The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

As unemployment continues at an uncomfortable nine-plus percent, you’d think Wall Street would share the pain and bonuses would be down.  Nope.  They don’t create jobs, they don’t add value. Instead they profit, they leverage, they figure out the spread and increasingly they use more and more risk to accomplish “profits” and bonuses.  But don’t listen to me; consider the recent words of Nobel laureate Paul Krugman:

What’s going on here?  The answer, surely, is that Wall Street’s Masters of the Universe realize, deep down, how morally indefensible their position is.  They’re not John Galt; they’re not even Steve Jobs.  They’re people who got rich by peddling complex financial schemes that, far from delivering clear benefits to the American people, helped push us into a crisis whose aftereffects continue to blight the lives of tens of millions of their fellow citizens.

Paul Krugman Op Ed, October 11th.

Finance a new bridge, a factory, a school that teaches engineering and science for a new generation of students entering the work place.  No; instead, we see newfangled derivative swaps, “quant trading”, a panoply of something called “synthetic derivatives”, and who knows what else?  The derivatives market hit a value of $600 trillion in 2008, and I regret to confirm that “T” in trillion is not a typo.  Sadly those newly minted Ivy League graduates want to make “bank” and they want to do it now.  No time for long term value investing or pedestrian returns of six to eight percent per year.  Heck, for these hot shots 6-8% per month is not enough.  Where will it end?

Wall Street: put people to work, and then collect your bonuses with your heads held high.  And stop trying to destroy any sensible speed limits and caution signs (such as the Volcker Rule).  Regulation keeps cars on the road. Without it we are doomed to repeat the mistakes of the last boom…

• Print
• Comments
• Trackbacks
• Share Link

In today’s “Heard it On the Street” Column of the Wall Street Journal, it was leaked (most likely by a disgruntled employee) that an e-mail to all employees proudly announced “bonuses” to 50 “stars” of Live Nation.  The bonus was... brace yourself... a whopping $250 per star.  No, I didn't leave out any digits.  That's a whopping total of $12,500 in bonuses.  Wow.  How generous (read dripping sarcasm) of CEO Michael Rapino and Chairman Irving Azoff.  These guys take in a cool twenty million or so apiece and give a lucky 50 employees an extra $250.

Sadly it’s a sign of the times.  The guys at the top get richer -- a lot richer -- while everyone else struggles on the crumbs (in this case $250).  $20 million versus $250, a ratio of 80,000:1. Just about what you’d expect.

If I were a shareholder, I would l be plenty angry.  Where is the Board of Directors?  Are they independent enough to stand up to senior management?  Obviously not.  Like most corporations, the Board is captive and beholden to management.  That must change before executive compensation will be addressed objectively and fairly.

• Print
• Comments
• Trackbacks
• Share Link

What is Goldman up to nowadays?  Oh, just raising compensation by 3.5% despite a projected 13.5% decrease in revenue.  Do they call that a lack-of-performance-based raise?

For years the public mostly turned a blind eye to Wall Street’s corporate practices, including the lucrative (and ludicrous) bonuses and salaries paid to top executives, largely for speculative trading.  Wall Street produces no products.  But so long as their companies made enough to pay out such exorbitant amounts, we rationalized, what was the problem?  The financial collapse should have served as ice water poured on our snoozing faces.  Incentivized by a pay structure that valued risk, we were all led to the brink of disaster.  It was only the infusion of $450 billion in taxpayer money that saved us from The Great Depression, Part II.  So why on earth are Wall Street’s top companies set to pay a record $144 billion in compensation this year?

I feel like a broken record.  Yes, the majority of TARP loans have been repaid and we are on the slow road to recovery, but we cannot become complacent.  The next step must change the paradigm.  It must tighten regulation and oversight of corporate compensation.  And that applies to all companies—even the unassailable Goldman Sachs, which was saved by the rescue of AIG, its principal insurer.  What is Goldman up to nowadays?  Oh, just raising compensation by 3.5% despite a projected 13.5% decrease in revenue.  Do they call that a lack-of-performance-based raise?

This is why we need regulations sooner rather than later.  SEC Chair Mary Schapiro (no stranger to compensation issues) at last has detailed a timeline for the regulations that will soon govern the entire industry.

Most of the Commission’s timeline occurs before the New Year, but that is not soon enough.  We propose a more immediate solution to the compensation problem: redirect any salary or bonus that is based on purely speculative trading towards public infrastructure.  Instead of paying millions of dollars to each executive that nearly ran our economy into the ground, let’s use the excess to modernize transportation systems, fix bridges and pay teachers.

It won’t happen but it should.  Let’s hope the SEC gets in gear and moves quickly to enact effective rules to protect the public from another crisis.

Assisted by David Martin

• Print
• Comments
• Trackbacks
• Share Link

Nice work FINRA.  On the one hand you pay yourselves like captains of industry, but when the going gets tough you hide behind immunity reserved for lunch bucket civil servants making less than $80,000 per year.  And yes there is more.

If we could all be so lucky.

The Financial Industry Regulatory Authority released a report on its own internal investigation into excessive compensation for Mary Schapiro during her time as CEO of the Authority.  To be kind, the report was a joke and a self-serving cover up that demands further scrutiny.

As a threshold matter, let’s make something clear: FINRA is a government regulator.  It is the largest so-called “independent” securities regulator, overseeing almost 5,000 brokerage firms, and is designated overseer of the NYSE and the NASDAQ.  Yet as investors across the board were losing a nice chunk of their nest eggs in the financial markets (earned the hard way and put aside for college tuition and retirement), Mary Schapiro was raking in a base salary of $2.5 million and earning million-dollar-plus bonuses.  Try to challenge that salary.  You can’t.  FINRA will assert governmental immunities to thwart any challenges to its decision making or salary structure and they will win – trust me I tried.

Nice work FINRA.  On the one hand you pay yourselves like captains of industry, but when the going gets tough you hide behind immunity reserved for lunch bucket civil servants making less than $80,000 per year.  And yes there is more.  When Ms. Schapiro left FINRA, she received a parting payment of $9 million.  Yes $9 million.  As in, “Thanks Mary you did a great job.”  A great job?

During her tenure, the markets nearly imploded and investors lost trillions.  I don’t know Mary Schapiro.  When I was at the SEC, I would see her now and again in the hallways.  I have nothing against her personally, but the payments she received as President of FINRA are nothing short of an outrage.  A true public outrage.  But the internal report and investigation, paid for by FINRA after a feisty California securities broker-dealer called Amerivet demanded an explanation, was far from expressing outrage.  Indeed, it defended every aspect of Ms. Schapiro’s pay and her performance.  Relying on studies of executive salaries at leading investment firms, Ms. Schapiro was being—well if anything—underpaid.

And where did lucky Mary go?  To the chairmanship of the Securities and Exchange Commission, where else?  We commend Amerivet for its courage.  They are fighting an uphill battle to be sure.  But they are on to something and they should not let go.  These enormous salaries and benefits can only lead to abuse.

As to FINRA: are you fish or fowl?  If you are a private actor, accepting private sector dollars without any of the risks, don’t wrap yourselves around governmental immunity when the going gets tough.  And if you truly are a government regulator, stop taking enormous private sector salaries.  You can’t have it both ways.

Assisted by David Martin

• Print
• Comments
• Trackbacks
• Share Link

Shareholders of Goldman Sachs are flexing their muscle in response to management’s approval of record bonuses and executive compensation. The Wall Street Journal reported on Friday that investors in Goldman Sachs are expressing frustration in analyst meetings and in personal conversations with the Goldman board. Investors’ main concern is that per share earnings are down while executive compensation is up, way up! 2009 per share earnings are projected to be 22% lower than those in 2007, while employee compensation and bonuses will set a new record of at least $717,000 per employee in 2009.

Goldman attempted to allay investors’ frustration with statistics citing its strong, long-term growth. Goldman has generated a return of 159% over the past 10 years compared with negative returns for the S&P 500 average over the same time period. However, Goldman Sachs’ board members seem to forget that the company is owned by its shareholders. The decline in per share returns in the same year as record employee compensation is unacceptable. The investors ought to have proportional rewards for the company’s success.

As Nell Minow, a leading advocate for shareholders’ rights, wrote in a recent CNN op-ed, “It is time for America as investors and as citizens to be ruthless in forcing Wall Street to prove that the return on investment for every dollar spent on executive compensation provides competitive returns”

The lesson:     Shareholders expect more. Plenty of Wall Street banks continue to carry out overly risky investment schemes and engage in business with shady and criminal characters (just see many of the posts on this blog). Following the precedent of disgruntled shareholders speaking up and engaging in discussion with Goldman Sachs, we hope that other investors will heed the call to question the practices of every major financial institution. The general masses can cry foul until the cows come home, but only investors have a vote on change and the protection of sound business practices. A stable, thriving economy will only be achieved with the solid voice of investors reining in the excessive practices of Wall Street. In today’s economy, investors must demand transparency, responsibility, and respect for the shareholders.

Assisted by Zach Kady

• Print
• Comments
• Trackbacks
• Share Link