Monday, December 8, 2008 0 comments ++[ CLICK TO COMMENT ]++

Does John Thain of Merrill Lynch deserve a $10 million bonus this year?

UPDATE: It looks like Merrill Lynch has backed down from the bonus plans mainly due to public pressure, including criticism from the New York Attorney General. It still goes to show the current state of capitalism when everyone involved in the meltdown, which also included massive wealth destruction for Merrill Lynch shareholders, were in favour of the plan initially and only backed down due to public criticism. I am not a shareholder in Merrill Lynch so I haven't followed it closely but I would bet that the current board of directors is the same one that has overseen the great shareholder wealth "creation" of the last 5 years. The Wall Street directors and the executives still haven't figured out that their world has changed and their fate is largely out of their hands.

A controversy seems to be developing over John Thain's request of up to $10 million in bonus. The board of directors seem to question the bonus, although they seem to have negotiated it down to $10m from $30m a few months ago.

A mistaken view by some is that the taxpayers are indirectly paying for this. That does not seem to be the case. It is Merrill Lynch, not Bank of America, that is paying the bonus. So there is little justification for the politicians to get involved in this.

I personally don't think he should get the bonus. I know Wall Street works on bonuses where a bonus is the norm rather than compensation for anything special. In contrast, practically all other businesses would rarely consider paying a big bonus when the company is heading towards bankruptcy or liquidation. Nevertheless, I don't think it makes sense, even for a Wall Street firm, to pay a big bonus when the company has gone nowhere.

Although some argue that he salvaged what he can from the firm by selling it to Bank of America, it should be noted that the stock price has dropped around 75% from when he took over in November of 2007 and the company is still posting massive losses. Yes, all this was due to his predecessors but I have seen nothing positive coming out of Merrill Lynch during his tenure. I would also argue that his $83 million compensation in 2007 compensates for the risk of joining this firm at the time (note: I suspect a lot of that evaporated along with the stock price but I would guess that he still got paid at least $40 million last year.)

Perhaps the board of directors, who needless to say were the ones watching over the collapse of the firm due to the massive risk-taking, are trying their best to pay out as much as they can before Bank of America absorbs them. Looting as much as you can from the shareholders and government seems to be the common theme with board of directors everywhere, especially on Wall Street.


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