NYT’s Gretchen Morgenson on the executive compensation restrictions tied to the bailout -

Found via Naked Capitalism, direct link to article here.

Ms. Morgenson explores, as I’m glad more people are doing, the
effective force behind the pretty words being bandied about lately
regarding executive compensation for the financial institutions
remaining solvent by the grace of taxpayer funds.

Ms. Morgenson outlines four key mechanisms to restrain executive
compensation in the recent $250 billion capital injection (Capital
Purchase Program):

1. Restricting compensation incentives that promoted the risk-taking behaviour that landed us in this mess.


2. Clawback provisions to reverse the received compensation by those whose performance clearly didn’t warrant the windfall.


3. No more golden parachutes payouts for departing executives.


4. Taxing companies on a greater portion of executive compensation paid out.

Guess what?  They’re toothless according to Brian Foley, an
independent compensation consultant that Ms. Morgenson relies on
entirely for analysis:

1. “It looks to me like the plan calls for a self-administered
   process where the company’s compensation committee will commit to get
   together periodically with its risk officers”


2. Mr. Foley points out that clawback provisions would not apply to
   top earners who are not among the company’s top five executives: “Treasury’s
   rule would not have applied to Joseph J. Cassano, the executive
   overseeing the unit at the American International Group that sent the
   insurance giant off the rails. Mr. Cassano earned $280 million over the
   last eight years, according to Congressional documents; his unit racked
   up $25 billion in losses.” [quote from article, not from Mr. Foley]


3. “As for the parachute limits, Mr. Foley called them barely
   limiting. If an executive earned $10 million annually in the previous
   five years, he or she would still be entitled to $29.9 million in exit
   pay.” Furthermore, “if one exercised stock options worth a total of $30
   million in the prior three years, then his average annual pay would
   rise to $20 million, entitling him to a parachute of $59.9 million.”


4. Mr. Foley and Ms. Morgenson were surprisingly uncritical of this
   restriction.  I would imagine that losing the tax deductibility of the
   $500,001-$1,000,000 worth of compensation paid out to employees would
   be minor in normal times.  I would guess (sorry, not an expert) that in
   these times of seriously constrained profits or large losses, the value
   of tax deduction eligibility is further muted.  I imagine many firms
   have and will have no profits to report to deduct against in the near
   future.

And one extra quote from the article just because it’s so shocking:

“Enforcing clawback provisions could not be more
paramount. Consider the recent performance of the nine banks
participating in the Treasury infusion plan. Between early 2004 and
mid-2007, these banks earned a total of $305 billion. Since then, they
have written down their assets to the tune of $323 billion.”

Well, losing a few billion between 2004 to mid-2007 deserves fair
compensation.  I mean, you should see what the other guys lost!

… and the cow goes moo