Merrill Lynch Executive Compensation Bonuses

Topics: Comp Communication, Comp Strategy

Executive Compensation Bonuses Gone Over the Top: Ken Lewis, CEO of Bank of America, Under Serious Scrutiny In September of 2008, Merrill Lynch admitted that it couldn’t pay its bills anymore. But, just before it ended its final quarter of business, Q4 of 2008, Merrill Lynch gave out nearly $4 billion in executive compensation bonuses. Come again? Say what?

March 10, 2009

Executive Compensation Bonuses Gone Over the Top: Ken Lewis, CEO of Bank of America, Under Serious Scrutiny

In September of 2008, Merrill Lynch admitted that it couldn’t pay its bills anymore. But, just before it ended its final quarter of business, Q4 of 2008, Merrill Lynch gave out nearly $4 billion in executive compensation bonuses.

Come again? Say what?

Yes, $4 billion in executive compensation bonuses to the team that had managed its demise. And, when Bank of America stepped in with federal bailout money, our money, to buy Merrill Lynch, how much did Bank of America executives know about this bad behavior?

What Role Did Bank of America Play?

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According to an article in The Business Journal titled, “BofA Subpoenaed Over Merrill Bonuses,” there’s a question over whether Bank of America knew about the Merrill Lynch bonuses handed out in the fourth quarter of 2008. Keep in mind that Bank of America received $20 billion in federal bailout money – translation, your hard earned dollars – to help buy Merrill Lynch, and had previously received $25 billion – your money, again – to unfreeze credit markets. After getting all of that not-so-hard-earned cash, they may have allowed Merrill Lynch to hand out outrageous executive compensation bonuses in a quarter when it lost $15.3 billion due to poor management. Where is the respect for taxpayer money? This is clearly not a pay-for-performance approach. The current ethical issues with executive bonuses are only growing more obvious and unsettling.

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Merrill Lynch Executive Compensation Bonuses on Trial

According to that Business Journal article, N.Y. Attorney General Andrew Cuomo has brought Ken Lewis, CEO of Bank of America into court for questioning. And, more recently, co-authored a letter to Lewis, along with Massechusetts Rep. Barney Frank, as described in the Huffington Post article titled, “Cuomo, Frank To BofA’s Lewis: You ‘Fuel Distrust And Cynicism’,” because he wants to know which Merrill Lynch executives received the Merrill Lynch bonuses and believes that the public and investors deserved to know more information about the bonuses at the time that they were given out.

Ken Lewis refuses to give the names of all of the Merrill Lynch executives involved and he insists that Merrill Lynch was acting independently at the time the bonuses were given out. Cuomo is trying to hold Bank of America accountable. Lewis is resisting.

Is any justice coming yet?

Bank of America Is Trying to Rein in Executive Compensation Spending

No legal changes have occurred in response to the investigation but Bank of America executives are certainly under a microscope and under pressure to appear more frugal.

A CNBC on-air report titled, “BofA Plans to Sell Three Corporate Jets, Apartment,” reports that Bank of America has decided to sell three of its eight corporate jets, as well as a helicopter from Merrill Lynch and one of its two corporate apartments in New York City. How big of a cost savings is this? It’s hard to say exactly, but the article goes on to say that the jets cost $10,000 an hour to operate and are worth between $45 to $50 million a piece.

Also, according to an AP article titled, “BofA’s Lewis, Other Top Execs Take No Bonus in ’08,” Lewis’s total executive compensation dropped 56 percent from $20.4 million in 2007 to $9 million in 2008. And, he allowed no Bank of America executives, including himself, to get executive bonuses this year because their 2008 results didn’t meet his expectations.

Finally, Lewis has also described the additional $20 billion in Federal TARP money Bank of America received to help buy Merrill Lynch a “tactical mistake,” according to a Tampa Bay Business Journal article titled, “BofA’s Lewis: Merrill TARP Funds a ‘Tactical Mistake.” He says he wished he had asked for only $10 billion because the higher, $20 billion figure damaged investor confidence. He now plans to stay at Bank of America until every dollar of federal bailout money is paid back.

Not everyone likes his desire to linger, though. According to a CNN article, “Unions’ Investment Group Faces Tall Task In Opposing BofA’s Lewis,” CtW Investment Group, which manages investments for seven different labor unions, called just last week for Ken Lewis to be removed. They’re investors in Bank of America and they believe the Bank of America-Merrill Lynch merger was too risky.

Inequity of Excessive Executive Compensation Still Lingers

Whether Lewis stays or goes, as we watch this battle for justice against the corporate creeps who are handling our tax money we have a lot to seethe about. The excessive executive compensation packages that happen where taxpayer money is involved are downright unfair. They absolutely are. But, it gets even worse when you put them in context by looking at the corporate layoffs happening around them. At that point, everything gets incredibly, wildly, unbelievably unfair.

According to a Fox News article titled, “Bank Executives Get Bailout as Layoffs Grow,” of the banks receiving TARP or bailout money, almost nine out of every 10 of their most senior executives from 2006 are still on the job. This is according to an Associated Press analysis of regulatory and company documents.

Holy moley! You mean the same crowd that caused the mess is now supposed to fix it?

Their track record isn’t good. That same article tells us that more than 100,000 bank employees have been laid off since 2006. During the two-year stretch the study covered, unemployment in the banking industry nearly tripled.

Maybe receiving federal bailout money should have required some more conditions on who would get to handle it. In that Fox News article, Jamie Court, president of the California-based citizens group Consumer Watchdog warns, “When you deal with the same dogs, you’re going to end up with the same fleas.” What sort of conditions could we have put on receiving federal bailout money? Perhaps we should use an approach in the banking industry similar to what President Obama has suggested for the auto industry. He may ask car companies receiving federal bailout funds to replace their current top, ranking executives.

Somehow, the executive compensation inequity must stop. To quote representative Kathy Castor of Florida from another Fox News story titled, “Bank of America CEO Mum on Merrill Lynch Bonuses,” “The average chief executive makes more money before lunch than the average worker earns all year.”

My thought and question to leave you all with is this: Why does the concept of pay-for-performance only apply to those in non-executive positions? Maybe the executives should get a measly 3 percent cost of living adjustment.

Regards,

Stacey Carroll
Director of Customer Service and Education at PayScale.com

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