A pension board near you, perhaps?

Pension guarantee? Did SERS lead their readers astray? CORE's Ryan Holderman reads the fine print in the ORC 3309.661

From John Curry, November 1, 2008

IS SERS OVERSTATING THE CASE WHEN THEY MADE THEIR STATEMENTS RE. A GUARANTEED PENSION DESPITE STOCK MARKET LOSSES?

Yesterday I put out an email re. the STRS website stating the following:

[From John Curry, October 31, 2008]:

This one is taken right from the SERS website! John

[Article below may also be viewed here.]

Amid Latest Market Turmoil, SERS Pensions Are Safe

9/26/08 - SERS wants to reassure its members and retirees that in these challenging economic times, SERS retirees’ pensions are safe and secure for the following reasons:

* A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses.
* SERS’ investments are diversified and investment performance does not hinge on any one investment or on any one firm’s success or failure.
* SERS takes a long-term approach to investments; this long-term approach will help us weather challenging financial times.

SERS’ pension plan is a defined benefit (DB) plan which means that the pension benefit is determined based on a formula of age, years of service, and salary, not investment returns. A defined contribution (DC) plan, or a 401-K, is based on contributions and investment earnings on the contributions.

Recently, you may have heard politicians and financial experts say that during times of economic crisis “pensions are at risk,” with no distinction between public and private pensions. However, your SERS public pension is not at risk.

To find out more about what public pensions are doing during this current downturn, click here to read the National Association of State Retirement Administrators’ (NASRA’s) recent article, “State & Local Pensions Navigating the Storm.”

CORE's Ryan Holderman reads the fine print re. the stated ORC and finds this out! [Below] John

Ryan Holderman to John Curry, October 31, 2008
Subject: Pension guarantee?????

Dear John:

Here's what the ORC has to say in 3309.661:

3309.661 Acquiring vested right in pension when granted

The granting of a retirement allowance, annuity, pension, or other benefit to any person pursuant to action of the school employees retirement board vests a right in such person, so long as he remains the recipient of any of the funds established by section 3309.60 of the Revised Code, to receive such retirement allowance, annuity, pension, or benefit. Such right shall also be vested with equal effect in the recipient of a grant heretofore made from any of the funds named in section 3309.60 of the Revised Code.

Effective Date: 06-30-1991

I don't see anything which addresses reduction in pension amounts.

I found the article below on the OEA website:

OEA Retirement Systems Update

Report to the OEA Board of Directors:

October 2008

Retirement Systems Stress that Pensions Remain Secure

The U.S. financial crisis has dramatically lowered stock prices and generated serious concerns among working Americans. OEA members are certainly not immune to this economic turmoil. However, it is important to note that there should be no impact on the defined benefit pensions of current and future retirees in STRS, SERS and OPERS.

Each of the retirement systems recently issued statements to members regarding the economic crisis and the security of pension assets. These statements are reproduced below:

STRS

STRS Ohio members who are following news reports of the recent impact that the nation’s credit crisis has had on global financial markets might wonder how this affects their pension fund. Times like these are a good time to remind our members that STRS Ohio pension benefits are safe and secure. STRS Ohio is a long-term investor with an extremely diversified portfolio. This design enables us to weather the ups and downs of the market, including the investment-related market losses we have recently experienced due to the credit crisis and the overall general market decline.

The system’s assets, along with contributions from members and employers, are used to pay benefits earned by its members. However, it’s important to remember that not all of those benefits are due at once. Many of our members who are accruing benefits will not retire for many years. In other words, STRS Ohio has the liquidity needed to pay pension benefits when they are due near term, and the accumulated investment assets and income from employer and member contributions (future revenues) to allow us to continue to do so into the future.

The recent events on Wall Street are unprecedented. Nevertheless, it is not time for knee-jerk reactions or to change the disciplined approach to investments that has served STRS Ohio well over the years. We are monitoring how the overall markets respond to discussions in Washington. We hope that steps will be taken that will restore both calm and confidence to the markets. During this period, we will continue to do what we do best as a public pension plan — maintain our long-term focus and only make significant changes after thorough and deliberative discussions.

We encourage all our members to read our newsletters and visit our Web site often to keep abreast of all issues and events affecting their retirement system.

SERS

SERS wants to reassure its members and retirees that in these challenging economic times, SERS retirees’ pensions are safe and secure for the following reasons:

• A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses.

• SERS’ investments are diversified and investment performance does not hinge on any one investment or on any one firm’s success or failure.

• SERS takes a long-term approach to investments; this long-term approach will help us weather challenging financial times.

SERS’ pension plan is a defined benefit (DB) plan which means that the pension benefit is determined based on a formula of age, years of service, and salary, not investment returns. A defined contribution (DC) plan, or a 401-K, is based on contributions and investment earnings on the contributions.

Recently, you may have heard politicians and financial experts say that during times of economic crisis “pensions are at risk,” with no distinction between public and private pensions. However, your SERS public pension is not at risk.

OPERS

Historic changes on Wall Street may have raised concerns about OPERS’ investments and benefits. While the news of the markets can be understandably concerning, it is important for our members to know that their retirement benefits are secure.

A variety of issues plague the economy, including a troubled housing market, credit crunch, and high energy prices, making it a very difficult environment for investors. This is unlike anything we have seen in recent history. Many market watchers predict the markets will not rebound this year, and it remains uncertain when a recovery could begin.

Our fund is strong enough to weather these challenges in the financial market. The pension funds for our 908,000 members are safe. The stability and financing of our pension system is solid.

As a long-term investor, OPERS weathers the ups and downs in the market with a diversified portfolio spread over many asset classes and has a disciplined approach to investments.

We have faced severe downturns in the market before and will survive this one. We have an experienced and talented investment and executive staff working diligently during this financial turmoil.

Our diversified portfolio will help weather the storm as it has many times in our 73-year history.

It's interesting that only SERS is cited as being guaranteed.

Later,
Ryan

Tom Curtis to Steve Mitchell: Would there ever be a decrease in our pension benefit?

From Tom Curtis, November 1, 2008
Subject: An SERS pension is guaranteed by Ohio law and "cannot be reduced due to investment losses." How 'bout STRS pensions????????????

Hello Steve,

I hope all is well with you and your family, and your STRS family.

I received the following information from John Curry. Am I correct in thinking the STRS falls under these same guidelines?

An SERS pension is guaranteed by Ohio law and "cannot be reduced due to investment losses." How 'bout STRS pensions???????????? [Link to article]

The information indicates that public pension defined benefit (DB) plans are guaranteed by law and pensions cannot be reduced due to market losses. Will you verify that the STRS falls under these same guidelines and laws?

The information also indicates, due to the structure of DB plans, they are designed to withstand 20% losses. What about the 31.25% loss the STRS has had over this past year, (Oct 2007 to Oct 2008 = $25 billion loss in value)?

I have had many people ask me if we would ever see a decease in our pension benefit, once retired. How would you answer that question?

Thank you for a timely response,

Tom Curtis
STRS retiree

Kathie Bracy to Mike Nehf: Do WE have a guarantee?

From Kathie Bracy, October 31, 2008
Subject: Pension fund guarantee?

Dear Mr. Nehf,

According to the SERS website (http://www.ohsers.org/GD/Templates/Pages/Sers/gdPageTemplate001.aspx?page=443#mmo), SERS retirees have a guaranteed pension:

"A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses."

In checking STRS Ohio's website, I can find nothing about a guarantee for STRS retirees' pensions, just reassurances such as:

"Times like these are a good time to remind our members that STRS Ohio pension benefits are safe and secure."

and

"Every month, we have thousands of retirees who can count on receiving a pension check from STRS Ohio — regardless of market fluctuations."

Assurances are nice, but do we have an actual guarantee that our pensions are safe in the same manner as SERS pensions? What can you tell me about this?

Thank you.

Kathie Bracy

John Curry to STRS Board: SERS pension is guaranteed, how about ours?

From John Curry, October 31, 2008
Subject: An SERS pension is guaranteed by Ohio law and "cannot be reduced due to investment losses." How 'bout STRS pensions????????????

Dear STRS Board Members,

SERS advises to their stakeholders that, "An SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses." See the link below to the Ohio SERS website for this quote.

If this is true then:

1. Can STRS also assure their benefits recipients that the same is true for for them and...

2. If not, why not?

A concerned STRS benefits recipient,
John Curry

SERS pensions are guaranteed safe -- how about ours?

From John Curry, October 31, 2008
Subject: An SERS pension is guaranteed by Ohio law and "cannot be reduced due to investment losses." How 'bout STRS pensions????????????

This one is taken right from the SERS website! John

Amid Latest Market Turmoil, SERS Pensions Are Safe

(9/26/08) - SERS wants to reassure its members and retirees that in these challenging economic times, SERS retirees’ pensions are safe and secure for the following reasons:

* A SERS pension is guaranteed by Ohio law (section 3309.661 of the Revised Code) and cannot be reduced due to investment losses.
* SERS’ investments are diversified and investment performance does not hinge on any one investment or on any one firm’s success or failure.
* SERS takes a long-term approach to investments; this long-term approach will help us weather challenging financial times.

SERS’ pension plan is a defined benefit (DB) plan which means that the pension benefit is determined based on a formula of age, years of service, and salary, not investment returns. A defined contribution (DC) plan, or a 401-K, is based on contributions and investment earnings on the contributions.

Recently, you may have heard politicians and financial experts say that during times of economic crisis “pensions are at risk,” with no distinction between public and private pensions. However, your SERS public pension is not at risk.

To find out more about what public pensions are doing during this current downturn, click here to read the National Association of State Retirement Administrators’ (NASRA’s) recent article, “State & Local Pensions Navigating the Storm.

'Heist' is a good word for it! STRS, are you listening?

From John Bos, October 31, 2008

$50 billion of bailout going to employee bonuses

Oct 31, 2008
msn.com
by Andrew Horowitz

As if the economic bailout by U.S. taxpayers isn't enough to make you sick to your stomach, new information has come to light that several banks are planning to pay billions of dollars in year-end bonuses from the bailout funds they received. Investigations are beginning into the nine banks that took in the first $125 billion -- the same $125 billion that was supposed to be used to unclog the credit system which was preventing banks from providing much needed funds for individuals and businesses.

There are many feathers in a ruffle over this and New York Attorney General Andrew Cuomo and several congressmen are furious that over $20 billion has already been earmarked as bonus funds for management and employees. Unbelievably, that is just the estimates from Goldman Sachs, Morgan Stanley and Merrill Lynch. There are six more banks that are also working on similar heists.

Here is their rationale for using that money: It is reported that the financial industry pays base salaries in the range of $80,000 to $600,000 and apparently that is simply not enough to keep some of the best and brightest working to keep their companies profitable. It seems that if they were paid only this meager amount, the company would risk mass defections. That would be a real problem...or would it?

Maybe it is time to peg annual bonuses to something meaningful like profitability. As I recall, not only are these the firms that have been losing money (as is evident by the need for a massive multi-billion dollar bailout) but they have also been shown to be the creators of securitization, derivatives, sub-prime mortgages and other toxic credit that is the root cause of this historic global economic catastrophe!

Maybe I am being too harsh? Perhaps management is entitled to hundreds of millions in bonuses for the hard work they do, day in and day out. You have to feel sorry for them as most have had to give up their private jets and instead fly in a cramped seat in first class. Surely most will now have to wonder how they will deal with the excess workload as they have had to fire thousands of employees. Also, they will need to use a good chunk of that money to rebuild their retirement plans as much of their wealth was tied up in their company's stock which, under their leadership, could be down more than 60% just this year alone.

Related Reading:

Listen: TDI Podcast - Predicting another 40% down

Henry Waxman Requests for Bonus information

Wall Street banks in $70bln staff payout

Will Banks really need to curb CEO Pay?

$500 billion of 401k wealth is destroyed

Andrew Horowitz is a money manager and the founder of Horowitz & Company. He is also the author of the bestselling book, The Disciplined Investor . Check out his latest investment idea or listen in as he hosts, The Disciplined Investor Podcast.

Click image to enlarge.

Well....it's been one week now, Laura!

From John Curry, October 30, 2008

"Laura Ecklar, spokeswoman for the State Teachers Retirements System, said she is hopeful the disks will show up."

State retiree data lost in the mail Insurer says 11 computer disks may have lacked postage; 36,000 people affected

Thursday, October 23, 2008
By Suzanne Hoholik
THE COLUMBUS DISPATCH

Computer disks that contain personal information about 36,000 Ohio retirees have been lost in the mail, Medical Mutual of Ohio told the state's five retirement systems today. (Read more here.) (Additional info here)

Bonuses at banking companies and bonuses at STRS...do you see a parallel here?

From John Curry, October 29, 2008

Recently, the New York Attorney General, Andrew Cuomo, sent a letter to nine New York banks indicating that, as recipients of taxpayer funds, these institutions "had a responsibility" to the taxpayers of New York state and suggested that bonuses for executives should be furnished for examination. Cuomo goes on to say, "Taxpayers are, in many ways, now like shareholders of your company, and your firm has a responsibility to them.”

Maybe I am off base here but.....doesn't STRS receive payments from public school districts who subsequently receive these monies from taxpayers? Doesn't STRS have a responsibility to them ( the taxpayers, as well as the contributing educators and the Ohio Revised Code - section 3307.15) when STRS pays $6,027,249 in bonuses to their in-house investors at a time when STRS has dropped 25 Billion dollars in worth? The majority of our STRS Board apparently doesn't view it this way.

I think I see similarities, do you? Would it be too much to ask STRS for a list of these bonus recipients and the respective amounts involved...if not merely for the sake of the direct contributors of STRS but also for the taxpayers contributing to all Ohio public schools? Would it be asking too much for the Board to reconsider bonus payments at a time when some of my fellow STRS retirees are looking at $900 monthly (in 2009) healthcare insurance premiums for themselves and their spouses?

John Curry
An STRS benefits recipient

Cuomo Investigates Bonuses at Banking Companies

October 29, 2008
New York Times

From Jonathan D. Glater, a DealBook colleague:

The New York attorney general has expanded his investigation of bonus payments to Wall Street executives whose banking companies are receiving $125 billion in support from the federal government.

In a letter sent on Wednesday to the nine financial institutions receiving government aid, the attorney general, Andrew M. Cuomo, asked for “a detailed accounting regarding your expected payments to top management in the upcoming bonus season.”

The letter also raised the prospect of a lawsuit relying on a New York law that, Mr. Cuomo has said, permits the recovery of payments worth more than the services provided by executives.

Mr. Cuomo sent his letter to Citigroup, Bank of America, Bank of New York Mellon, Goldman Sachs, JPMorgan Chase, Merrill Lynch, Morgan Stanley, State Street and Wells Fargo.

In recent weeks, Mr. Cuomo’s office reached an agreement with the American International Group, the troubled insurance conglomerate, freezing millions of dollars in payments to former executives. The letter sent on Wednesday appears to represent an expansion of the inquiry into executive compensation at companies getting government money.

“As my office has told A.I.G.,” Mr. Cuomo wrote, “now that the American taxpayer has provided substantial funds to your firm, the preservation of those funds is a vital obligation of your company. Taxpayers are, in many ways, now like shareholders of your company, and your firm has a responsibility to them.”

On Tuesday, Representative Henry A. Waxman, who is leading a House investigation of the financial crisis, asked the nine banking companies to explain why they are paying billions of dollars in compensation and bonuses after they accepted the cash injections of $125 billion as part of the government’s $700 billion bailout program.

Rich DeColibus, a commentary: Giving out those bonuses cannot be rationally justified however much you twist the logic

From Rich DeColibus
October 28, 2008
Subject: Higher Math

Well, now, as someone much smarter than I already figured out, if you divide the $6,027,249 total Performance Bonus Incentives by the 87 investment counselors who received them, it comes out to $69,278.72 each. Not a bad little Christmas present. Buy a few ornaments with that. Of course, some got a bit less (I imagine those getting only like forty or fifty thousand are really pissed), and some got more - averages are so cruel like that. Gee, I remember when I got my government stimulus check, I thought I hit the jackpot. Little did I know, I just wasn't a member of the right government!

Now, according to the "STRS Ohio News" newsletter of October of this year, our fine investment community beat the market average (yes, crushed the infidels, like Ohio State playing the Oak Park Elementary football team), thus meriting those really meager bonuses. Well, yeah, we kinda lost $25 billion, but if you want to get picky you should step back and look at the big picture, which, admittedly, is hard to see hidden behind the mountains of worthless securities we now own. I guess I have a bad attitude; it's hard for me to bubble with enthusiasm over "...approximately $215 million above the composite benchmark return..." (to quote the newsletter) when, however you wish to slice and dice it, we still lost $25,000,000,000.

But, I'm sure it was all reasonable and figured out to the nth degree. For example, with a 0.35% rate of return better than the composite benchmark, the bonuses average $1,979.39 for every one-hundredth of a percent above the composite. Or, from another angle, if they do 1.0% better than the composite, their bonuses should be $197,939.30 each, and for a 5% better than the composite, it's close to a million. Granted, STRS has a cap, but I think the relevant issue is the RATE at which the bonuses are calculated, not the actual amount or the cap. Indeed, one suspects the amounts were decided first, and then retroactively justified with figures close to a Saturday Night Live script. Not many of my former students would expect a million dollar bonus for improving his/her test score from 82% to 87%.

Wait, it even gets better. If you divide a $25 billion loss by 87 investment counselors, you get an average loss of $287,356,322 by each counselor. But, you see, you fail to understand how significant that 0.35% better-than-the-benchmark really is. You're just cheap and miserly. While it is true the $215 million better-than-the-benchmark amount is less than the average amount each and every investment counselor lost (times 87), you should, to be fair, look to see how much the average loss would be if, in fact, the investment community had a 0.0% better-than-the-benchmark rate. Yessirree, now we'll get down to brass tacks. If the STRS investments had hit the market average (instead of being a humungous 0.35% better), the average loss for each investment counselor would have been a huge $288,362,068, instead of a tiny $287,356,322. Any fool can see $288,362,068 is a very different number than $287,356,322. Why, it's whole bunches different. For example, there's a seven in $287,356,322, but not in $288,362,068. That certainly justifies the bonuses! It was obvious once you knew what to look for!

More seriously, I'm not blaming the investment counselors for the $25 billion loss; they, along with most of the country, were swept up in an economic tsunami. The issue of their employers spreading money around like drunken sailors in a Singapore house of ill-repute, however, is still very much alive. In short, losing $25 billion, eh, easy come, easy go. On the other hand, giving bonuses to those responsible cannot be rationally justified however much you twist the logic.

Rich DeColibus

Now retired, Rich was president of the Cleveland Teachers Union for sixteen years.

Hey, Bloomberg.....you forgot to add our STRS investments associates to your list!!

From John Curry, October 28, 2008

Bloomberg.com, October 27, 2008

Broken Securities Industry Still Has $20 Billion to Pay Bonuses

By Christine Harper and Serena Saitto

Oct. 27, 2008 (Bloomberg) -- Five straight quarters of losses and a 70 percent slide in its stock this year haven't stopped Merrill Lynch & Co. from allocating about $6.7 billion to pay bonuses.

Goldman Sachs Group Inc. and Morgan Stanley, both still on track for profitable years, have set aside about $13 billion for bonuses after three quarters, down 28 percent from a year ago. Even some employees at Lehman Brothers Holdings Inc., which declared the biggest bankruptcy in U.S. history last month, will get the same bonus they received a year ago.

The worst financial crisis since the Great Depression, a $700 billion taxpayer bailout, public outcry over excessive pay and the demise of three of the biggest securities firms won't deter Wall Street from offering year-end rewards to employees on top of their salaries, compensation experts say.

"Critical producers and critical managers will be retained with the same bonus they had last year,'' said Robert Sloan, head of U.S. financial-services recruiting at Egon Zehnder International, a New York-based executive-search firm. "The others will see sharp cuts."

Goldman, the biggest and most profitable Wall Street firm until it opted to become a bank holding company last month, has set aside about $6.85 billion for bonuses, or an average of $210,300 for each employee, down 32 percent from $339,400 a year ago. Morgan Stanley, the second-biggest securities firm until it also converted to a bank, has $6.44 billion for bonuses, or $138,700 per person, down 20 percent from last year. Both firms accrue a fixed percentage of their revenue for compensation, so the decline in bonus pools matches the drop in revenue.

Merrill's Compensation

The money Merrill has set aside for bonuses equates to an average $110,000 for each of its 60,900 people, up from $108,000 a year ago because more than 3,000 jobs have been cut.

The bonus figures are based on estimates that about 60 percent of the compensation and benefits expenses reported by the companies will be paid in year-end bonuses, as occurred in past years. Average bonuses aren't an indication of how much any employee will receive, since payments range widely from assistants to top traders. Bonuses aren't paid until the end of the fiscal year, so firms could choose to reallocate the funds.

"We are in the process of determining appropriate levels of year-end compensation, and no decisions have been made,'' said Mark Lake, a spokesman at Morgan Stanley. Ed Canaday, a spokesman for Goldman in New York, declined to comment.

Merrill spokeswoman Jessica Oppenheimsaid the firm's accrued bonuses aren't down as much as those at Goldman and Morgan Stanley because the firm reduced expenses last year, when it also had a loss. Compensation costs are down 18 percent this year, compared with the first nine months of 2006, Merrill's last profitable year.

Moratorium on Bonuses

A worldwide economic slowdown, caused in part by the financial industry's losses, and a U.S. Treasury plan to spend $250 billion of taxpayer money buying stakes in banks, have made pay a political issue this year.

"There should be a moratorium on bonuses,'' Barney Frank, chairman of the House Financial Services Committee, told reporters last week. "If nobody gave them, there wouldn't be a competitive aspect.''

In Zurich, protesters blocked UBS AG's private-banking branch on Paradeplatz last week to seek curbs on executive pay after Switzerland's largest bank was forced to ask for government aid.

$145 Billion

"I'm just flabbergasted that the financial community has failed to show any sense of leadership on this issue and doesn't seem to understand how angry people are at them,'' said Nell Minow, editor of Corporate Library, a Portland, Maine-based corporate-governance research firm. "They are just a bonus away from having the villagers come after them with torches.''

New York-based Goldman, Morgan Stanley, Merrill, Lehman and Bear Stearns Cos. awarded their employees a cumulative $145 billion in bonuses from 2003 through 2007, according to estimates based on company reports. That's more than the annual gross domestic product of the Philippines. Last year the firms paid out a record $39 billion.

At the end of this year, companies may decide against paying the money accrued for bonuses and instead use part of it to cover severance costs, said Rose Marie Orens, a New York-based partner at Mercer, the human resources consulting unit of Marsh & McLennan Cos., who specializes in executive compensation for financial- service companies. Goldman and Morgan Stanley end their fiscal year in November, and Merrill's ends in December.

Lehman Bankruptcy

"Whether what you see is what they're going to pay, you can't tell yet,'' she said. "It's highly unlikely they'll add to those numbers and more likely they'll bring them down.''

Lehman filed for bankruptcy on Sept. 15. Merrill Lynch and Bear Stearns were rescued in emergency sales to Charlotte, North Carolina-based Bank of America and JPMorgan Chase & Co. in New York. Goldman and Morgan Stanley are each receiving $10 billion of capital from the government.

Bank of America is offering Merrill's U.S. brokers bonuses of as much as 100 percent of the revenue they generate to keep them after the deal is complete, people briefed on the plan said last week. Scott Silvestri, a spokesman for Bank of America, declined to comment.

Employees at Lehman Brothers in Europe have been promised by their new owner, Nomura Holdings Inc., that they will receive the same bonus as last year, according to two people familiar with the situation. A Nomura spokesman declined to comment.

Earnings Slump

Share prices and profits have dropped more than bonuses so far. Goldman's profit has fallen 47 percent this year, and the stock is down 53 percent. Morgan Stanley's earnings have tumbled 41 percent, and the shares have shed 69 percent of their value.

"Performances have certainly not been what investors would expect,'' said Daniel Moynihan, a principal at Compensation Resources Inc., a 25-year-old company in Upper Saddle River, New Jersey that advises companies on pay practices. Still, "smart companies are going to reward those people who performed well,'' he said.

Even without bonuses, Wall Street's traders and bankers typically receive salaries that range from $80,000 to $600,000 a year. That compares with the mean annual wage for the average U.S. employee of about $40,690 and a mean for CEOs of $151,370, according to a May 2007 Bureau of Labor Statistics report.

For many on Wall Street, those salaries aren't enough. Top employees expect to receive bonuses that can be in the millions or tens of millions of dollars. Lloyd Blankfein, 54, Goldman's chief executive officer, was awarded a $67.9 million bonus last year on top of his $600,000 salary.

'Obscene' Mindset

At Merrill Lynch, CEO John Thain, 53, received a $15 million bonus when he was hired in December. Peter Kraus, 56, who is leaving after joining Merrill last month as strategy head, may be eligible to collect on a pay package originally valued at $95 million, including stock and options that replaced a Goldman stake he had to forfeit, people familiar with the matter have said.

While some of the most senior executives may choose to forgo their bonuses, like Morgan Stanley CEO John Mack, 63, did last year, others whose compensation isn't disclosed can still take home millions, said Mercer's Orens.

At investment banks, ``the largest compensation doesn't necessarily get paid to the top five executives,'' she said. "They could be zeros, but there still will be people making $28 million.''

"When you work on Wall Street and you get no bonus, that is a huge shock to the system,'' said Bill Coleman, chief compensation officer at Salary.com, a software provider based in Waltham, Massachusetts. ``Wall Street has created this mindset that most people find obscene, which is that it's hard to live on just half a million dollars a year.''

'No Wall Street'

A Morgan Stanley investment banker in Europe, speaking on the condition that he wouldn't be identified, said his bonus last year was five times his salary and that he would quit if he didn't get a bonus this year, unless his salary was doubled.

"There is no Wall Street without bonuses,'' said Andy Kessler, a former analyst and hedge-fund manager turned author. ``The guys who know how to make money are the ones who are in demand. If you want to keep them, you have to pay them something.''

More than 148,000 financial jobs have been eliminated worldwide since the middle of 2007, according to data compiled by Bloomberg. Securities industry jobs in New York fell by 9,000, or 5 percent, through August 2008, the Federal Reserve Bank of New York said in an Oct. 23 report. The mean annual salary of securities-industry employees in 2007 was "slightly less than $400,000,'' according to the Fed report.

Goldman Cuts

Goldman Sachs plans to cut about 3,200 people, or 10 percent of its employees, a person familiar with the matter said last week. That's a reversal from Sept. 16, when Chief Financial Officer David Viniar said he expected the number of employees to grow this year. Viniar told analysts in March that compensation costs make up two-thirds of the firm's expenses and that year-end bonuses are roughly two-thirds of compensation.

More job reductions are likely, especially at Merrill and Lehman. About 10,000 Merrill employees may lose their jobs, estimates Richard Bove, an analyst at Ladenburg Thalmann & Co. Options Group, a financial services recruitment and consulting firm in New York, estimates that global banking job cuts could reach 200,000, with as many as 50,000 in New York.

"The vast majority of the guys who are being let go are not going to find another job in this environment on the Street,'' said Fred Joseph, the former CEO of Drexel Burnham Lambert Inc. who's now co-head of Morgan Joseph & Co. in New York. "Middle- market firms like us are growing, but all of us won't hire enough people to dent the 10 percent of people that Goldman's going to let go.''

Hedge Funds

Barclays Plc, which is acquiring Lehman's North American investment banking and capital markets businesses, will cut about 3,000 jobs, Barclays President Robert Diamond said in an Oct. 10 Fortune magazine article. While London-based Barclays has a $2.5 billion pool of money to pay severance and other compensation, it hasn't promised former Lehman employees any bonuses. Seth Martin, a spokesman at Barclays, declined to comment.

Competition for top employees, a standard explanation for paying large bonuses, is less fierce this year. Hedge funds, which have poached top traders from securities firms in the past, may cut as many as 10,000 jobs this year after their biggest losses in more than 20 years, estimates Options Group.

"People don't have a whole lot of alternative places to go to, and it's pretty clear to everybody that they're lucky to have a job,'' said Roy Smith, a former Goldman partner who's now a finance professor at New York University's Stern School of Business. ``It has never been easy to find industries away from finance where you can make millions of dollars a year.''

Who Are Keepers?

Fewer employees means more bonus money will be available for those who remain, said Mercer's Orens.

"You determine these are keepers, and you've got to keep them, so they'll receive a disproportionate amount of the money that remains,'' she said. "You want to make sure they're not there and angry.''

Joseph, the former Drexel CEO, recalled the time at Shearson Hammill & Co. in 1973 when he had to deliver some good news and some bad news to a young employee.

"The good news is we're firing half your class, but we love you and we want you to stay; the bad news is you're not going to get a bonus, and we're cutting salaries 10 percent,'' he said. "He stayed and he built a whole career, and he's been a successful investment banker ever since.''

The following table compares compensation and estimated bonuses for the first nine months of 2008 with the first nine months of last year. Bonus estimates are 60 percent of total compensation. Bonus awards are typically determined at the end of the year, with payments made in December or January.

Click image to enlarge.

Click images to enlarge.

Typical Management Action (TMA): The Canoe Race

A Japanese Teacher Retirement System and STRS Ohio decided to have a canoe race on theOhio River. Both teams practiced hard and long to reach their peak performance before the race. On the big day, the Japanese won by a mile.

Afterwards, the STRS team became very discouraged and depressed. The management of the STRS Ohio decided that the reason for the crushing defeat had to be found. A "Measurement Team" made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was that the Japanese had 8 people rowing and 1 person steering, while the STRS team had 1 person rowing and 8 people steering. The Management of STRS hired a consulting company and paid them incredible amounts of money. They advised that too many people were steering the boat and not enough people were rowing.

To avoid losing to the Japanese again the following year, the rowing team's management structure was totally reorganized to 4 Investment Staff, 3 Benefits supervisors, and 1 Accounting supervisor. They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the "Rowing Team Quality First Program", with meetings, dinners and free pens for the rower. "We must give the rower empowerment and enrichment through this incentive program."

The next year the Japanese won by 2 miles. Humiliated, the management of the STRS laid off the rower for poor performance, halted development of a new canoe, sold the paddles and canceled all capital investments for new equipment. Then they distributed the money saved by giving a High Performance Award to the Investment managers and distributed the rest of the money as bonuses to the Benefits supervisors and the Accounting supervisor.

We now have distributed the savings based on their value to STRS!

Rich to Board: So just how much are those guys making, anyway?

From Rich DeColibus, October 28, 2008
Subject: Public Records

Dear Gentle(wo)men:

I am still quite upset about the PBIs, and the more I learn, the more upset I get. No, I don't think I'll get over it, and I suspect neither will a lot of other STRS members. More to the point, it is my understanding these PBIs are monies given in addition to our investment counselors' base salaries.

(1) Are their base salaries part of the public record? As a teacher, every part of my personnel file (with a few exceptions like health information) was an open public record. Any citizen of the State of Ohio could request my file and see how much I made in salary and bonuses (actually, I don't recall ever getting any bonuses no matter how well I taught). Since STRS is a state agency, I assume, therefore, as a member in good standing of STRS (and even as just a citizen of the State of Ohio), I am entitled to know what these base salaries are. I am interested in amounts, not individuals.

(2) If, in fact, you do not believe I am entitled to this information, please so inform me by any method convenient to STRS.

(3) If, in fact, I am entitled to know this, I would like to know (A) What is the lowest base salary? (B) What is the highest base salary? And (C) what is the average base salary for our 87 investment counselors?

Thank you for your time and attention to this request.

Rich DeColibus