Monday, November 23, 2009

Greedspeak: Bailout banksters seek euphemisms for record bonuses

The disappearing Wall St "bonus," but in name only


By Karey Wutkowski and Steve Eder - Analysis
Copyright 2009

WASHINGTON - "Bonus" has become a dirty word on Wall Street, prompting image consultants to advise the biggest financial firms to use euphemisms that carry less stigma as the season of lavish payouts approaches.

A look at Goldman Sachs' (GS.N) quarterly filings with regulators reveals that the term "discretionary bonuses" has been replaced with "discretionary compensation" in the past nine months.

In fact, the most recent quarterly filing had no references to "bonus" at all, despite the fact that the Wall Street giant is on pace to pay out more than $20 billion in year-end bonuses and other compensation, a record level.

Alan Johnson, a compensation consultant with his own New York-based firm, said the change in language is no coincidence. He has been advising his clients, which include the largest investment and commercial banks, to banish the word "bonus" and use "incentives" instead.

"We try to avoid the term wherever we can because it is a flash point," Johnson said. "We're going back to using what it really is, it's an incentive."

Johnson said for the top earners on Wall Street, their bonuses can be anywhere from 50 to 90 percent of their annual compensation, and is a built-in part of compensation, not an extra.

He said that can be hard for the general public to understand or relate to.

The financial crisis has been littered with flare-ups over bonuses, perhaps most notably in March, when lawmakers balked at $165 million in bonuses being paid to employees at the AIG unit largely responsible for the firm getting just over $180 billion in government pledges of assistance.

The issue sparked calls for the resignation of Treasury Secretary Timothy Geithner and prompted left-leaning groups to organize bus tours to visit the homes of AIG employees.

The financial industry is now approaching another land mine as they gear up to disclose in the coming weeks the amount of year-end bonuses.

The disclosures will likely reveal bonus boosts of up to 50 percent over last year, as Wall Street earnings have come back strong, even though unemployment is at a 26-1/2-year high.

"I think everybody's holding their breath," Johnson said about potential fallout from the disclosures.

A Goldman Sachs spokesman did not immediately respond to a request for comment.


Jesse Derris, a crisis communications consultant with Sunshine, Sachs & Associates, said it will take an industrywide push and public relations initiative to reduce the use of the term "bonus" and replace it with another term, or at least make it better explained.

"You are at a point now where the visual that people get is awful," said Derris, who represents Wall Street executives including former Merrill Lynch Chief Executive John Thain.

The public anger over pay and concerns that excessive pay helped fuel the financial crisis has led to a government-driven attempt to better police compensation.

The Obama administration appointed a "pay czar" in June to dictate pay at seven firms that received "exceptional" taxpayer bailouts, including Bank of America (BAC.N), Citigroup (C.N) and AIG (AIG.N).

The Federal Reserve has embarked on a deeper review of pay at the biggest financial firms, and the Securities and Exchange Commission is trying to empower shareholders with more control over executive compensation.

The goal is to encourage compensation structures that align the pay of Wall Street workers with the long-term success of the company instead of rewarding short-term gains.

In the meantime, financial giants are trying to quiet some of the furor through cosmetic means.

Brad Hintz, an analyst with Sanford C. Bernstein in New York and a former Wall Street executive, said he is hearing plenty of talk that firms are trying to use language like "total compensation" and "annual earnings" instead of "bonuses."

But some skeptics say any efforts to change the use of the word "bonuses" would come across as window-dressing on the real problem of excessive pay.

"Call it what you want -- right now it is somewhat broken," said Todd Gershkowitz, a compensation consultant with Farient Advisors in New York. "The real issue is how much do you actually make."

© 2009 Reuters:

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