Slashing of banker bonuses moves at glacial speed

The six largest banks in America are expected to hand out some $149 billion this year.

MarketWatch

SAN FRANCISCO — It’s a typical December on Wall Street. Bankers are paying out big fat bonuses.

And they’re on course to pay out almost as much as they did in 2007, at the peak of the credit boom, when the financial sector wasn’t propped up with hundreds of billions of dollars in government money.

The six largest U.S. banks, Citigroup Inc., Bank of America, J.P. Morgan Chase, Goldman Sachs, Wells Fargo and Morgan Stanley, are on track to hand out as much as $149 billion for bonuses, all benefits and other compensation for 2009, according to the run rate projected by the New York State Comptroller’s Office.

As the most controversial year for compensation on Wall Street comes to a close, progress on executive pay issues seems to be moving at a glacial pace despite the underlying fever for reform.

“It’s shocking how little change there’s been,” said William Cohan, a former investment banker and author of “House of Cards: A Tale of Hubris and Wretched Excess on Wall Street,” which chronicles the collapse and bailout of Bear Stearns.

“We had an opportunity to realign incentives and get real skin in the game,” he added. “But that has not happened.”

However, there are early signs of a shift in pay policies at some financial institutions like Goldman as they try to quell public outrage and head off more draconian government restrictions on the sector’s main tool for recruiting and retaining talent.

“Some decisions are being made one step ahead of the posse, but that’s how positive change is made in many cases,” said Michael Oxley, former Republican chairman of the House Financial Services Committee who helped create the Sarbanes-Oxley Act to crack down on corporate fraud earlier this decade. “This is a glacial kind of movement but clearly movement has been made.”

A national furor erupted earlier this year after American International Group paid more than $160 million to retain employees of a derivatives unit that pushed the giant insurer and the financial system to the brink of collapse. Some recipients agreed to pay the money back, but the episode sparked a debate about compensation across corporate America.

The government pumped more than $200 billion of taxpayer money into AIG and the nation’s largest banks through the Troubled Asset Relief Program, or TARP. But strict limits on compensation came with that support.

The Treasury Department appointed Kenneth Feinberg as pay czar, giving him authority over the pay of top employees at the seven institutions that got the most government support, including AIG, Citi and Bank of America.