The trend begun by Goldman Sachs (NYSE:GS) to pay bankers and management generous bonuses has begun to move to other financial firms.
AIG (NYSE:AIG) said it had been able to get back only $20 million of the $165 million in retention payments made to people in its financial instruments business. The insurance company missed its goal of recouping $45 million. The workers in the unit, which is credited for most of the meltdown in the company, will thus have been enriched by $145 million for their efforts. The rewards for failure on Wall St are closing in on those of the reward for success.
Bank of America will also pass out handsome bonuses to its bankers, just a few months after its repaid the government $45 billion in aid that it got to stay in business through the credit crisis. The Wall Street Journal reports that the bonus pool at B of A will be more than $4 billion. Traders will collect an average of $300,000 to $500,000, according to the paper. Only 25% of the payments will be in cash. Most of the rest will be in restricted stock paid over three years in most cases. The fact that any incentives were paid at all will be considered remarkable, at least by members of Congress and the Administration.
The bonus payments at both firms and at almost every other company on Wall St. are telling in two ways. The first is that managements at these banks are willing to defy the sentiments of the government and taxpayers by rewarding themselves for what they see as tremendous returns to their shareholders, the taxpayers be damned.
The second is that banks may actually believe that if they do not take care of their best talent that these people will leave for hedge funds, private equity firms, or foreign banks.
It was hard to be in the banking business for about a year if one’s primary goal for being in the industry was to make a lot of money. That short hiatus is over. The big paydays are back.
Douglas A. McIntyre