Cuomo: Why pay bonuses without profits?

Posted by Marc Hodak on July 30, 2009 under Executive compensation, Reporting on pay | 4 Comments to Read

Andrew Cuomo, Attorney General and Chief Compensation Scold of New York, raises his pitchfork once again with a report “No Rhyme or Reason,” condemning Wall Street’s “bonus culture.”  The most damning piece of evidence?

Bonuses paid to executives at nine banks that received U.S. government bailout money in 2008 were greater than net income at some of the banks.

This is only surprising if you think of bonuses as something other than commissions based largely on net revenue, or perhaps net income from profitable divisions that likely saved their firms from bankruptcy.

The WSJ offers this puzzling assessment of the report:

The report is part of Cuomo’s investigation into the causes of the financial crisis. Not surprisingly, that investigation led to Cuomo’s office examining the compensation practices in the U.S. banking system.

Not surprisingly?  The reason Cuomo’s investigation into compensation is not surprising is because he’s obsessed with Wall Street pay.  A Cuomo investigation into the mating habits of pigeons would have led him to a critique of bank bonuses.  In fact, Cuomo’s report does not even pretend to provide the slightest link between compensation practices and the financial crisis.  I’m not saying there is no linkage to be made;  this report simply provides none.

Bonuses come in different flavors.  Some are the cash kind that are really commissions.  Some are the “extra” amounts that most of the cubicle corps think of as bonuses above and beyond target comp.  The bonuses of politicians are mostly in the form headlines–the currency of AGs aspiring to higher office.  The ultimate reward for someone like Cuomo is riding the wave of mob outrage to Governor or Senator.  Ironically he is being rewarded for a performance that is contributing to his ‘company’ losing gobs of money because the source of income he shamelessly excoriates is shriveling up.

UPDATE:  Liz Moyers covers similar ground here.