Study backs link between pay, risk
NEW YORK - Lehman Brothers Holdings Inc. and Bear Stearns Cos. executives made $2.5 billion from 2000 to 2008, a sign pay policies may have encouraged risk-taking that doomed the companies, a Harvard University study said.
The top five officials at Lehman, which filed for bankruptcy in September 2008, received $1.03 billion in cash bonuses and proceeds from equity sales during the period, according to the report, “The Wages of Failure,’’ released yesterday by Harvard Law School’s Program on Corporate Governance. Bear Stearns’s top executives made $1.46 billion in the years before JPMorgan Chase & Co. agreed to buy the firm in 2008.
Losses the executives suffered when the firms failed were outweighed by payoffs in the preceding eight years, the study said, concluding that the “standard narrative’’ that the meltdown of Lehman Brothers and Bear Stearns wiped out top executive’s wealth was incorrect and should be viewed skeptically in the debate over pay regulation.
“Excessive incentives to take risks might have been generated by executives’ ability to cash out compensation based on the firms’ short-term results,’’ said the report, written by Harvard professors Lucian Bebchuk, Alma Cohen, and Holger Spamann.
Congress and regulators are considering new rules to ensure compensation doesn’t create incentives for the risky investments that brought the financial system to the edge of collapse last year, prompting bailouts of several firms.
