Why the Wall Street System Is Busted

November 17, 2007

Merrill to Pay Chief $50 Million, More if Stock Rises

Call him Wall Street’s richest mop-up man, at least for now.

John A. Thain, the new chief executive of Merrill Lynch, can expect an initial pay package of nearly $50 million as he tries to restore the firm’s reputation and risk- management practices as it grapples with the subprime mortgage problems.

The pay package, largely made up of stock and options, could be worth more than $120 million if Merrill stock rises more than $40 a share in the next two years.

. . . Mr. Thain’s pay package, by contrast, is similarly lucrative but through stock options is largely tied to increasing Merrill’s share price. Merrill shares have fallen 23 percent since August.

“If there is a dramatic increase in the stock price,” Merrill said in a statement, “shareholders will see an increase in value of tens of billions of dollars and as a result, he also will benefit.”

–read entire article–


My gripe isn’t over compensation as such–Merrill can pay whatever it likes (and seem to think turning around bad judgment calls requires a big-hitter). Thain is being hired so investors will think the bleeding has stopped. No problem there either.

Where I do see a problem is in the $120 million carrot offered for getting the stock up $40 within two years.

Out the window go all long-term plans, no matter how beneficial to the health and sustainability of Merrill Lynch in the long run. We don’t do long runs anymore in American business and so our corporations are built of cards. Slash and burn will effect the $40 goal, so Thain can get his hands on the $120 mil, but it may be a country mile away from what Merrill needs.

We’ll never know, because the carrot is just to damned big to allow best choices.

Chalk up another hit for the business schools and a miss for America’s long-term economic health.

* For more in-depth articles by Jim on Business and Economy, check out Opinion-Columns.com

1 thought on “Why the Wall Street System Is Busted

  1. Jim:
    It is obvious that you know little about either Merrill Lynch specifically or corporate America in general.
    You assume, with no apparent latitude, that Thain will be motivated only by the $120 million incentive to do whatever it takes to get Merrill’s stock price up by at least $40.
    It is much more than likely that if the new CEO changes the direction of the firm, and Merrill’s stock rises by $40, that what he’s done will continue to benefit the company for years after and the stock will rise by more than just $40.
    Thain is not likely looking at the CEO position as a short term one.
    Assuming that CEOs are motivated solely by money not only belies your serious lack of sophistication about the corporate world but your lack of understanding about capitalism (in general) as well.
    Better stick to writing in populist newsletters – you may have some chance of success with those.

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