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April 13, 2009

Can We Claw Back CEO Bonuses?

The top five investment banks in the five years leading up to the current financial crisis awarded $145 billion in perks and bonuses for their employees – more than the entire economy of Pakistan, according to Dan Pedrotty, head of the Office of Investment for the AFL-CIO, a large union group.

And as frustration continues over extravagant pay to executives of companies receiving billions of dollars in taxpayer aid, Americans are beginning to ask whether we can get any of that money back.

To find out, NewsHour economics reporter Paul Solman traveled to American International Group(AIG) headquarters in Connecticut, as well as experts in Washington, D.C., to explore options for “clawing back” the cash. AIG has been at the center of anger about the big bonuses – it gave out hundreds of millions in bonuses after it accepted billions of dollars in taxpayer money.

On the way, he looks at clips from comedian Bill Maher suggesting sacrificing a “greedy pig” at the Super Bowl, New York Attorney General Andrew Cuomo promising to use the courts to “name names” and Code Pink protestors who follow CEOs around with the graphic appeal, “We Want Our Money Back.”

Some of the economists Paul talks to think it will be hard to get back money already paid out.

“My guess is you’d spend a lot of effort and probably get modest amounts back, because people will say, ‘Well, I already spent it or whatever I did,’ so the ability to get it back is probably limited,” said Steve Waters, who used to work for Morgan Stanley.

But others are hopeful that recent political action (the House recently passed a bill taxing current financial pay above $250,000 at 90 percent for those at firms getting bailouts, though it’s now stalled in the Senate) will change the culture on Wall Street and make banks less likely to pay out such extravagant bonuses in the future.


“The top five investment banks in the five years leading up to the current crisis awarded $145 billion in bonuses. And this is larger than the GDP of countries like Pakistan and Egypt.” – Dan Pedrotty, AFL-CIO

“It was because of the compensation and the bonuses on Wall Street that executives did reckless things, which destroyed the value of their companies… the only thing that matters in these peoples lives is pure, unadulterated greed.” Peter Morici, University of Maryland

“It’s an egregious wrong for people to now get multiple-million-dollar bonuses for failed performance.” Andrew Cuomo, New York Attorney General

“Wall Street is 25 percent finance and 75 percent legal maneuvering. They approach financial regulation the way most people approach the IRS regarding their taxes. And they have the money to pay for the very best lawyers, and they have been abusing the American people in the process.” Peter Morici, University of Maryland

“Regulation is not a glamorous career, doesn’t pay well. The smart folks will go to Wall Street and figure out how to beat the SEC as opposed to go to the SEC and figure out how to control Wall Street.” – Steve Waters, Investment Banker

Warm Up Questions

1. How much do you think a CEO at a top investment firm makes? How much does a professional basketball player make, how much does a fire fighter make, a teacher, a rocket scientist?

2. How should companies decide how much they pay their employees?

Discussion Questions

1. Do you think Wall Street will change the way it pays out bonuses and salaries?

2. Do you agree with the last point that regulators should be paid large amounts of money? Is there a way to inspire people to become regulators?

3. What will be the lasting legacies of the financial crisis?

Additional Resources

Transcript of this report

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