January 27th, 2010
12:58 PM ET

Wall Street bonuses are outrageous

[cnn-photo-caption image=
http://i.l.cnn.net/cnn/2007/BUSINESS/10/11/gulf.inflation/art.dollar.bill.gi.jpg caption="Nell Minow says Wall Street banks are earning big profits due to government bailouts."]

Nell Minow
Special to CNN

If insanity is doing the same thing and expecting a different result, the post-crisis pay plans in the finance industry qualify for commitment. The Wall Street financial firms claim to have made some changes, but all the ones we have seen so far are cosmetic, required by statute, weakened by loopholes, or circumvented.

First, the boards of Wall Street financial institutions implemented pay plans that were a major and direct cause of the financial meltdown. These purported bastions of capitalism protected themselves from risk by limiting their downside exposure while taking their pay off the top. Second, rinse and repeat - they took bailout money and kept paying themselves as though they earned it.

I believe in the market. But executives and their boards of directors have hijacked the market to externalize costs and it is doing critical damage to capitalism. The key is always persuading providers of capital that managers will use the funds to create shareholder value and not to enrich themselves. This compensation mess calls that into question.

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Filed under: Bailout Turmoil • Economy • Finance
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