Big bonus test coming

Big bonuses on Wall Street do not have to be a cause for controversy. If banks are not accepting even more in taxpayer funds and are making profits legitimately, I doubt anyone will have a problem with big bonuses. 

Certainly, we're seeing a lot of regulatory activity. The G20 has proposed some interesting pay guidelines that frown on guaranteed bonuses for more than one year and smile on long-term pay incentives. Of course, several companies, the likes of Goldman Sachs and Morgan Stanley, have already moved in this direction.   

At the same time, pay monitor Kenneth Feinberg has generated a lot of headlines for his review of pay practices at just seven firms. But you could see his blessing as a kind of seal of approval. If a bank's policies pass muster with him, can the resulting bonuses be tainted? His judgments are expected within a few weeks. 

In addition, the Federal Reserve Board is also aiming to set some rules, described as sweeping, that would set standards for not just executives, but also traders and bankers. But again, there will be no cap. Like Feinberg's strategy, the review will focus on policies and incentive structures--but they would require the Fed to approve policies and allow it to demand changes. 

My sense is that if pay is properly structured, it will not be controversial. Even if all the proposals discussed above pass, executives, bankers and traders are still going to be making a lot of money, in a way that has been effectively blessed. 

All this will start soon. 

CNNMoney notes that financial services firms, led by Goldman Sachs and JPMorgan Chase, are going to be posting some big numbers for the third-quarter, which would pretty much guarantee big end-of-year payouts. They certainly don't want any controversy, and all the regulatory activity now, somewhat paradoxically, will aid their cause--assuming their pay packages are not outlandish, which doesn't seem to be the case. - Jim

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