Posted: September 7th, 2022

Due to the 2008 financial crisis, Merrill Lynch was acquired by Bank of America for $50 billion, and since then, both Merrill Lynch and Bank of America received government financial assistance from TARP (the Troubled Asset Relief Program), a program that provides financial assistance but also limits the highest compensation that a participating institution’s employees can receive. In other words, a participating institution will not be eligible to receive TARP money until setting the upper limit of employees’ compensation.

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Due to the 2008 financial crisis, Merrill Lynch was acquired by Bank of America for $50 billion, and since then, both Merrill Lynch and Bank of America received government financial assistance from TARP (the Troubled Asset Relief Program), a program that provides financial assistance but also limits the highest compensation that a participating institution’s employees can receive. In other words, a participating institution will not be eligible to receive TARP money until setting the upper limit of employees’ compensation.
One consequence of TARP coverage was that some employees, including those high-level, high revenue generating employees, began to leave Merrill Lynch/Bank of America to go to so-called “boutique” financial services firms, which had not received TARP money and thus were not covered by TARP restrictions on compensation.
In chapter 1, we talked about incentive effects and sorting effects of pay strategies. Describe the incentive and sorting effects on Merrill Lynch/Bank of America employees (under TARP).

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