thainAnother example of why it usually pays off to wait with your judgment until you hear both sides of the story was delivered today when John Thain explained last week’s allegations in a memo.

The $ 1 million remodeling job apparently wasn’t done recently, but more like a year ago when dinosaurs roamed the earth and banks were still generally trading above book value. Oh, and it wasn’t for his office alone, but also covered two conference rooms and a reception area.

This makes it only slightly more understandable though. Regardless of the prevailing economic environment, executives should be a good steward of their shareholders money. Spending $ 300,000 per room, more than the average American house costs, is tantamount to throwing money out the window. He can do that with his own money anytime, but not with shareholder funds. Thain promised to reimburse Bank of America for the expenses, but it still leaves a very shallow aftertaste. You can bet that without the controversy he would not have done that.

On the other hand, his explanation regarding the bonus payments makes sense. The term “bonus” implies for the average American monies they receive for extraordinary performance. Understandably most people were outraged when they heard about billions of dollars of bonus payments paid to Merrill employees at the end of the year, even though the bank almost collapsed.

But two things need to be kept in mind: not every single department of Merrill sucked and if you punish your best performers even though they had nothing to do with the legacy problems of the bank you’re basically asking them to leave, hurting your franchise. Secondly, regardless of the term “bonus”, these payments do not require extraordinary performance and are simply part of your overall compensation package. This is similar to cutting your salary in two parts, calling the first 50 % your salary, and the second 50 % “bonus”, regardless of your actual realized performance on the job.

When you work for Wall Street your basic salary is usually much lower than your bonus, at least for most front office jobs. Stopping all bonus payments to everybody would equal a salary reduction of 50-70 % for many top bankers. While this may certainly be fair for bad performers (and boy, did we have enough of those last year), there are still enough people out there who did a good job and who had nothing to do with the downfall.