Bonus Scandals Begin to Emerge

The issue of Wall Street bonuses in general, and Merrill Lynch's bonuses in particular, is only just beginning to heat up. The NYT is scandalized today that bonuses in New York are going to total $18.4 billion -- the sixth-largest year on record -- and frankly I too am quite shocked that the average bonus award fell only 36.7%, even as profits simply evaporated.

The situation at Merrill is particularly bad. In recent days there's been a lot of unhelpful finger-pointing between Merrill and Bank of America: BofA seems to be upset that Merrill moved its bonus payments up to December, while Merrill says that BofA was kept entirely within the loop at all times. But now the WSJ adds a new twist:

Mr. Cuomo also wants to know if Merrill's board knew about the deepening losses last month, which resulted in a net loss of $15.31 billion in the fourth quarter. That information may have led Merrill's compensation committee to readjust the bonus payouts, the person familiar with the probe said.
Some Merrill directors have said they didn't know of the losses or that the losses threatened to derail the Bank of America deal. Mr. Thain has said Bank of America knew about the bonuses. Bank of America has said Merrill's compensation committee made the decision on amount and timing of year-end compensation. A person close to Bank of America said it had "no input" on when the bonuses would be paid.

If it's true that the size of Merrill's bonus pool was set before the magnitude of the fourth-quarter losses became apparent -- and I suspect it probably is true -- then there's a huge scandal here. The optics of Wall Street bonuses generally are bad, no doubt. But the sight of Merrill executives awarding themselves monster multimillion-dollar sums without the compensation committee even having the opportunity to pare them back in the light of that $15 billion loss? That's just unadulterated greed.