Wall Street Pay Caps: The Old CEOs on the Dollar Menu Trick
February 5th, 2009Update: Goldman, JPMorgan Won’t Feel Effects of Executive-Salary Caps
Duh.
Via: Bloomberg:
Executives at Goldman Sachs Group Inc., JPMorgan Chase & Co. and hundreds of financial institutions receiving federal aid aren’t likely to be affected by pay restrictions announced yesterday by President Barack Obama.
The rules, created in response to growing public anger about the record bonuses the financial industry doled out last year, will apply only to top executives at companies that need “exceptional” assistance in the future. The limits aren’t retroactive, meaning firms that have already taken government money won’t be subject to the restrictions unless they have to come back for more.
The new guidelines are the first salvo in a broader financial-rescue plan Obama plans to announce next week. The president and Congress have had to defend billions in aid to banks that continue to provide generous bonuses and luxury perks while posting record losses. Pay caps may provide the political cover the administration needs to deliver additional infusions of capital into the financial sector that may be necessary.
Some analysts said the new rules wouldn’t have much effect.
Obama, 47, “is not proposing to go back and get that $18.4 billion in bonuses back,” Laura Thatcher, head of law firm Alston & Bird’s executive compensation practice in Atlanta, said of the cash bonuses New York banks paid last year, the sixth- biggest haul in history. “Right now, we have not clamped down” on pay at banks.
Huge Paydays
In addition, some executives may be compensated for the potential reduced salaries with restricted stock grants, which may result in huge paydays after the bank repays the government assistance with interest.
“They’re just allowing companies to defer compensation,” said Graef Crystal, a former compensation consultant and author of “The Crystal Report on Executive Compensation.”
The restrictions are “a joke,” he said, because “if the government is paid pack, you can be sure that the stock will have risen hugely.”
—End Update—
As usual, don’t let the Hopenosis go to your heads.
There are lots of slippery ways for compensation to be doled out to the useless pricks and overt crooks who run these stupid financial corporations. If this was real, the limit would not be on “salary.” It would be on “total compensation.” There’s a world of difference between those two terms.
$500,000 or $1, it’s all the same, really. This is a few years old:
It sounds noble. A top executive takes a $1 salary, opting to base his pay on the performance of the company’s stock, and thus the company itself.
The latest to do it: The CEO and two founders of Google, whose pay packages were revealed last week. Other companies paying their chiefs $1 a year in salary include Kinder Morgan, Capital One Financial, Apple Computer and Pixar.
At a time when the average CEO makes about $10 million a year, the $1 salary makes for good public relations. But dig into the pay packages and you’ll find a different story. As a rule, CEOs on the dollar menu have some of the richest pay packages around. Heres a look at the vast riches obscured by some single-digit salaries.
Besides, these people are employed by the United Soviet States of America now. If they don’t like it, they should quit working for the government/Bank of America/etc.
Finally, the problem is not how much the executives are paid. The gap between the highest paid and lowest paid employees is a large part of what has wrecked this system. (Sorry, I’ll have to cut this off here and turn this point into another essay later. The goal is a more libertarian society. We definitely need a dedicated post for this.)
Via: AP:
Wall Street and the business community gave a lukewarm response Wednesday to the US administration’s plan to cap executive pay, fearing it may lead to a talent exodus and delay recovery in the finance sector.
The reaction came after President Barack Obama announced that executives of finance firms receiving government bailouts would have their annual salaries limited to 500,000 dollars, a move aimed at protecting taxpayer interests.
The salary limit is “still a hefty sum to be sure, and the spirit of the order certainly has popular appeal, but it’s a slippery slope when the government puts restrictions on how much an individual can earn in the private sector,” said Patrick O’Hare of the independent research firm Briefing.com.
“Also, the order itself strikes us as a disincentive for financial firms to reach out for aid, which will just prolong the recovery for the sector and the economy.”
Douglas McIntyre at the financial website 24/7 Wall Street said the limits could make it more difficult for troubled banks to retain their best executives.
“Wall Street may keep most of its bankers if they face pay cuts, but it is the top five or 10 percent who make these companies really profitable, and they will soon be on their way to greener pastures if this measure is enacted,” McIntyre said.
Don Lindner, a compensation specialist with the human resources association WorldatWork, said the new restrictions could mean a “huge cut in pay” for many top executives.
“They might leave to find jobs where they are paid more, that’s my concern, that the restrictions are so deep that the leadership won’t stay,” Lindner told AFP.
Still, Lindner said the matter is “a complex issue” and that “just like any other investor, I think the federal government has every reason and responsibility to protect its investment.”
But he argued that the move “may have some consequences,” such as “not being able to get the kind of leadership the organizations need to recover quickly.”
The US Treasury said the measures “are designed to ensure that public funds are directed only toward the public interest in strengthening our economy by stabilizing our financial system and not toward inappropriate private gain.”
The Treasury guidelines “seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments,” the statement added.
The guidelines come as the administration revamps guidelines on a massive 700-billion-dollar rescue plan under the Troubled Asset Relief Program, aimed at stabilizing the financial sector to spark a recovery from deep recession and a credit crunch.
US Chamber of Commerce spokesman Tom Quaadman said that “there should be accountability for the expenditure of taxpayer dollars” but that “policies should not be put in place that harm the ability of companies to turn themselves around.”
“As we see it there is intense competition for talent, and if draconian rules are put into place that talent will go elsewhere, and that will deprive companies of experienced executives at the precise moment they need them,” Quaadman added.
John Wilson, an equity analyst at the brokerage Morgan Keegan, said that despite the protests, Obama’s step is “the logical political move” after the government stepped in to rescue major banks.
“You can’t take on a business partner and not expect them to have some say in your business,” he added.
Not to nitpick too much, but is a moreegalitarian society a more desirable goal than libertarian? Or am I reading too much into your words?
It isn’t either or, in my opinion. And you shouldn’t be reading anything into it because I haven’t even posted the material yet.