Surprise good news in the TARP bill that President Obama just signed. I could get used to this.
A provision buried deep inside the $787 billion economic stimulus bill would impose restrictions on executive bonuses at financial institutions that are much tougher than those proposed 10 days ago by the Treasury Department.
The provision, inserted by Senate Democrats over the objections of the Obama administration, is aimed at companies that have received financial bailout funds. It would prohibit cash bonuses and almost all other incentive compensation for the five most senior officers and the 20 highest-paid executives at large companies that receive money under the Treasury’s Troubled Asset Relief Program, or TARP.
Speaking as a trained biologist, that is to say with about the econ training of a table lamp, awarding performance bonuses to the executives of companies that need rescue by the TARP fund seems to invalidate the idea that bonuses are based on performance at all. If compensation scaled with results in any meaningful way then what most executives deserve right now is a beating. Last month has proved if anything that “bonuses” are just another type of unaccounted compensation that executives will pay themselves if they have to raid the bank’s last stack of C-notes to do it.
If we learned anything from the last year, it is that paying top executives lavish salaries with guaranteed bonuses and ridiculous perks DOES NOT WORK. A casual glance at recent history shows that as superstar executive salaries increased over time their decisions got progressively stupider. So arguments like this from Obama’s advisors strike me mostly as knee-jerk conservatism, in the Buckleyan sense of standing athwart change and shouting ‘stop.’
“These rules will not work,” James F. Reda, an independent compensation consultant, said on Friday. “Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”
If you think about it, neither of the advisor’s worst case scenarios even sounds particularly bad. Regarding (b), it makes sense that Navy captains who run a ship aground never command again. The middle ranks have enough qualified candidates that the Navy doesn’t need to trust a guy who already left one ocean vessel with its keel exposed.
Advisor concern (a) strikes me as just as baffling. He apparently worries that low pay will drive executives to either not ask for TARP funds that their firms don’t need, or they will pay back the loans in a rush. Is there any particular reason why this guy is worrying about these things, rather than hoping for them? The TARP program looks like last-ditch life support to us; to bankers it looks like a giant free-money trough. Anything that incentivizes firms to only come for help that they need, you know, the way we meant for the funds to be used, seems like a rather good idea. The government wastes money and there are more rescue funds for firms that really need it. The other scary possibility is that firms will feel obliged to pay back the funds faster. Uh, great?
The only way to make sense out of the unnamed advisors’ concerns is to think that executives will perversely starve their banks of TARP funds to the point that the banks die and, falling into a smoking hole in the ground, dragging down the rest of the baking sector with a gravity well of leverage. If major banks were run like Zimbabwe maybe, but largish corporations have shareholders and a board. It could be naive idealism speaking, but I like to think that a CEO who condemned his firm for such obviously selfish reasons would be chased out of the building with sticks and torches.
We will see if I am wrong, obviously. Maybe a bunch of pissed off CEOs will destroy their own companies because the government took away their third house in the Hamptons. Somehow I doubt it.
dmsilev
The banking executives should just be grateful that there wasn’t a retroactive clawback provision rescinding the last two or three years worth of bonuses. Or a provision requiring all executives to have "Wall Street Banker" tattooed on their foreheads and then go walking alone through some neighborhood going through the throes of mass foreclosure.
-dms
MattF
It’s the awful and arduous working conditions that a financial sector CEO has to endure. No one would undergo that level of pain and humiliation for only a half-mil a year.
Walker
Good luck with (b). Even Dodd, who is the whoriest of the banker whores, is telling bankers good luck with (b).
As Yves keeps pointing out, the Rubin school has way too much influence over Obama. They have to be stopped. Geithner will destroy this president if something is not done about him.
jrg
I don’t think it’s the government’s job to dictate salaries or bonuses, even for those companies who are unloading toxic debt to the government.
It’s the shareholder’s job to take care of executive overcompensation. I believe that the right thing to do is wipe out all shareholder (and some bondholder) value, have the government buy the banks for cheap, break the banks up, and gradually re-privatize them by issuing new shares. In other words, let the banks file for bankruptcy before we rescue them.
Then provide those executives who perform well with leadership positions and equity stakes in the smaller banks.
Laura W
Face the Nation is covering this exclusively this morning. Barney Frank, Shelby, Gibbs.
blogreeder
I can really agree with that. That’s one of the few things you and I can really agree on. The only reason to care about what an CEO makes is based on the company’s performance. Period. If the company is doing good, it doesn’t matter what the CEO is being paid. The bottom line is what it’s all about.
If the company has to take TARP funds, especially from a liberal, they get what they deserve.
Zifnab25
Ironic that the chief complaint among CEO advokates is that they won’t be willing to suck hard enough on the corporate welfare teet. Image a tax and spend liberal complaining that a reduction in welfare benefits to unwed mothers would discourage young women from getting pregnant. Sounds about the same logic to me.
Walker
It would be if the government is the owner, or the largest shareholder.
The only thing that is making me optimistic about this mess is that the "Nationalize Now!" crowd are starting to get too loud to ignore. Representatives from the IMF should be on TV every day calling our administration hypocrites.
JimPortlandOR
The aura of entitlement from the bank ceos smells like putrid crap to the citizens. "How dare you interfere with my right to unlimited compensation even if things aren’t going so good. But things are just fine. No problem here. We’ll just take some handouts for a rainy day (the day the bonuses are paid). "
Break up the huge banks (anti-trust, no too-big-to-fail), regulate the biggies like utilities, re-separate investment banking from commercial banking, and make government bailouts contingent on board of directors positions for the public. Rein them in. If they don’t like it, have them go to Paraguay to run banks there.
AND, if the stress tests show they are insolvent, put them in receivership (with the executives on the sidelines in ankle bracelets) and sort out just what is worth saving. Write off the rest.
KJ
The problem is that they are painting all of the recipients of TARP funds with one brush. With respect to the nine largest banks, all of them were required to take the TARP funds. It wasn’t a question of whether they needed the funds; it was purely optics–there was a concern that if only the banks in trouble took the money, then it would cause a run on those banks. So while it is fair to place these limitations on certain of the banks, it’s unfair for those that were dragged into this for the optics.
jrg
My point exactly. One way to ease the fear of socialism would be for the banks to immediately sell 30% of the re-capitalized banks, then gradually sell off more and more of it. In the mean time, the government’s role as a shareholder would entitle them to control executive compensation, just as if anyone else owned the majority of the re-capitalized bank.
I don’t see why people are so opposed to the idea of nationalizing the banks. It’s the only safe way for them to declare bankruptcy, and the only way to restore confidence in the bank’s balance sheets, so that they can re-privatize in the future.
No joke. While we’re at it, we should re-think mortgage tax incentives with the goal of reducing sprawl.
Don K
In the company where I worked, there was a formula based on return on equity (along with some other measures) that governed whether there were to be any bonuses at all, and it was made plain that if we didn’t meet the targets there weren’t going to be any bonuses, period.
And that went for everyone who was eligible for a bonus, from first-level managers right to the top. Everyone knew not to make bonuses part of their basic lifestyle – they should be spent on extra stuff like a nice vacation or else should be saved. And in the 19 years I was eligible for bonuses, I think they were awarded around 2/3 or so of those years.
I’m not really a fan of having the government setting compensation limits, but in this case it seems completely appropriate. The idea that bonuses are or should be part of the execs’ lifestyles is total horseshit, and in my opinion they should have to prove themselves as turnaround artists before they get another cent of bonus. If half a mil isn’t enough to pay for the kids’ tuition at Dalton or Groton or Lawrenceville and still make the payments on the Vail condo and the Bar Harbor estate, well too fucking bad. Draw down some of your wealth for that stuff.
Seems to me putting on this kind of limit is a great way to make sure the bailed-out banks are the ones who really need the money. If there are no conditions on it, then it’s just free money, ad who wouldn’t sign up for that?
The Grand Panjandrum
Tim if I am reading this correctly you are confusing the TARP with the economic stimulus bill that just passed. They are separate bills. The TARP money is for bank bailouts and is already being used for whatever is was Paulson and his gang were doing and now the second round is in Geithner’s hands. The economic stim bill will be signed tomorrow. It does have the proviso that limits bank officer pay for the banks that have accepted TARP funding but it is not TARP money.
opium4themasses
I believe the response to (b) is "Don’t let the door hit your ass on the way out.".
Libby
@jrg:
They’re not dictating compensation, they’re dictating the terms of a ‘loan’, which is what the bank does itself if they loan you money.
I’d also note, that while I don’t follow these things closely, not being of the investor class myself, I seem to recall reading quite a bit at one point about shareholders trying to hold the big brass accountable and finding out they didn’t have the power to do so, because the CEOs somehow gamed the system to strip them of that power. IIRC, there was also some flap over transparency, as in the brass hiding the real figures from the shareholders.
scarpy
Hey man — agree with the main points, but this wasn’t the TARP bill, which is coming later, it was the stimulus bill. and Obama won’t sign it ’til Tuesday.
insert aimee mann joke here.
KJ
The problem of course is that they are attempting to modify the terms of the loan AFTER the money was loaned to these entities. Imagine if your bank did that to you.
The Grand Panjandrum
@KJ:
Credit card companies do it with impunity and the banks do have the option of repaying the loan before the new terms are effective.
Libby
You mean like when the bank sells your mortgage to another entity without telling you first? And they suddenly call in the loan? Or your credit card company changes your interest rate for no apparent reason?
KJ
Libby and TGP:
Credit card companies agreements and the loan agreements related to mortgages provide for all those actions. If they didn’t, they couldn’t take those actions without your written consent.
Libby
Heh. If this was Eschaton, I’d owe The Grand Panjandrum a coke.
opium4themasses
Do any of use know what the terms were on the loan originally? Did it possibly have such clauses worked into it?
passerby
yeah, uh huh.
Axelrod didn’t seem too upset about the provision this a.m. on mtp as he explained that compensations should [rightfully] come after the American taxpayer has recouped it’s investment and should be in a non-cash form to boot.
The general talking point that the Obama admin objected to this is (as most things are in DC) some kind of political posturing–as long as it makes Obama look good, I’m all for it.
Xecklothxayyquou Gilchrist
If major banks were run like Zimbabwe maybe, but largish corporations have shareholders and a board. It could be naive idealism speaking, but I like to think that a CEO who condemned his firm for such obviously selfish reasons would be chased out of the building with sticks and torches.
Aren’t the boards composed of CEOs from other companies who are a) the golfing / yachting buddies of the given company’s CEO and b) fresh from doing the exact same run-their-company-into-the-ground crap that the given company’s CEO did?
I wouldn’t look to boards of directors to provide much sanity, necessarily.
Stuck
There should have been a penalty provision for paying back the TARP money prematurely. Maybe one will be put forth. I love Dodd, but not on banking issues, or for that matter any New England Congress person. They are too closely tied to the braintrust of these corps. I think it is a good measure to begin boosting the public’s confidence in their government, something that cannot easily be quantified, but nevertheless is a critical factor for any kind of long term recovery.
And Obama was against this, at least in public. Fearing that the 1/3 cap of base pay would just cause these greedy bastards to just raise exec base pay. I don’t know, but when I hear people opine about losing the BEST talent, I can’t help but think, what talent he is referring to. Because the only talent I see is the kind for fail.
Libby
KJ, how do you know whether or not there was a clause in the TARP saying, terms subject to change at any time? Have you read every word of it?
As I recall, the orginal bill called for limits and accountability but the Bush WH slipped in some language at the very last second to effectively negate it. And there was the small matter of Paulson outright lying about how he was going to distribute the money, which was at the root of that deception.
KJ
TGP:
Sorry, I respond to quickly on to your message and didn’t see the point about the repayment option. Given that these documents aren’t public, I am assuming you aren’t familiar with the repayment terms. Or that given the nature of the credit markets and the Treasury regulations affecting the quality of debt and securities a bank is required to maintain. The point is repayment is not an option until the credit markets come back (recall, this problem started with the freezing of the credit markets; the only viable borrower is the government).
So you have banks that did not need to borrow the money in the first place, that cannot repay the money unless they replace it with Tier 1 capital. And now their management is subject to restrictions on bonus because they ran their business well enough that they didn’t need money that they were forced to take but can’t repay unless they can borrow money to replace the money they didn’t need.
Rick Taylor
It baffles me that Republicans and even centrists are coming out for protecting tax payer subsidized CEO bonuses at the same time they’re working against foodstamps. That can’t be a winning combination.
Walker
Holy Crap!
Lindsey Graham just went on This Week and said "nationalization must be on the table".
This is the first politically smart thing that Republicans have done. Nationalization will have to happen, and the Republicans are positioning themselves to say "I told you so". Damn it, damn it, damn it.
Hawes
The provision was inserted into the Stimulus Bill, but applies to TARP funds (at least that’s my understanding).
This makes good economic sense. If you cap bonuses and other compensation to firms taking TARP money, you "incentivize" the people who run those firms to find ways to avoid taking TARP payments. That is, they need to find a way out of their mess without suckling on the public teat.
If the company can’t get by without TARP funds, then they are truly up Shit Creek and need the funds. In that case, the fucking CEOs should realize that they are lucky to still have a job with a paycheck.
There are no good economic arguments against capping compensation for TARP-dependent companies, and there are powerful arguments for it.
The arguments you are hearing are bullshit, designed to protect privilege. Privilege in this case largely unearned.
KJ
Libby:
Not every word, but my colleague who negotiated the agreement with the Treasury briefed our group on the material terms of the agreement.
The Grand Panjandrum
@Libby: My coke days are long past me. Oh, wait, you meant …@KJ: You say they were forced to take the money? How is it a well run bank is forced to take the TARP money? They did so voluntarily, didn’t they? They took the money because it was available. I have little sympathy for them.
Ed in NJ
I look forward to the day that one of these failed executives leave for a more lucrative position of power within another successful organization.
What would your reaction be, as a shareholder, to your company, which is doing well (or at least not accepting TARP subsidies), bringing on such a loser? Wouldn’t this be a PR disaster?
Walker
The shotgun marriages: J. P. Morgan and Bear, Wells Fargo and Wachovia. The Fed put a lot of pressure on these banks for the mergers to happen, and used the TARP as a way to say "we got your back".
By all tales, it is really is unfair to Wells Fargo. They had run their bank really well and stayed out of the risky stuff. If the government is going to do this, they need to give them the option to take Wachovia off their hands.
Laura W
@passerby:
Nor Gibbs, on Face the Nation. When pressed, I believe he said: "The bill will be signed on Tuesday."
KJ
TGB:
Treasury wanted all of the 9 banks to take money so that the few that NEEDED the money were not identified and resulted in a run on those banks. Recall the goal was to prevent the systematic failure of the banking system, which is what they thought would happen if a couple of the large banks failed (they are still largely failed institutions). If you had deposits in a bank that had to borrow TARP funds and the option to move your money to one that did not, what you have done? The rational answer is move your money. Which is what happened with Indy Mac.
Bill H
Geitner rejected having salary caps in the second half of the TARP and the stimulus bill that just passed and is ready to be signed can have all the terms in it that Congress wants to put there, but I doubt seriously that it is going to have any significant effect on the application of the TARP.
This is all "sounding brass" anyway. I have heard more hot air on executive salaries, which amount to about ten cents on every billion dollars that our economy has pissed away in the past few years. We are talking about something that has had absolutely no contribution to the financial disaster we face. That’s like saying that I’m all pissed off that my house burned down and I want to get back at a guy walking by at the time who didn’t piss on it to put it out.
All of the time that Congress and the President spend focusing on these stupid salaries is time they don’t spend on something that could constructively help get us out of this.
"No, I don’t want to talk about building bridges to restore our $10 Trillion fucking economy, I don’t want to talk about 3 million people without jobs and what to do about it, I want to talk about paying some stupid bastard on Wall Strees $500K or so."
We could take all of that money back from these clods and put all of them in jail and you know what? We’d still have 3 million people out of work, we’d still have a $10 Trillion economy in the tank. We’d all feel a glow of accomplishment that we "punished these fuckheads" and we would have accomplished exactly nothing.
Church Lady
The problem with this regarding the recovery of these institutions is not in limiting executive compensation, it’ the part that applies to the twenty highest paid employees. In this instance, these employees will typically be traders. While traders have the ability to lose large amounts of money (as some obviously did), they also have the ability to generate large amounts of profit for the firms that employ them. Many of them did, even as other parts of their companies were going down the tubes. Without the profits they generated, the losses would have been even higher.
These people are not tied to their companies by anything other than their egos and their compensation. Their egos and their compensation can both be serviced by any other company, such as hedge funds and foreign banks, that has not received TARP funds. They will move where the money is, leaving the firms needing to repay TARP funds in a position of having a harder time doing so, which is bad for the taxpayers that made the loans.
The executives are more or less fungible – let them go, if someone else will have them. The traders are less so. A lot of firms not under TARP constraints will be happy to have them.
KJ
Walker:
The Fed did not force the Wells Fargo/Wachovia merger and the TARP funds were not a "got your back" move for that transaction. The Fed/Treasury did guarantee a portion of the losses for the JPMorgan/Bear transaction, and frankly I expect JPMorgan to make a killing on that deal when it is all said and done.
Craig Pennington
Blogreeder wrote:
There is a serious moral hazard when executive compensation reaches the point where the executive becomes independently wealthy in only a very short time: there is zero incentive for the executive to care about the long term health of the company or even his own reputation. And when this happens in companies that have reached the size where it is harmful to the general welfare to let them fail then I see no problem with caring about executive compensation.
Mnemosyne
Why not? If they didn’t need the money, why didn’t they just set it aside?
That’s what I don’t get here — what did the banks who claim they didn’t need the TARP funds do with that money, and why can’t they give it back? Saying, "Oh, the credit markets are frozen" makes no sense, because then obviously they needed the money.
I agree that if one of the conditions of Wells Fargo taking over Wachovia was that they also had to take TARP funds and now the strings on those TARP funds have been revealed, Wells Fargo should be allowed to hand Wachovia right back to the government and wash their hands of it.
Really not getting why banks should receive special privileges that their customers don’t get. If your bank changes the terms of your credit card or loan, your only option is to either cancel the credit card or immediately repay the loan if you don’t like the new terms. Same thing applies here — if the banks don’t like the new terms for TARP funds, they can give them back. QED.
The Grand Panjandrum
@KJ: Thanks for the update. Now that you mention it I do recall that all the banks were asked to take money to avoid runs.
Mnemosyne
You’re kidding, right? You really think that outsized compensation that encouraged CEOs to run the company to maximize the next quarter’s earnings and not for the benefit of the company’s long-term growth had no contribution to the current financial disaster?
You really think that people like Mozilo and Nardelli were thinking about anything other than their own compensation as they ran their companies into the ground and then walked away with their golden parachutes?
Karmakin
@Craig Pennington: What Craig said.
There’s a serious moral hazard issue at play here. If you allow people to become independently rich in a relatively short amount of time, the focus becomes on short-term profits rather than long-term stability. Most of us, workers and shareholders alike will profit best from the latter. It’s only the top-end management and speculators that profit from razing and burning a company.
jcricket
Ding ding ding! If you can make 500x the average salary for 3-5 years, or 50x the average salary for 20, you’ll go for the 500x. Even if you’re out of a job for the rest of your life, you’re still fine. Especially with a golden parachute and lax prosecution for anything resembling financial shenanigans. Who cares what happens to the rest of your company?
I think executive compensation right now is like medical spending. There’s no direct correlation between the amount spent and the results. Jeff Bezos only makes $80k/year. He gets no bonuses. He hasn’t gotten a raise or additional stock grant in like 10 years. But he owns (still) 40% of Amazon.com and has a long-term incentive to keep the stock price up. And amazon is a well run, stable, profitable company that will probably succeed in the long run. He could also just juice the stock in the short run and fuck the company in the long-run through shady accounting practices, but that’s not who he is.
Frankly, I think compensation limits don’t "work" in the larger sense of preventing bad corporate decisions caused by the execs, but are necessary/warranted when we’re talking about entities that failed, brought down the economy and now need government assistance. What I support, generally, is much higher taxes on rich people. Let exectives make whatever they want, but tax income (including capital gains/stock) over $1m at 50%. Tax income over $10m at 60%. At least then the government has money to pay for the social programs/services the rest of us need because executives aren’t sharing any of their corporate profits with the average person.
iluvsummr
I wonder, what would the IMF prescribe for another country facing what the US is facing? Really curious.
burnspbesq
Disney under Eisner was the paradigm case of how to incent a CEO. Over his tenure, his bonuses were, IIRC, equal to approximately 2-3 percent of the increase in Disney’s market cap. Because Disney’s market cap increased by tens of billions on Eisner’s watch, he walked away with hundreds of millions.
On that theory, most bank CEOs would have been eligible for big bonuses through most of this decade. Clawback? Great idea in theory, but never going to happen. Every board of directors of every public company has a compensation committee, and it will comes as no surprise to anyone (I assume) that the CEO takes extra-good care of the compensation committee. Who do you think gets the Masters tickets?
Karmakin
One further thing.
From what I’m seeing, it looks like the credit crunch is real. And quite frankly, the criticism of pay limits given, AT THIS POINT IN TIME, seems to not be completely from right field. If having the banks able to loan is essential, then yes, forcing the decision makers into not making as much money could be a deal breaker. And boards of directors and shareholders may not be willing to do anything about this, for one reason or another.
The best solution I’ve seen isn’t nationalization. It’s going around them and opening a bank to loan directly to business and for big purchases.
jcricket
There was somebody smart, who conservatives/libertarians love, that said something about what happens when companies reach a certain size… What’s his name? Oh yeah, Adam Smith:
Basically the "father" of free market theory realized that there comes a point where companies no longer act in the best interest of anyone but themselves. And that’s why we need laws, regulations, anti-monopoly forces, etc. to keep the free market working its "magic".
KJ
Mnemosyne:
The point is they can’t just give it back. If they could just give it back, it would have happened the same day and the point of making all of them take it would have been thwarted (because those who DID need it, couldn’t immediately return it). So the government required that the TARP money be taken out by additional borrowings and/or equity investments of equal value.
I hope that’s a little clearer.
burnspbesq
@Walker:
Wells loves Wachovia’s retail business; it gives them a huge expansion of their geographic footprint at a fraction of the cost of doing it from scratch.
It’s the rest of Wachovia that’s problematic.
I imagine that if you asked them, the senior leadership of Wells would be wildly enthusiastic about a "bad bank" solution.
El Cid
@Walker: I too was shocked to hear Lindsay "Waving the Bill" Graham saying that nationalization must be on the table. Maxine Waters was also shocked.
That said, "I told you so" or not, that position is simply not a winner for the Republican base ideology.
magisterludi
I’m no economist and reading about the TARP makes my brain bleed, but it’s pretty obvious even to me that the banks will have to be nationalized. There’s still the consumer credit shoe to drop. No wonder Geithner couldn’t get specific- he’s trying to catch knives.
Wonder why Lindsay would be the first senator (other than my beloved Bernie maybe) to say this publicly? It’s a dirty commie solution.The dems dance around the term, for fear of being called socialists. Something stinks here.
The Grand Panjandrum
Here is a an October 2008 piece from Joe Nocera . He’s writing about what some of the banks were thinking of doing with TARP money. Here is a quote from a JP Morgan Chase executive moderating an employees only conference call:
After reading this I was convinced these guys will never get it. Never.
KCinDC
Uh, have you been paying attention the last few decades? When was the last time a CEO actually suffered for putting short-term interests ahead of the long-term health of the company? Even in the rare case where one is asked to resign, the severance package is always more than enough to keep him going for the rest of his life. For all their "compensation", no one involved in any of these companies is risking homelessness, hunger, lack of medical care, or any of the other things that ordinary workers with ordinary paychecks risk. But somehow they’re amazing risk takers who must have outlandish "compensation".
burnspbesq
@El Cid:
Word. Be a damn shame if Graham had to fight a primary as a result of the first intelligent thing he’s ever said.
On second thought, fuck him. Let there be a primary that exhausts the resources of Graham’s donor base and the RSCC. Then let him fight the Democratic nominee with one hand tied behind his back.
jcricket
You can count the cases on one hand: Lay, Skilling, Kozlowski, the ex CA CEO (Sanjay Gupta, I think)…
Then in the mid 80s you have Milliken (and someone else, I can’t remember).
But they are the exceptions that prove your rule. Top executives, VP-level and other insanely high earners get away with it, and everyone else suffers. Think of all the people at Anderson Consulting (the accountants) who lost their jobs, with no severance, no bonuses, having never earned 100x the average salary, due to the shenanigans of a select few willing to go along with Enron’s illegal activities.
JenJen
OK, but how many planes was John McCain allowed to wreck? ;-)
KCinDC
Jcricket, I was really referring to executives who haven’t done anything illegal, just put their own interest ahead of their companies’. But of course as you say even those who do cross the (blurry) line into illegality are only rarely punished significantly.
dbrown
@jrg: Are you so ignorent of the corperation system that you believe what you just said? Share holders have Zero control over a CEO’s salary – ever heard of a board of directors that CEO’s appoint? They get big bucks to give CEO’s the gold and share holders the shaft. People like you who think the gov has no right to regulate salaries are half the problem.
Gizmo
With all the noise over CEO pay of late, it’s amazing how seldom the Board of Directors and the shareholders are mentioned. WTF were they thinking as their firms were spiraling downward, while they continued to pay their executives massive salaries, bonuses, and compensation packages? And where are the Republicans on this issue? Aren’t they supposed to be fierce advocates for the notion of accountability?
opium4themasses
Now I may be having a bit of an understanding problem, but I thought the Board of Directors was elected by shareholders and that this board hires the various Corporate officers.
Andrew
Bwhahahahahaha. Thanks for the giggles.
Tim, this may have been the dumbest thing you’ve ever said.
AhabTRuler
@KJ: So are you an entirely disinterested party? It sounds like your acquaintance with industy is more than just a passing association.
Gizmo
A few people upthread have argued that excessive executive compensation isn’t something we should worry too much about, and that we ought to be focused on getting the economy moving again, rather than worrying about a few million bucks to a CEO here or there. But that view overlooks the fact that destroying the culture of arrogance in the executive suites is a critical step in fixing the mess we’re in. We need to change the mindset and completely overhaul the consciousness within the management of our big corporations and banks and other financial institutions. The amazing thing is that we’re even discussing levels of executive compensation– in a just and rational world these pricks would be unemployed.
burnspbesq
@Gizmo:
I assume that’s snark, but on the off chance that it’s not …
Not when it’s their peeps being held accountable.
magisterludi
The sky-rocketing CEO pay of the last several decades, while average wages flat-lined, is a symptom of a decaying society.
The NYTs front page has warnings of civil unrest around the world caused by joblessness. A lot of the money that has feathered the nests of Wall Streeters was at the expense of labor investment. Remember- they were supposed to get all the breaks in the hopes that they’d create jobs, not personal wealth for a few.
If the pendulum swings too far for some tastes, the bad is on the suckers who fell for this Reagan-inspired new paradigm.
maya
I wonder if Miss Lindsey will invite Hugo Chavez to address the next Repo caucus?
The Grand Panjandrum
The PBS series Frontline is doing a story on the financial meltdown this Tuesday night. They have a preview at the link. Should be fascinating.
Just Some Fuckhead
Nationalize the oiligarchies and we’ll be able to afford capitalism for another hundred years.
AhabTRuler
@Just Some Fuckhead: Don’t forget to polish the guillotines, too. Or find a good wall, I’m not particular.
Chris Johnson
The part that disturbs me is the talk of certain traders deserving crazyhigh salaries because they were so successful in creating profit for the firm.
Isn’t a lot of this stuff derivatives and stocks and basically imaginary commodities? Isn’t it that these guys were unusually good GAMBLERS winning money for the company rather than doing anything normally considered useful or productive?
I’m incredibly wary of this line of argument, since the amount of ‘profit’ out there in the world is an order of magnitude greater than the value of the world and everything in it. Something’s crazy somewhere and I don’t want to be told how valuable some Wall Street creep is for being part of it…
TenguPhule
The BOD should be shot to a man.
Shareholders, not so much. We get kneecapped by the BOD because there are too many people who own piddly amounts of shares and the magic number is 51%.
sglover
I’d say the economists have a lot more to learn from biologists than vice versa. Check it out: Here we are in the midst of one of the great crises in modern economic history, one that’s been building up steam for years — and most of the geniuses in the "profession" of economics were **completely** blindsided by it! Those practicing economists who’ve noted how their "science" failed to predict these events are a tiny minority. The rest of them are as smug and obtuse as ever.
jcricket
In all those highly decrepit (kidding) countries all over Europe with high rates of unionization, the average CEO makes 40-50x the average worker. Here, with no unionization, the CEOs make 500x the average worker. And there’s no evidence that, collectively, these countries are in any worse shape than us (i.e. unions didn’t make Finland into some hell on earth with a declining standard or living or zero corporate profits).
But barring mass unionization (not going to happen in this country) or sudden collective altruism amongst the top-levels at companies, the only thing we can effect is tax policy. If you create a new top tax bracket for $1m plus, and jack it up to 50%, you’d rake in a lot of dough. Return the top bracket that exists to where it was during Clintons levels. Reduce or eliminate a lot of the loopholes, push the capital gains rate back to 20 or 25% (at a minimum). Make it so corporations go back to paying a fair share of taxes (it’s all on individuals these days, when you compare to what it used to be).
At least then we could afford solid infrastructure, good schools, decent healthcare, social security, unemployment and welfare that actually have enough money to help people, etc.
Mnemosyne
Exactly. Basically, they sold a sealed package to the markets claiming that it held $100, but now the market is opening the package and discovering that there was only $10 in there all along.
They tried to play the markets as a giant game of poker (there’s a reason Michael Lewis called his book Liar’s Poker) but forgot that you have to show your cards eventually.
Bill H
I would be delighted if we were talking about getting rid of the bastards, but we’re not. We’re just talking about not continuing to pay them a lot of money. Who gives a fuck how much money we pay them when we are not talking about running them out of their jobs? Or putting them in jail.
We are having a major case of the vapors over $18 Billion dollars and are not even talking about $600 Billion that we piss down the rathole of the military-industrial complex every fucking year, and that the Obama Administration is increasing next year by another $60 Billion.
PaulB
That’s easily handled — they can pay the money back. No muss, no fuss, no limitations on their executive compensation.
Mnemosyne
But people like you keep saying that they’ll leave their jobs in droves if they have to accept $500K a year in compensation. Isn’t that getting rid of them, and in a way that means they can’t continue to spend my tax money on their condo in Vail? Where are all of these financial jobs that they’re going to able to slide into without a hitch? There’s a reason it’s called the GLOBAL financial crisis — no one in London or Hong Kong is going to be hiring them, either.
We’re also not talking about how much Alex Rodriguez gets paid to shoot up steroids because — guess what? It doesn’t have anything to do with the global financial crisis.
The problem we’re talking about is not the hole in the country’s budget. The problem we’re talking about is that a bunch of guys on Wall Street were playing craps with everyone’s money and we just discovered that they can’t cover their bets, because all they were doing was drawing credit from the casino with no collateral to back it up.
At this point, they’re lucky we don’t go the casino route and show up at all of their offices to break their kneecaps. That’s what happens when you make bets you can’t cover in the real world.
mannemalon
IMO Graham is baiting Obama and the Dems. He knows that nationalizing is probably the inevitable solution, and that what’s keeping Obama from doing it is the political risk. So he baits them, signaling that it’s something Republicans will possibly be on board with, and then when it actually happens, you see the noise machine cranked up 10 times higher than it was for the stimulus bill, with cries of Socialism, Communism, Stalin, etc.
jcricket
The MIC and the drug war are two things that both sides are basically complicit in and neither is planning to touch (who’s gonna be the first to be called "soft on drugs" or "weak on national defense"). Despite the fact that there’s no evidence our spending on the war on drugs is doing anything but bad and there’s tons of wasteful military spending (I’m not even talking about fraud and abuse, but whole programs that need to be killed because they aren’t needed).
The failure to call military spending, spending, is also killing the federal budget.
jrg
dbrown:
If the government is rescuing the banks, they have the right to draft and enforce such an agreement, as shareholders.
The crux of your argument is: "shareholders don’t have enough control over executive compensation, so we should give the government control over executive compensation." Sound about right?
Marshall
If I were President, the executives of any company needing a government bailout would have to resign or be fired and would be replaced. Period.