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Tess Vigeland: It is bonus season on Wall Street. But this year, the stockings aren’t quite as stuffed as usual. Goldman Sachs is cutting partner bonuses by up to 80 percent. Morgan Stanley’s bonus pool will be half as big as last year, and its executives won’t take home a bonus, period. Credit Suisse is taking the unusual step of funding bonuses with proceeds from some of the bad assets it’s trying to take off its books. But all this begs the question: Why is anyone on Wall Street getting a bonus this year? Marketplace’s Jeremy Hobson has that story from New York.
Jeremy Hobson: When it comes to bonuses around Christmas time, I can’t help but think of Clark W. Griswold in National Lampoon’s Christmas Vacation. He had already put the down-payment on a swimming pool when his bonus arrived.
Clark Griswold: It’s a one year membership in the jelly of the month club.
Ellen Griswold: Oh God.
Cousin Eddie Johnson: Clark, that’s the gift that keeps on giving the whole year.
The problem, as Clark told his boss just minutes later, was this:
Clark Griswold: If you don’t want to give bonuses, fine! But when people count on them as part of their salary…
And that is the problem with doing away with Wall Street bonuses, says Charles Elson who directs the Center for Corporate Governance at the University of Delaware. He says bonuses are part of the salary because they incentivize workers to make money for the firm. Sort of like tips for waiters.
Charles Elson: I think when a bonus becomes sort of a normal part of the salary structure, then it’s no longer a bonus. But the problem is, it’s called a bonus.
Something that doesn’t sit well with shareholders. Elson says the other problem is some employees haven’t contributed to losses.
Elson: There are people in certain divisions that have had very good years and produced profits for the bank that offset some of the losses that were taken in the other divisions.
But what about bonuses that were based on pumped up short term gains. For that, banks can turn to clawbacks, taking back past bonuses that weren’t really justified. Don’t count on that happening, Elson says.
Elson: If I told you we could expect a series of clawbacks from those banks, I have a very nice bridge for sale as well.
But firms may have to start repealing bonuses soon, because just like bridges, many banks are now funded by the taxpayer.
In New York, I’m Jeremy Hobson for Marketplace.
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