Less Cash in Credit Suisse Bonuses -- NYT

yes. to varying degrees.

not fair!
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"pay for performance is the american dream"
paulson

Why do people think this is bad for the employees?

Most employees of investment banks want deferred comp that grows tax-free, wants investment opportunities similar to hedge funds and private equity.

Everyone thinks this is punishment. How wrong they are.

Oh, also, deferred compensation means lower tax collections. HaHa IRS. HaHa City of New York.

plance: Is that a joke? I don't know how anybody could be happy to have their pay spread out over a longer period of time. And getting CS stock that vests over 4 years is far different from having an interest in a PE fund.

No it's not a joke.
And you are wrong. Tax-deferred growth. Investing options. It's not like if people were paid all cash they'd be spending it all, rather they are saving. So this is like having a 401(k) and all the growth over the vesting period is tax free. It's brilliant. These banks are like hedge funds.

Growth in unvested stock is not tax-free.

Yes it is, if it isn't vested, then it isn't income. At the time it vests you pay the taxes. If you aren't entitled to the money, then you haven't earned it, and if you haven't earned it then you aren't liable to pay taxes.

Sorry everyone wants to hate investment banks. Or the people that work for them or the people that own them. But the reality is, the S&P is up 50% since March, and that wealth has to go to someone.

it's tax free during the holding period. It is not taxable until options are exercisd, the stock is sold, etc,,etc,,depends on how the award is structured.

caveat..the word "sold" should be substituted with the word vested

Plance I'd think that wealth would be going to shareholders

"Plance I'd think that wealth would be going to shareholders"

Oh, right, don't allow anyone to become wealthy through hard work, just leave the wealth in the hands of the capital providers and owners (who have lower taxes through capital gains than earners) ... wow, sorry Ritchie Rich.

That's funny

Yeah, maybe think through your statements a bit.

Let me guess, you still worship the King of England or some crap like that.

I wasn't born with a silver spoon in my mouth and a big trust fund, so I appreciate the opportunity to use my smarts and my strong work ethic to better things for myself and my family.

"
ignore this person
report abuse Why do people think this is bad for the employees?

Most employees of investment banks want deferred comp that grows tax-free, wants investment opportunities similar to hedge funds and private equity."

not this one!

By the way, this compensation is intended to create additional and longer-term alignments between owners and the people who are creating wealth through their hard work. So the tax deferral is great for them, and frankly that the government doesn't get a big chunk until later, although we all know that's not their intention, turns out to be great social policy.

"wants investment opportunities similar to hedge funds and private equity"

who would want to have an opportunity similar to private equity? didn't you read that even harvard and stanford are having a hard time getting out of PE? they would even hear your offer if you have one.

Plance you're on a real estate discussion board. People here view bonus money largely in terms of how available it will be for real estate purchases

and one other point..lets say(hope) Plance's bank awards him 1,000,000 shares. 3 years later they become vested. Stock is now worth $45 on vesting day. He actually gets 550,000 shares, the company, on behalf of the govt takes its cut on that day. (options are handled differently). His new cost basis and date are on the vesting day. Thus, his 1 year holding period for long-term treatment start on that day.

uh, ok aboutready, sorry to both offend your sensibilities that people can work hard and earn money, and your need to be the streeteasy police. I understand that you might have an opinion on the former, but who appointed you the latter?

isnt this exact what I discussed yesterday!

http://www.urbandigs.com/2009/10/euphoria_or_caution_over_upcom.html

"What I don't hear are terms like: distribution of cash component vs stock options, deferred stock compensation, clawbacks, ROE shares deferred, toxic asset bonus fund (credit suisse in 2008), other government tax policy on future bonuses, etc.. "

who was this Anabeth comment?

"Forget what the media or goldman for that matter is spinning to you - there definitely will be a lot of cash out there. While much of the banking industry would like you to think it's deferred or in the version of stock options that isn't 100% true - at all"

umm, yea

Actually I was trying to be helpful because you didn't seem to get why the op posted.

Much of the income generated by the I-Banks in 2009 has been the result of borrowing at essentially zero from the US Government and then buying back US Government securities and booking the healthy spread. It is a true gift to the banks by the US taxpayer to enable them to recover from the brink of failure in 2008. Was it a big-year for M&A? No. Were the Fortune 500 out there issuing bonds and/or equity? No. The profits are in trading which a middle school child could earn if they were given access to such a cheap source of funds. Honestly, should huge bonuses be paid for that type of trading gain? Interested in your opinion Plance.

Realize patk14 is talking about the banks generally, but since the thread started with a story about Credit Suisse, I'd like to point out that Credit Suisse took NO govt money, here or in Switzerland. Not all the banks generated "much of their income" with low-cost govt borrowing.

The really messed up thing about all this is that Lehman was 30% owned by employees. When a select group of decision makers decides to load up on really horrifically bad investments, it doesn't matter who owns the stock. It all goes 'boom' anyway. I'd argue that no more than 25 people were involved in the decisions to go deep into sub prime at MLCO, LEH, or Bear. The truth is that Jimmy Cayne was a billionaire (on paper) and walked away with a small fraction of that. I'm not saying that this won't help at all, I'm just not expecting a ture paradigm shift.

"Honestly, should huge bonuses be paid for that type of trading gain? Interested in your opinion Plance. "

Well, the money has been earned. You don't want to give it to the employees? So then it only goes to the shareholders. Not paying bonuses doesn't make the gains disappear. Also, regardless of employee vs shareholder, what difference does it make what type of trading gain? Maybe interest rates are too low, but they are what they are and the traders didn't set the interest rate policy. In fact, with low interest rates help home owners still be able to afford their payments. Is that a good thing? Maybe short term yes and long-term no, but would you advocate right now that the home owners should be evicted because their payments are artifically low and you don't like that "type" of low payment?

Most banks are borrowing at effectively 0% from the Fed discount window. I'm not talking about direct bailouts to the banks. Even foreign banks with US branchs can access this low cost source of borrowing without any stigma attached. Remove this from the equation and all bank profits would be considerably reduced. Why is Goldman having a record year in an otherwise poor economic situation? Better than the boom years when they were much more levered? Look at how they are funding their liabilities.

When those heavy mortgage bets were adding to the bonus pools from 2000 thru 2006, you didn't hear a peep out of the operations guys who were pulling in $200K bonuses. The profits inflated the bonuses for everyone in those organizations and if they didn't sell their stock as it vested, they were greedy.

walter7, Lehman was specifically designed to be employee held. Dick Fuld was paranoid about being taken over (every year there were rumors) so he started issuing lots of stock to employees including making restricted stock fully unrestricted in the event of a hostile takeover. This was "shark repellent" against anyone putting Lehman in play and ousting Fuld.

And yes, anyone who works at a Wall Street firm does not need anymore exposure to the firm's "upside". You get all the exposure you need by simply working there are getting a raise/bigger bonus. To keep your long term holdings in company stock is poor diversification. Believe me, after Enron and Lehman nobody on Wall Street wants to keep any money in any Wall Street firm.

"Most banks are borrowing at effectively 0% from the Fed discount window. "

So... who is doing the wrong thing here? The borrowers or the Fed? I say no one, but it still takes two to tango.

"I'm not talking about direct bailouts to the banks. Even foreign banks with US branchs can access this low cost source of borrowing without any stigma attached. "

Stigma? Democrats have a negative stigma in the eyes of Republicans. Republicans have a negative stigma in the eyes of Democrats. Nancy Pelosi and Harry Reid have negative stigma. Tom Delay and Trent Lott have negative stigma. Get over it.

"Why is Goldman having a record year in an otherwise poor economic situation? Better than the boom years when they were much more levered? Look at how they are funding their liabilities."

So? They make the money. Who do you want the money to go to? If they are profitable, you can't just wish away the money because you are pissed off and have it go to no one. The stock market is up 50% since the lows. Real wealth in the markets. They are in the business of markets, so if they don't make money when the stock market goes up 50%, then someone else will.

"Remove this from the equation and all bank profits would be considerably reduced. Why is Goldman having a record year in an otherwise poor economic situation? Better than the boom years when they were much more levered? Look at how they are funding their liabilities."

Ok, and what's your point? Seems like you are really angry at our government or the Fed.

"When those heavy mortgage bets were adding to the bonus pools from 2000 thru 2006, you didn't hear a peep out of the operations guys who were pulling in $200K bonuses. The profits inflated the bonuses for everyone in those organizations and if they didn't sell their stock as it vested, they were greedy."

ok your point?

Plance, I can't tell if you work in banking, or if you're a kid with a couple years of experience, but I and all the folks I know do not want vested bonuses. And as someone that has worked on the buy side as well, I can sure as heck tell you that this is nowhere close to carried interest.

Most workers on Wall Street consider themselves talented and deserving of great pay for levering other people's money and getting lucky when they are in the right sector with it.

Last year proved how bad most of them actually are at investing.

If they are good and want big bonuses, let them go to hedge funds, where you get nothing if you screw up as badly as they did last year.

It is amazing that worker bees with no capital at risk somehow feel entitled to a huge slice of the profits that came from using the owner's capital.

Plance is really just advocating Marxism here, taking profits due to the owners of the capital and giving to the workers. He is at heart a Communist born too late.

Long live the Revolution!

Plance, I don't think the people lucky enough to be in position to take advantage of a riskless trade with the US Govt on both sides should be richly rewarded for this brainless transaction. The profits should either build the capital position of the institution so that it doesn't need to be bailed out when markets sour or be paid back to the government. So, yes, I'm mad at the government for allowing itself to be screwed. The banks are just taking the easy trade so I don't blame them. But they shouldn't be receiving record bonuses.

"Plance, I don't think the people lucky enough to be in position to take advantage of a riskless trade with the US Govt on both sides should be richly rewarded for this brainless transaction. The profits should either build the capital position of the institution so that it doesn't need to be bailed out when markets sour or be paid back to the government."

Just remember, this institution is a private institution. The money does not go back to the government just because under your system of equity it isn't paid as a bonus. ... make sure you aren't confusing that the money is still earned and its just that you want it to go to the owners, not the employees.

So I ask you, what happens when the best employees generating substantial profits go and start their own smaller hedge funds and become the owners? Will you be ok when these same people earn the money in the form of dividends instead of in the form of wages? Don't you find your logic odd?

"It is amazing that worker bees with no capital at risk somehow feel entitled to a huge slice of the profits that came from using the owner's capital."

It is amazing that people who are neither the owners nor the workers want to tell the owners how to run their business. It is amazing that if the owners feel that the workers should share in the profits, that outside owner protectors like patk and modern feel they need to come to the rescue of the owners and suggest that the owners shouldn't pay the workers.

Plance is really just advocating Marxism here, taking profits due to the owners of the capital and giving to the workers. He is at heart a Communist born too late.

How is the money "due to the owners" if the _owners_ are the ones making the determination that they want to pay strong wages to encourage performance of the workers?

plance has the potential to be the carolst of the finance world.

better written arguments, but with equally flawed logic.

How is my logic flawed?

There's money that was made. You don't want to use it to pay the employees? Ok, so it belongs to the shareholders. Why is that better? And why can't the shareholders decide if they want to pay the employees or keep it for themselves? Why does an outsider to that equation get a voice?

"So I ask you, what happens when the best employees generating substantial profits go and start their own smaller hedge funds and become the owners? Will you be ok when these same people earn the money in the form of dividends instead of in the form of wages? Don't you find your logic odd?"

Difference is, those firms aren't backed by the government. The capital you need to start them would be gone if they crash. If they want to go and do that, great... government isn't bailing out the hedge funds that went bust. Those guys have no jobs.

In the case of a goldman, they're playing with the house's money... meaning the house should get a MAJOR cut.

"How is the money "due to the owners" if the _owners_ are the ones making the determination that they want to pay strong wages to encourage performance of the workers?"

The owners aren't. Shareholders don't get appropriate say, not even close.

"The owners aren't. Shareholders don't get appropriate say, not even close."

How don't the shareholders get appropriate say? The shareholders are governed by the shareholder documents (governed by the SEC) and the listing requirements (the NYSE or FINRA). They give their authority to the board of directors who hires a management team. None of this is a surprise. Any shareholder who doesn't like the structure, which has been in place forever, can sell. Or they could not buy.

plance, you so jumped on my one little comment. it was sarcasm with a dose of truth. you said that the S&P was up 50%, and someone oughto get that wealth. well, the s&p is the s&p, no? and represents shares, no? the transactions that got the shares to that point is another issue, and have their own can of worms. the banks did not generate huge revenues this year adding any real value, they moved things around to make money, and were only able to do so as they received the use of free money from the gov't and engaged in risky trading activity to do so. that money was given to the banks for the express purpose of lending to business and costumers, not to play fast and loose in a market.

actually most banks still didn't do so well, because for one reason or another they were not willing to engage in such risk-taking behavior. many of them are still losing money, and still owe the gov't and the taxpayers money. to be frank, and i've said it before, i think all transactions involving gov't debt should be handled by the banks for free.

"Difference is, those firms aren't backed by the government. The capital you need to start them would be gone if they crash. If they want to go and do that, great... government isn't bailing out the hedge funds that went bust. Those guys have no jobs.

In the case of a goldman, they're playing with the house's money... meaning the house should get a MAJOR cut."

Benmosche of AIG is one of the smart ones, he's told the government that he's out to make money for the firm. If government backing means that a company can't make money or pay its employees, it might as well be a government bankrupting.

plance, although the gov't to date has shown little wherewithal to do so, it has tremendous authority to regulate the shit out of the banks. overregulation would be a shame. so it might just behoove some of the major players to quit flippin' everyone the bird and play ball nicely.

ok that's your opinion, I an deal with your opinion. But where is my logic flawed? Where are my facts wrong - if money is being made, it can go to shareholders or to the employees. Why is it wrong to go to the employees?

Frankly, the if the government regulates, either they can dampen the whole economy, or they can dampen certain players - the banks as you advocate - and leave room for others to make money, like hedge funds.

ok that's your opinion, I Can deal with your opinion. But ...

because, plance, in many cases there is no net profit to go to the employees. banks are still paying huge amounts in bonuses despite losses.

and, if a bank is using taxpayer-backed funds in a manner which was not the intended manner (f paulson for not getting stronger controls), then they should lose access to those funds. they should not have been able to make the profit in the first place, as they had no right to use the money for that purpose. to be frank, only GS is in the possible position of not needing huge amounts of capital to reserve against future losses. If they're not willing to lend out the money, they better damn well not need any more in the future. GS should be required, at the least, to return the amounts covered by the AIG bailout before it pays out bonuses.

and hedge funds live and die by their own swords. they are not too big to fail. if they accept risk it is with the money that they have raised, not money provided by the gov't. commercial banks should be in the commercial banking business.

disclaimer: I don't work for Goldman, I am a celebrity not moving to Brooklyn.

"GS should be required, at the least, to return the amounts covered by the AIG bailout before it pays out bonuses."

Why is this? AIG owed money to GS!...AIG also owed money to tens of thousands of individuals on fire insurance claims, car wrecks and business interuption insurance. They all got paid, as did the counterparties on every other claim from their financial products subsidiary. Yes, they were biggest claim, but so what?

What would we be saying if they made no money this year?

"commercial banks should be in the commercial banking business."

Well maybe, sure. But right now when they are making money in investment banking and trading, that is helping to offset the other losses. And then the question about who splits the money doesn't disappear. If they should be out of that business, I'm ok with that point of view -good old Glass-Seagall, but then they can't have the profits.

"GS should be required, at the least, to return the amounts covered by the AIG bailout before it pays out bonuses." The question here wasn't if GS should earn profits and then give back money. There hasn't been a call for that this entire thread. I'm ok if you want to suggest that, there is definitely some equity in that point of view if you think they earned it unfairly. But right now, since that hasn't been called for, again we are talking about where the profit split should go. No one above said that the profits should be surrendered and go not to the employees or the shareholders. This seems most like a question about a bitterness toward Wall Street. Populism is fair, but populists have to think it through and just now with your statement of forefeiture, you are the only person posting in disagreement to me who has thought it through.

patient09 - you are a bit out of bounds. Life insurance policies fall into a different category than sophisticated risk trades between big boy counterparties.

plance, i brought up GS, it is true, and it was to present a position for argument. how and why the aig deal was structured as it was is, i'm sure, a matter for debate.

however, i must point out that this thread began with a discussion of CS's bonus payments and their structure. i don't have the hard numbers handy, and i'm embarrassed if it is within the article because I haven't read it, but I doubt CS has a lot, if any, profit to hand out. that's probably why they are choosing this deferral structure.

all this populism has given me a headache. interesting chatting with you plance.

The workers control the companies, and due to the lack of shareholder-friendly rules, in effect allocate the profits from the owner's capital disproportionally to themselves. Sounds like Marxism to me.

Most of Wall Street used to be private firms, where the managers had their own capital at risk, and reaped the profits when they were there. And went out of business if they screwed up. Now they take the public's money, risk it, and keep most of the profits.

Wall Street is like Lake Wobegon, where every penny ante bond trader thinks they are above average. Guess what, most are losers and if forced to go elsewhere, to a hedge fund for instance, would be failures, because in most hedge funds the managers money is at risk and they aren't going to let trades make wild-assed bets. If they do, they blow up, no govt bailout.

I've built a business based on my capital and hard work, unlike most on Wall Street who sit on their ass and collect fat fees for mediocre performance. I've tried hiring the Wharton MBA ex-bulge bracket types, and most of them suck at actually thinking outside of the box and making money. Their idea of research is IM'ing their b-school classmates and passing around the same tired ideas.

Plance, in case you don't know it, anybody good has already left for hedge funds or to manage their own money, what is left are the less bright worker bees. They can still make a ton of money, but they certainly don't earn it or deserve it.

plance....I never typed life insurance..who said that

Not entirely plance....that was part of the problem with AIG...every sub was cross collateralized..each State insurance regulator thinks their is backing from other funds that are already pledged...remember.

"Plance, in case you don't know it, anybody good has already left for hedge funds or to manage their own money, what is left are the less bright worker bees. They can still make a ton of money, but they certainly don't earn it or deserve it."

This sounds more like an elitist argument than a logical one.

Elitist? No, it is capitalism! You build a business and use your capital, you get to make big profits, that is what capitalism works.

More and more you seem like a Marxist, now you are arguing that success businessmen are somehow "elitist".

Why don't you just take the assets under management at your firm and split it among the employees, each can take what they need. I am sure those who build a business with their labor and capital think they should just share with you, the Lumpenproletariat.*

*"(a German word meaning "raggedy proletariat") is a term first defined by Karl Marx and Friedrich Engels in The German Ideology (1845) and later elaborated on in works by Marx.

In The Eighteenth Brumaire of Louis Napoleon (1852), Marx refers to the lumpenproletariat as the 'refuse of all classes,' including 'swindlers, confidence tricksters, brothel-keepers, rag-and-bone merchants, beggars, and other flotsam of society.' In the Eighteenth Brumaire, Marx describes the lumpenproletariat as a 'class fraction' that constituted the political power base for Louis Bonaparte of France in 1848. In this sense, Marx argued that Bonaparte was able to place himself above the two main classes, the proletariat and bourgeoisie, by resorting to the 'lumpenproletariat' as an apparently independent base of power, while in fact advancing the material interests of the bourgeoisie.."

Workers of the world, unite!

I think one point not really addressed here is the psychological impact of this pay structure. In spite of market bounce back, a huge number of people that were paid in stock options are under water-- including us. We don't reckon any future options in our ability to pay for RE so we, like many, have downsized our expectations in RE. Most Credit Suisse stock option holders won't count on that money and won't be significant contributors to our glorious economy. Deferred options are not going to help bolster RE prices.