The New York Times takes a look at Merrill Lynch's bonus plans and notes there's a lot to like about it. Even Kenneth Feinberg would have to approve. The 2006 plan emphasizes stock ownership, ties up compensation for several years (expiring in 2010), and includes a de facto clawback feature--all of which experts applaud.

The one aspect that raises brows is the firm's practice of making huge contributions to an executive's bonus plan. So if an executive contributed part of his or her bonus to the plan, the company would goose it with a large contribution. For some, the contribution was two and a half times the executive's compensation. This sort of leverage can really pump up returns when times are good.

As it turns out, a lot of plan participants are underwater, which you could read as having bonus money clawed back, but they have not fared as poorly as shareholders. So what does this mean? Well, the link between pay and excessive risk is sort of tenuous in my mind. It stands to reason that a multi-year time horizon would encourage people to think more long-term. But that didn't stop Merrill from plunging headlong into the subprime industry. 

For more:
- here's the article

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