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Thursday, 17 March 2011

The return of the bonus boys: CEO and two other top managers ING receive more than €2 mln in bonuses.

In our continuing story on the bonuses and the banking world there was a new episode today. The Volkskrant ( writes: ING board of directors receives  a pay raise and €2.54 mln in bonuses for 2010 (link in Dutch). Here are some snips of this article:
The board of directors of ING receives for 2010 a bonus that is almost as big as their annual salary. The board also receives a pay raise. This was stated by the annual report of the banking conglomerate that still needs to return €5 bln in state support to the Dutch government.CEO Jan Hommen receives a bonus of €1.25 mln on top of his €1.35 mln annual payment. Half of it is in cash and the other half in stock.CFO Patrick Flynn receives a bonus of €600,000, while Chief Risk management Koos Timmermans receives €690,000. Both receive an annual payment of €750,000.
Thijs Peters of Z24 ( writes about the “hypocritical and populistic reaction of politics on these latest bonuses” in his article: “Nothing wrong with bonus Jan Hommen” (link in Dutch).
Politicians of both right and left wing stumbled upon eachother in their hurry to speak out their disgust about the bonus of ING CEO Jan Hommen. First grade populism, as Jan Hommens bonus is very modest. […] 
1.    The bonus of the CEO is well within the limit. The total variable remuneration for top management should not exceed the annual payment within companies that received government support 
2.    Only half of his bonus is in cash. The other half is in stock that he receives only in three years. 
3.    Jan Hommens annual payment is not very high if you compare it to other CEO´s[…] The CEO´s of smaller companies like Philips, Akzo Nobel, Heineken and KPN all received more in 2010 than Hommen.[…]
Although Thijs Peters is right with bullet 3, he totally misses the point. ING is a company that is still for €5 bln in debt with the Dutch taxpayer. And I don´t even mention the extra state support of about 30% of nominal value that ING received on their MBS (mortgage backed securities) portfolio. Philips and the other companies did NOT receive state support.

The point is also that nobody outside ING knows what they still have on their balance sheet in MBS, Credit Default Swaps, Special Investment Vehicles and government bonds of the PIIGS countries and other sovereigns, as these are not valued ´marked-to-market´. I am afraid of that dreadful day that ING should value these investments ´marked-to-market´, as this is almost certainly going to cost me more tax money. Besides that the leverage of ING is still quite high with about 35:1 for debt:equity.

If ING would bleed money again due to bad investments, it is the taxpayer that is on the hook. That Jan Hommen didn´t create this mess doesn´t matter. He inherited it and he has to deal with it. And that Lloyd Blankfein of Goldman Sachs doesn´t even raise one eyebrow for this kind of salary, also doesn´t matter.

That the reaction of politics is exaggerated and populistic, is logical: this is not the time for politicians with a stippled and well-considered opinion, as these would be voted away during the next elections. Jan Hommen should have known this and probably knows, as he is a very smart man.


Gerrit Zalm, CEO of ABN AMRO, and the board of directors all waived their right for a bonus. 

A tip on the hat to CEO Gerrit Zalm for doing the right thing, knowing that the taxpayer is still on the hook for billions of Euro's with ABN AMRO.

2nd Update:
Jan Hommen, Patrick Flynn and Koos Timmermans all waived their right for a bonus, according to The Volkskrant ( Although the decision itself is taken too late, it is a wise decision. A tip on the hat for these gentlemen too.

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