Outrage on bonuses is fair, bailout official says

But he backs AIG's stance that contracts are binding

'You have to link pay and performance.' - Robert P. Kelly, CEO, Bank of New York Mellon Corp. "You have to link pay and performance." - Robert P. Kelly, CEO, Bank of New York Mellon Corp.
By Beth Healy
Globe Staff / March 18, 2009
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The chief executive of the company that is administering the government bailout fund for banks said he understands why Americans are outraged over bonus payments at American International Group and elsewhere.

"I think there's a lot of emotion around bonuses, and legitimately so," said Robert P. Kelly, chairman and chief executive of Bank of New York Mellon Corp. "If you think about the average American, their house price is down, and they don't have the same level of job security that they had in the past, so people are angry."

But Kelly said increased scrutiny should be directed at top executives and policy makers at companies, not "revenue producers" like traders, who are effectively following the orders of higher-level managers. He also said companies are bound to honor contracts they signed with employees, as AIG has argued.

Kelly's comments came on a day when lawmakers in Washington were lashing out at AIG, the New York insurer that has received $170 billion in federal rescue funds paid for by taxpayers and which is paying $165 million in retention bonuses to employees.

New York Attorney General Andrew Cuomo said AIG had paid $1 million or more to 73 employees, based on information he subpoenaed from the company on Monday. Together, the top 10 bonus recipients received $42 million.

In a letter yesterday to US Representative Barney Frank, a Newton Democrat who is chairman of the House Committee on Financial Services, Cuomo disputed AIG's claim that it had to make the bonus payments to honor legal contracts.

"Had the federal government not bailed out AIG with billions in taxpayer funds, the firm likely would have gone bankrupt, and surely no payments would have been made out of the plan," Cuomo wrote.

"AIG made more than 73 millionaires in the unit which lost so much money that it brought the firm to its knees," Cuomo added, urging Frank to take action against the company. "Something is deeply wrong with this outcome."

Some members of Congress yesterday threatened to enact legislation that would levy high taxes on the bonuses being paid to AIG employees. President Barack Obama also has criticized the bonuses.

At Bank of New York Mellon, top executives did not receive bonuses in 2008, because the company received a $3 billion capital infusion from the government in the first wave of such taxpayer investments last year. Kelly received $13.3 million in total compensation for the year, down from $20.1 million in 2007. Yesterday, Kelly said he would not have received a bonus for 2008 even without the government's investment, because the bank did not meet its earnings goals.

"You have to link pay and performance," he said. "The executive should only get paid if the shareholder does well." In future years, he said, when the government funds have been paid off, "In a period where the earnings were up, hopefully I would get a bonus."

Bank of New York Mellon has 3,000 employees in Massachusetts.

Kelly, whose company manages $928 billion in investments and provides accounting and other services to large investors, said it's uncomfortable for bankers to be subject to so much public scrutiny over compensation, but he believes the bailout program was critical to restoring confidence in the financial system and helping turn around the economy.

"In spite of what's happened to banks' stock prices, the system is much more liquid and stable than it was last fall," he said. But he believes the program, called the Troubled Asset Relief Program, must now do what it was originally intended established for: buy troubled mortgage assets from banks.

"The sooner we do that, the sooner the financial system will be healthy again," Kelly said. "It's not a should be, it's a must be."

Kelly said he is optimistic the economy will improve within nine to 12 months. "America to some degree got the world into the issues it has right now. And I honestly think we're going to help get the world out of it," he said.

Material from Globe wire services was used in this report. Beth Healy can be reached at

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