Monday, December 8, 2008

Thain's Inflated Sense Of Self-Worth

He's not going to get it, but I can't get over the fact that Merrill Lynch chief John Thain actually thought he deserved a $10 million bonus for the year. Apparently, a few months ago it was suggested to the compensation committee that Thain's bonus be north of $30 million. From Thain's perspective, he must have felt he was making quite a sacrifice by only asking for $10 million.

To accurately evaluate Thain's request of $10 million we need to look at his accomplishments during the year. For starters, Merrill Lynch stock has fallen 71% this year. In addition, Merrill has reported losses of over $12 billion year-to-date. According to my trusty abacus, Thain apparently thinks he's worth $1 million for every 7% decline in the stock and every $1.2 billion in net loss. I don't want to brag, but I would have been willing to generate half those losses for a mere $5 million bonus.

According to people at the firm, Mr. Thain says he deserved the bonus "because he helped avert what could have been a much larger crisis at the firm." I find that simply incredible. He's basically saying, "Look guys. Sure the stock is down 71% due largely to a lot of poor risk management and decision-making under my watch, but if I hadn't acted boldly in selling the firm to Bank of America, we might have ended up in bankruptcy! Clearly, I deserve $10 million for only losing $61 billion of market value." It's kind of like a kidnapper demanding freedom for not having murdered.

Asking for a $10 million bonus in light of the facts demonstrates either a massive ego or a complete detachment from reality (the two often go hand in hand). And it doesn't matter that he only joined Merrill in late 2007. He came to the firm with a fresh set of eyes and had every opportunity to examine the firm's balance sheet, risk exposures, and risk management practices. This guy is lucky to still have a job (as is the rest of senior management though I'm sure many of them will soon be "leaving" following the merger).

Let's also not forget that Thain is pulling down a base salary of $750,000. He might not be happy with that, but I can think of about 533,000 recently unemployed folks who would kill for a piece of that.

Disclosure: The Rubbernecker is short overpaid company-killers.

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