Insight into the world of John Thain and his $35,000 commode

I haven’t seen any discussion of John Thain on the boards, but he’s the latest Wall Street executive whose bizarre spending is being subject to public scrutiny.

About a year ago, Thain, who was the Merrill Lynch chief who engineered the company’s buyout by the Bank of America, ordered a renovation of his office, a couple of conference rooms, and a reception area. Cost: $1.2 million. Items included: Office rug, $87,000; credenza: $68,000; pair of guest chairs: $87,000; coffee table: $11,000; six dining room chairs: $37,000; mirror: $5,000; commode with legs: $35,000.

(Various news outlet have been calling the commode a “toilet.” I’m no expert on antique furniture, but I suspect it’s not actually a crapper.)

In an interview with Maria Bartiromo, Thain said:

My questions include:

  1. Why would any public company or its officer, whose first obligation is to stockholders, ever think that it’s appropriate to furnish a business office with museum-quality artifacts?

  2. What the hell is Thain talking about (Part 1)? Stan O’Neil was the head of Merrill Lynch. What possibly could he have done to his office such that it was completely inappropriate for Thain’s use, that he would have to renovate it “no matter what”? Were the walls and floor carved in the shape of pornographic images? (It would have to be carving, right? Because mere images could be painted over or removed.) Why would it need to be renovated no matter what?

  3. What the hell is Thain talking about (Part 2)? Was the renovation necessary for his duties or not? If it was a legitimate business expense, then why would he call it a mistake not to have paid for it himself? If it was not a legitimate business expense, then why would it be done at all? If he’s got $1.2 million to spend on furniture, why wouldn’t he spend it on his own personal office or house rather than in his employer’s?

  4. Has anyone travelled in such circles? Where does this degree of disconnection from the real world come from? Is Thain an outlier or do officers of large public companies routinely expect such bizarre extravagances?

The officer is responsible to the Board (technically, it’s the stockholders, but it’s very hard for stockholders to do anything). If the company is making money, the board doesn’t care how the president spends it.

In addition, many corporate boards are made up of company presidents. They don’t want to say “no,” or they might not get what they want from their board.

Translation: he didn’t like the decor. It’s his office, and he needs to mark his territory.

More territory marking. If people came up and saw the office was the same as his predecessors, they might not realize he was really in charge.

Not exactly, but there are plenty of examples of corporate extravagances by the company president that are rubber stamped by the board. If they’re making money, they think he’s worth it, and since many are company presidents themselves, they aren’t going to begrudge him the fact. Note that the issue arose because the company was receiving public funds. If that weren’t the case, no one would care.

More annoying is the argument that they needed to pay bonuses to keep good people. Where would these people go? Lehman Brothers, maybe?

My boyfriend was a managing director at ML for quite a while. He said it was kind of a shocker because Thain had really portrayed himself as a straight shooter who was going to reverse the various excesses of the Stan O’Neal years and save the company.

For instance, during O’Neal’s tenure, his secretary was required to clear the elevator O’Neal was going to get on entirely of people, nor was anyone allowed to get on the elevator as he was going up or down. I am not sure if it was even allowed to stop-I’ll ask him tonight and update because I don’t want to get the story wrong.

OTOH, this is also the guy who pushed up the bonuses so they’d all get paid out befor the BoA team came in.

Merill Lynch has always had problems losing high revenue bankers and the better analysts to Goldman Sachs, and then Morgan Stanley. So if you were a high revenue producing banker they’d promote you faster because there was more of an argument that the clients belonged to you (and your efforts), and not the brand (which is Goldman’s argument).

Thain pushed the company bonuses up a month ,to just before they got a multiple billion tax money handout. He is a looter. He is taking advantage of the circumstances to reward himself and his cronies again. I does not shock me any more.

Yeah - I travel in those circles; first as a management consultant and now as a company executive. I don’t hang out with the Big Boys like Thain, but know folks who do.

A couple of points:

  • You would be amazed at how much leeway CEO’s get regarding their expenses. This type of thing happens all the time; we just don’t hear about it…

  • RealityChuck is right - lots of territory marking going on. However it is more subtle in some ways, too. At that level, there is a lot of…hmm, what’s the word? Diplomacy? Pomp and ceremony? I mean, you know how Obama had to do so. many. whacky. things. at the Inauguration? Why? Well, because that is how it is done - he is expected to assume this role of Power in a certain way befitting its importance. Well, there’s some of that when you are the head of a huge, global company. It is expected that you mark your territory and have the expensive office - if you don’t, can you really carry out the role in the manner you need to? Please note - I am in NO WAY condoning what Thain did, have seen examples where CEO’s embrace their roles in a much more modest fashion, etc. - however, I am trying to point out the thinking that lay at the core of what Thain ended up doing - he took a reasonable issue and went way over the top with it…

My $.02

Maybe this is a dumb question/point-but I know for a fact that the majority of senior (managing director and above) compensation is in stock, restricted stock at that.

What is your problem with them being compensated in stock vis-a-vis the bailout funds? They don’t get to sell it until it vests or they’re fired (it vests automatically). It’s not like they’re taking bailout cash and giving it them. The value is only on paper.

Yeah, the actual numbers are extreme, but if I became a CEO absolutely one of the first things I’d do is redecorate my office and reception area. You’d just have to, if you want any respect. I’d use normal (not antique or custom made) furniture though.

They are rewarding themselves with huge bonuses when the company is losing billions. Somehow I have a problem with that.

But if the bonuses were largely in company stock how does that equal taking taxpayer money? I mean, other than the symbolic horror of paying yourself a bonus in a bad economy, did they actually use taxpayer funds to pay themselves bonuses? Didn’t they just issue stock certificates?

Thain is an asshole. His excuse for the bonuses is that they need them to hold on to the employees who drove the company off a cliff.

The stories I have read say that Merrill Lynch took the bailout money it got from the government and handed it out for the bonuses. They don’t say anything about stock.

The bonuses were paid out a month before BoA took over-

  1. You’d have to show that Merrill Lynch received federal bailout monies (I don’t know whether they did or not) before the BoA deal closed, and that they used those specific funds to pay out the bonuses.

  2. If Merill didn’t get federal funds or you can’t show that they used those for their bonuses, then the only taxpayer connection would be through the bailout money BoA is getting. None of that money would apply to their bonuses because the companies formally merged 1 month after the bonuses were paid out.

  3. I really doubt anyone is going to find a list out there stating how much each senior banker is paid in cash vs stock and I’m certainly not going to list my boyfriend’s assets ;). But most of his yearly compensation is in restricted stock grants. Once they vest, he sells, but not everyone in the industry does that which is why you had so many people claiming they lost “all” their money when Bear Stearns went under.

Is it incredibly poor judgment to pay out bonuses when the actions of certain people (Stan O’Neal foremost) pulled the corporation under? Yes-because even if it’s compensation awarded in restricted stock grants, it does mean that they’re going to pull in a profit in the future, when the stock becomes eligible for sale. And you can argue that the taxpayers essentially “paid” for those future cashouts by keeping the company afloat when it could have gone under-with the bailout money in question. It seems to me that’s the real way the taxpayers paid.

Whether the monies from the bailouts were directly applied to cash bonuses for upper level executives is somewhat debateable to me-but I’m sure if those lists are ever published you guys can prove me wrong.

Anyway, hasn’t Thain been subpoenaed to answer those very questions-which means he’s going to have to show where and how they paid out those bonuses? It seems to me that if he was stupid enough to use the bailout funds instead of just compensating everyone in stock that he’s going to get punished for it pretty soon.

Sorry for triple posting-

Here you go-it’s a combo of cash & stock.

i-banking bonuses

On what basis would he be punished? One of the problems with the first bailout bill was the lack of any strings.

He should have just paid for it himself. It’s his stuff, he should have paid for it himself.

I guess I’d rather take a step toward repairing this kind of sick corporate culture and not do it.

I have to kind of chuckle inside because of the dichotomy between seeing this and then reminiscing on my last travel where I had to spend an hour uncovering what the “true” exchange rate was for a $30 purchase I made - was it $0.734 or $0.729? The company can’t be havin’ their employees stealing money, ya know.

Which is simply a symptom of why you’ll never be in such a position in the first place.

And, I might add, neither will I. See, if you’re enmeshed in that culture, it’s not “sick,” and needs no repair.

It was stock plus cash. The NY State Controller is the one that flagged this based on actual dollars paid out. I can’t find a quote off hand but it was in the NYTimes. Eg, the actual taxable cash dollars paid out on Wall Street in 2008 made it the 6th highest ever compared with the largest loss since at least the great depression.

For those that got paid in a large amount of stock that vests over 3 to 5 years: most of these people have had a lot of money wiped out. Lehman’s for one. I’ve got a buddy at UBS that lost over 90% of the value of his bonuses paid as stock as of 9 months ago. I’ve got limited sympathy because that’s the ibanking game but it still sucks. Generally, most people in the business get paid what most of us would consider really good money as a base salary, say in the 100 to 250k range. But the bonus is where they get the fuck you money. Bonuses usually are in the 1to 5x range but of course can get obscenely high.

By the way, I was in the game for 7 years in Tokyo and Hong Kong.

1.2M to redecorate the office, reception and meeting area for the head of Merrill Lynch is peanuts compared to their annual running costs. The thinking is

  1. mark territory
  2. be a bigger swinging dick than the competitors
  3. when you bring in the big clients, you give them a comfort level that this is a bank that makes tons of money and will make you a ton of money
  4. when they bring in a big company that wants to do an IPO, Merrill shows they can get the deal done.
  5. Thain was personally worth how much money? He’s running one of the biggest (well used to be) money machines on the planet. If he want’s a gold plated crapper, well why not?

Game has changed but a lot of the players don’t get it. The US should take a best practice for the UK. Slash dividends, slash bonuses, pay people in deferred stock after Joe Taxpayer gets his money back with a decent profit.

I worked in the industry for 7 years in Tokyo and Hong Kong. I’m willing to bet you can get just as good people, just as dedicated (maybe not for as long) if the compenstation bar is $500k or $1m than you can if it’s $10m.