Saturday, November 28, 2009
Richard Fuld, CEO of Lehman Brothers, made $540 million in the 8 years before it went bankrupt
Contrary to conventional wisdom, the leaders of Bear Stearns and Lehman Brothers did not lose out when their firms tanked in 2008. According to researchers at Harvard Law School, the top five executives at these two former Wall Street powerhouses earned billions of dollars this decade.
Thanks to cash bonuses and equity sales during 2000-2008, the brain trust at Bear Stearns earned $1.4 billion and at Lehman Brothers $1 billion, even after accounting for losses sustained when the firms collapsed.
Between 2000 and 2006, the top five executives at Bear Stearns took home an average of $65 million in cash bonuses. The top five at Lehman were more modest…settling for an average of a mere $34 million between 2000 and 2007. In addition, between 2000 and 2008, these top executives were able to sell stock while it still seemed to be worth something. Between 2000 and 2008, the five leading executive officers of Bear Stearns gained an average of $220 million from stock sales and the top five at Lehman $172 million each.
These figures add fuel to arguments calling for reforms in Wall Street compensation packages, researchers concluded, citing the fact that incentives for short-term gain outweighed strategies to keep the firms afloat.
“The analysis indicates that the design of the firms’ performance-based compensation did not produce a tight alignment of executives’ interests with long-term shareholder value,” reads a draft of the research paper. “Rather, the design provided executives with substantial opportunities (of which they made considerable use) to take large amounts of compensation based on short-term gains off the table and retain it even after the drastic reversal of the two companies’ fortunes. Such a design provides executives with incentives to seek improvements in short-term results even at the cost of maintaining an excessively elevated risk of an implosion at some point down the road.”
Bear Stearns sold itself to JPMorgan Chase in March 2008 in what was called “a fire sale.” In September 2008, Lehman Brothers filed for bankruptcy, resulting in its worldwide operations being carved up by competitors.
-Noel Brinkerhoff, David Wallechinsky
The Wages of Failure: Executive Compensation at Bear Stearns and Lehman 2000-2008 (by Lucian A. Bebchuk, Alma Cohen, and Holger Spamann, Harvard Law School) (PDF)
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