Oct. 22 (Bloomberg) -- House Financial Services Committee Chairman Barney Frank said there should be a freeze on Wall Street bonuses until companies find a way to keep the year-end payouts from encouraging excessive risk-taking.

``There should be a moratorium on bonuses,'' Frank, a Massachusetts Democrat, told reporters yesterday in Washington. ``They have a negative incentive effect because they are the ones that say if you take a risk and it pays off you get a big bonus,'' and if it causes losses ``you don't lose anything.''

The five biggest U.S. securities firms paid a record $39 billion in bonuses last year even as the credit crisis began to affect investments in mortgage securities and leveraged loans. One of the firms, Lehman Brothers Holdings Inc., went bankrupt this year and two others, Merrill Lynch & Co. and Bear Stearns Cos., were rescued in emergency sales. The two largest firms, Goldman Sachs Group Inc. and Morgan Stanley, became bank holding companies and are receiving $10 billion each of government money.

The moratorium ``ought to be for all firms'' and not just for those eligible for the Treasury financial-rescue program, Frank said. The halt on bonus payments should last ``until they can get a better structure without that perverse incentive,'' he added.

Salary Supplement

Goldman Sachs, Morgan Stanley and Merrill Lynch set aside a combined $33.3 billion to pay salaries, bonuses and benefits in the first nine months of this year, down 20 percent from $41.8 billion in the same period in 2007. Banks typically pay about two-thirds of the total in year-end bonuses.

Since 2003, the five biggest Wall Street firms have paid about $145 billion in bonuses.

``It's pretty unlikely they'll pass a law that interferes in Wall Street bonuses,'' said Roy Smith, a former Goldman Sachs partner who is now a finance professor at New York University's Stern School of Business. ``Barney Frank must know that compensation between any private sector organization and its employees is a matter between its employees and the managers and directors.''

Investment banks pay year-end bonuses to supplement employee salaries that can range from $70,000 to $600,000 a year. Bonuses, sometimes paid partially in stock, are in some cases a multiple of an employee's salary. For senior bankers and traders, bonuses can be in the millions or tens of millions of dollars.

`Low' Salaries

``Wall Street salaries are generally very low because people are paid primarily on a performance basis,'' said Pearl Meyer, senior managing director at Steven Hall & Partners LLC, a New York-based executive-compensation consulting firm. ``If he had a moratorium on bonuses, you would have to readjust salary and shift income from variable to fixed.''

Frank last year won House passage of a bill to increase oversight by giving public-company shareholders non-binding votes on executive salaries. Illinois Senator Barack Obama, the Democratic presidential nominee, introduced an identical bill that stalled in the Senate.

In January 2007, Frank criticized the severance package for former Home Depot Inc. Chief Executive Officer Robert Nardelli as a ``$210 million good-bye kiss.''

Frank, who represented House Democrats in negotiations over the financial-rescue package, was among those who supported the legislation's limits on pay packages at companies participating in the Treasury program.

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net.

Last Updated: October 22, 2008 14:55 EDT