You have to love, or at the very least, appreciate the irony. The latest victims in the imbroglio over banking compensation are … bank employees.
Bank of America Corp. (BAC) and Citigroup Inc (C) among others have instituted programs that are creatively instituting financial aid programs that accelerate cash bonus payments that have been deferred as stock.
Both firms are issuing shares that can be sold within months, much sooner than normally allowed. Bank of America is allowing shares to be sold as soon as August. In the case of Citibank, select stock units will be available for sale in April.
The practice of issuing stock, as opposed to cash, is one move that many banks are taking to mollify the public anger over the comeback of bank compensation in the light of federal bailouts and the overall economic malaise facing the nation.
However, the new pay culture, is having the ironic consequence of squeezing some bankers who rely on their bonuses to meet hefty mortgage payments or private-school tuition bills – fixed costs that are sensitive when cash is tight.
“I know it sounds ridiculous to Main Street, but it’s a hardship,” says Gary Goldstein, who runs Whitney Group, a financial-services job-search firm in New York.
But it shouldn’t sound so ridiculous. Although it can be hard to garner sympathy for the bonuses of Wall Street executives and professional athletes, many employees in corporations and small businesses can speak to the important role that bonuses play as a part of their compensation.
Loans are the most popular form of financial aid for traders and investment bankers. They’re happening “all over Wall Street,” says Gustavo Dolfino, a senior managing director at recruiting firm Accretive Solutions. Such loans aren’t new, but they are becoming more common. In some cases, unlike normal borrowers, bankers and traders can get below-market rates on loans or face lighter collateral requirements.
Citigroup has told some of their employees that they are considering offering loans to cash-strapped workers. Rather than create a special loan program, the bank will continue to offer forgivable loans to a handful of employees, primarily for recruitment and retention.
However, Goldman Sachs (GS) has reportedly only allowed a small number of employees to take out loans. And, according to a company spokesman, the loans don’t carry bargain interest rates, aren’t forgivable, and aren’t connected to compensation.
The situation is even getting more traction in the U.K. where bonuses are being subject to a 50% tax. Some firms are looking into increasing salaries as a way of working around the one-time bonus tax.
