Three of the country’s largest financial companies are giving their CEOs huge raises for 2013, complete with large stock packages. Despite the outrage those raises have prompted, the three men more than earned those pay bumps by sidestepping major legal and financial consequences for their contributions to the financial crisis.
Lloyd Blankfein, CEO of Goldman Sachs, is getting paid $23 million for 2013, a roughly 10 percent raise despite a flat year of revenues and steep drops in trading income from some of its core businesses, the company announced this week. Earlier this month JP Morgan’s board revealed that it is paying CEO Jamie Dimon 74 percent more than it did for 2012, and might throw him another $34 million later this year. Morgan Stanley CEO James Gorman is getting an 88 percent bump to his stock options, although his total compensation isn’t yet known. The government is subsidizing all three of these big pay raises thanks to a loophole in the tax code.
Dimon’s raise brought the most heated criticism, but it is also perhaps the best example of how different things look from the perspective of financial company boardrooms than from Main Street. JP Morgan made headlines for paying the largest government legal settlement in U.S. history, critics of Dimon’s raise say, and failed to post a new record annual profit for the first time since 2009. But considering that the government had strong enough evidence on the bank that it was prepared to go to court — a highly unusual move for Attorney General Eric Holder — the deal Dimon struck is a very good one from JP Morgan’s perspective. Furthermore, as ThinkProgress has detailed repeatedly, the deal won’t actually cost the bank the $13 billion that Holder and others have claimed. After tax deductions and some fine print in the deal, it will really only cost the company something like $5 billion. The company’s stock rose 33 percent last year and Jamie Dimon outfoxed the feds, so why shouldn’t he get a 74 percent raise?
Gorman, the Morgan Stanley chief executive, stands to make a lot more money than he did last year even though he led the bank to an earnings performance “that is roughly half of Gorman’s stated target” by one key measure, according to Reuters. So how could he get a raise? Morgan Stanley has been the most successful of all banks at avoiding legal and financial consequences for its financial crisis activities. Leading the industry in penalty avoidance is worth a lot, apparently.
Blankfein can make a similar case. Considering that the firm is now under investigation for its role in controlling the price of aluminum, and that one of its employees was on trial this year for designing a brazen form of deception that made Goldman Sachs a great deal of money in the run-up to the financial collapse, the firm has gotten away relatively unscathed. A lawsuit tied to Goldman’s allegedly fraudulent crisis-era deals was dismissed in early 2013, and responsibility for the company’s actions in that deal is falling on one individual’s shoulders.
The biggest banks and financial firms have bounced back to near-record profitability in just a few short years. The crisis they caused ripped at least $6 trillion, and perhaps more like $20 trillion, out of the economy. Next to all that damage, the legal bills those companies have faced are minuscule, and the heads of those companies are being rewarded for that victory.
The individual outrages tied to each bank’s recent actions conceal the core reality of the financial industry. These three men successfully minimized the legal and financial damage from deals relating to the financial crisis and brought huge stock price returns to their shareholders. The financial system is designed to reward that behavior handsomely. Rather than attacking individual companies’ decisions, critics would do well to train their fire on the broken system of rules governing executive compensation.