Amid increasing public scrutiny over big bonuses and after liberating themselves from the shackles of the TARP and pay-limitations that came with it, Banking executives are awaiting the annual eye-popping ritual, the million-dollar check!

“Discretionary” bonus and incentive compensation plans are used to encourage employees to exceed normal job expectations. However, that is not the case in Wall Street. While most companies pay out bonuses out of profits, in Wall Street they’re paid out of revenues. Thus, employees focused entirely on increasing revenues with the greatest amount of risk possible to achieve their personal goals that are not entirely aligned with that of the shareholders or corporation. As there is limited, if any, downside to the failure of the individual, incentive plans outstrip annual earnings and create the possibility of catastrophic damage to the corporation as a whole.

As bad as 2008 was, most Wall Street firms paid out bonuses in 2008. In fact, Merrill Lynch and AIG, which were both receiving substantial government funding had paid out $4 billion and $165 million respectively at the expense of both shareholders and taxpayers. Criticism over pay practices has resulted in public outrage that urged President Obama to intervene and place bonus limitations, full bank disclosure of bonus payments, and proposing legislations of creating an extra tax on bank bonuses.

As most institutions have started repaying the billions of dollars received in federal aid, the power of the federal government on Wall Street bonuses has started to wane. Cash and stock compensations are expected to run into billions of dollars for the year ending 2009.  During the first nine months of 2009, investment banks have set aside about $90 billion for compensation with bonuses making almost half of that amount. Goldman has set aside $16.7 billion and is expected to pay its employees an average of about $595,000 apiece, JPMorgan Chase employees stand to collect $463,000 on average, while Citigroup has set aside an expected $5.3 billion in compensation.