work, and Monday's hearing was yet another indication that investment bankers, who still have jobs, should start preparing for new ways to accept their bonus checks.


Derek Loosvelt is’s global finance editor. He has a BS in economics from the Wharton School at the University of Pennsylvania and an MFA in creative writing from The New School. He is a writer and editor and has worked for Brill’s Content and Previously, he worked in investment banking at CIBC and Duff & Phelps.

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