Crack muckraking over at the Wall Street Journal this morning, detailing how the top 10 earners at Merrill Lynch pulled down $209 million in compensation last year while Mother Merrill soiled her undergarments to the tune of $27.6 billion. Citing "documents and interviews with people familiar with Merrill's compensation," the WSJ reveals a raft of details, dishing dirt and naming names with abandon.
The contrast between Merrill's largess to its senior executives during a year (and particularly a quarter) when the repo man was banging on the front door of its headquarters and the pay practices of a traditional investment banking partnership could not be more stark. At the latter, when the firm has a bad year, the partners pay the operating bills and their non-partner colleagues first, then they distribute whatever is left over among themselves. If a partner doesn't have enough cash to pay his bills, he draws from or borrows against his equity in the partnership and tells the wife she better put plans for a vacation home on Mustique on hold for a year or so. A partner who has a bang-up year when everyone else doesn't mans up, accepts perhaps a slightly larger equity stake in the partnership in recognition of his outperformance, and eats rice and beans with the rest of his colleagues. That's how it's done when you play with your own money.
But that's not how it worked at Merrill. Thain and his partners in crime were playing with other people's money, in this case Bank of America's, so they played by different rules. Anecdotal evidence and the Journal article itself indicates that lots and lots of Merrill bankers got whacked—and whacked hard—in terms of total pay last year (e.g., 17 fewer senior bankers and department heads breaching the $10 million mark), but the cabal at the top seem to have gotten off relatively unscathed. No wonder John Thain was rumored to have initially proposed a $40 million bonus for himself. After all, he couldn't let Montag, Orcel, and Kraus beat him in the moolah sweepstakes, could he?
This sort of every man for himself, winner-take-all philosophy makes a mockery of the idea that investment banks are team-based businesses. If the generals salve their wounded pride on the beach with Mai Tais and cigars while the troops get slaughtered and the shareholders get bankrupted, you have all the conditions necessary for a revolution. Most of the battered troops remaining in the industry will look at this self-serving behavior with disgust. Many will desert, never to return. One or two might even roll a fragmentation grenade into the Executive Committee meeting room during morning call. A few, of course, will grin with delight, convinced in their psychopathic little hearts that they, too, will be sitting on top of the greasy pole in a few years.