Oct. 20 (Bloomberg) -- Billionaire Warren Buffett, who collects a $100,000-a-year salary for running Berkshire Hathaway Inc., said Wall Street pay needs a “downside” when profits deteriorate because of reckless bets.

“You have to put in something where there is downside to people who really mess up large institutions,” Buffett said in an interview conducted by the chief executive officer of Business Wire, the Berkshire subsidiary that posts corporate press releases. “Too many people have walked away from the troubles they have created for society, not just for their own institution, and they have walked away rich.”

Wall Street bonuses for 2009 may jump 40 percent to $26 billion, a year after bad bets on subprime mortgages sent financial firms to the government for bailouts, according to estimates by compensation consultant Johnson Associates Inc. Buffett became the second-richest American by building Omaha, Nebraska-based Berkshire into a $150 billion company.

“What you have to change in Wall Street, is you have to make sure that in addition to carrots, there are sticks,” he said. “And it can’t be a one-way street where they are making ungodly amounts of money when things are good and then they move on to someplace else for a while when things are bad.”

Goldman Sachs

Buffett invested $5 billion of Berkshire’s money last year into Goldman Sachs Group Inc., Wall Street’s highest paying and most profitable firm. He said in the interview that the securities industry is essential to economic growth.

“I don’t look at Wall Street as ‘evil,’” he said. “I look at Wall Street as given to huge excess sometimes. I don’t want to get rid of it. We need something to allocate capital and distribute securities and all of that throughout the system. We have got a big capitalist system and we have to have a big capital market - but there is plenty of room for improvement.”

Banks worldwide reported more than $1.1 trillion of credit losses and writedowns tied to the mortgage meltdown since 2007, according to Bloomberg data. The property slump helped topple CEOs at Citigroup Inc. and Merrill Lynch & Co., and pushed the Standard & Poor’s 500 Index to a 12-year low in March.

Kenneth Lewis

President Barack Obama’s administration is seeking to overhaul regulation of Wall Street and curb some pay packages, even as a seven-month stock rally has helped restore profits to the banking industry. Kenneth D. Lewis, in his last year as CEO of Bank of America Corp., won’t receive a 2009 salary or bonus on the recommendation of U.S. pay supervisor Kenneth Feinberg.

Buffett has criticized bankers for not guarding against the housing slump and blamed them for the worst recession in half a century.

“I think that virtually everybody associated with the financial world contributed to it,” Buffett said in a May news conference after the Berkshire’s annual meeting in Omaha. “Some of it stemmed from greed, some from stupidity, some from people saying the other guy was doing it.”

Wall Street bonuses in 2008 fell 44 percent from the prior year to $18.4 billion, according to New York state Comptroller Thomas DiNapoli.

Goldman’s Pool

Goldman, led by CEO Lloyd Blankfein, set aside $16.7 billion to pay employees so far this year. That’s enough to pay each worker $527,192. The New York-based bank repaid $10 billion it got from Treasury and reported a jump in third-quarter profit. JPMorgan Chase & Co., which repaid $25 billion of U.S. funds, said profit surged almost sevenfold in the quarter.

The Buffett interview, conducted last month, was released today in connection with the launch of a Web site, PYMNTS.com, by Business Wire focusing on the electronic payments industry. Buffett is chairman and CEO of Berkshire.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

Last Updated: October 20, 2009 15:13 EDT