Thursday, January 22, 2009


I suspect there's more to the story, but suffice it to say that if true, then this is an outrageous stunt:

Merrill Lynch took the unusual step of accelerating bonus payments by a month last year, doling out billions of dollars to employees just three days before the closing of its sale to Bank of America. The timing is notable because the money was paid as Merrill’s losses were mounting and Ken Lewis, BofA’s chief executive, was seeking additional funds from the government’s troubled asset recovery programme to help close the deal. Merrill and BofA shareholders voted to approve the takeover on December 5. Three days later, Merrill’s compensation committee approved the bonuses, which were paid on December 29. In past years, Merrill had paid bonuses later – usually late January or early February, according to company officials. ... Despite the magnitude of the losses, Merrill had set aside $15bn for 2008 compensation, a sum that was only 6 per cent lower than the total in 2007, when the investment bank’s losses were smaller. ... BofA said: “Merrill Lynch was an independent company until January 1 2009. John Thain (Merrill’s chief executive) decided to pay year-end incentives in December as opposed to their normal date in January. BofA was informed of his decision.” BofA declined to specify when Mr Thain informed the bank of his decision.
It's clear now that Ken Lewis bought a lemon. And by Ken Lewis, I mean U.S. taxpayers.


David said...

Looks like we should add on a few more regulations... if this is the way companies and banks want to play, then even more regulation may be needed than was made evident by the financial crisis. They've done it to themselves.

To stem this problem, maybe something along the lines of... bonuses are forbidden within 3 months of a take-over unless it is approved by [my background is insufficient to fill in this blank].

Anonymous said...

It's unbelievable that banks like Merrill that face steep losses ($15B in Q4 alone) are eager to handout bonuses worth $3-4B to its employees (ahead of time)! Even hugely profitable and cash rich companies like Microsoft, Google and Intel dont handout such huge bonuses. These financial companies need to change their pay structures by nearly eliminating cash bonuses and replacing them with stocks that vest over 4-7 years to reward ONLY long-term growth of the company that's INLINE with shareholder wealth creation.

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