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Pols Practice Dictionary Arbitrage

Are you an executive? You might be surprised to learn the answer is yes, under expansive definitions employed by opponents of the finance industry.

When New York State Attorney General Andrew Cuomo set out to pillory Merrill Lynch last week for doling out year-end bonuses while receiving a taxpayer bailout, he made sure to spotlight that a disproportionate share of Merrill's $3.6 billion bonus pool was paid to a narrow circle of what he called "failed executives."

Such pronouncements go a long way toward explaining how "bonus" became a dirty word almost overnight. After all, if most bonus money goes to the top honchos whose decisions ruined their respective institutions, it's easy to see why taxpayers would want the payouts outlawed.

Who is an 'Executive'?

But the case rests heavily on just who is considered an executive. People who don't care for bankers tend to pick the most expansive definition they can get away with. They're practicing a new form of arbitrage - dictionary arbitrage.

Much media coverage of the bonus controversy implicitly assumes that anyone very highly paid (by Main Street standards) must perforce be an "executive." Public acceptance of that idea creates fertile ground for anti-Wall Street invective.

Here, for example, is a passage from a Feb. 4 New York Times story about President Obama's plan to cap executive pay: "The rules would not prohibit a lower-level executive, like a stock trader or investment banker, from continuing to receive tens of millions of dollars in pay."

And across the Pond, a Feb. 16 Guardian story under a headline, "Government bans executive bank bonuses," states: "The government yesterday publicly hardened its position on bank executive bonuses .... It will only allow modest payments for clerks earning around 20,000 a year." That's $28,800 at Thursday's exchange rate.

So, stock traders are now considered executives? As is every bank employee in Britain whose salary exceeds $28,800 a year?

Well, it depends which dictionary you consult.

Dueling Dictionaries

One standard hard-copy dictionary (Websters/Random House, 1983 edition) defines "executive" like this: "A person who has managerial and policy-making authority in an organization."


Business Glossary, a specialized online reference source, states: "Executive: employee in a top-level management position; person who has major decision-making authority in an organization. Many executives in the private sector receive incentive pay such as bonuses."

Both definitions closely reflect the meaning I always associated with the word, "executive."

However, newer online references give far broader definitions., citing the 2006 Random House Dictionary, defines an executive as "a person or group of persons having administrative or supervisory authority in an organization." In short, anyone who has someone else (even a single intern) reporting to them. That would probably cover the majority of white-collar workers in any industry who've worked for the same employer for at least five years.

So, how much of Merrill Lynch's 2008 bonus pool went to true executives, as opposed to mid-level managers? According to Cuomo, the 20 highest-paid recipients at Merrill got about $300 million in all, or 8.3 percent of the total. (The number 20 is significant because that's how many top-paid employees within each institution will see their total compensation capped under the stimulus legislation signed by President Obama on Tuesday.)

The 149 biggest bonus recipients at Merrill got $858 million, or about 24 percent of the total. An additional 547 employees got at least $1 million each. Cuomo didn't state an aggregate total for that group. But a reasonable conclusion is that 40 - 60 percent of the total pool went to the remaining 38,000-plus recipients who received less than $1 million each.

AUTHORJon Jacobs Insider Comment

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