BREAKING NEWS- 4 Feb 2009 - Obama imposes limits on executive pay
Obama imposes limits on executive pay
$500,000 cap would apply to those getting ‘exceptional’ bailout assistance
BREAKING NEWS
WASHINGTON
- President Barack Obama on Wednesday imposed $500,000 caps on senior
executive pay for the most distressed financial institutions receiving
federal bailout money, saying Americans are upset with “executives
being rewarded for failure.”
Obama
announced the dramatic new government intervention into corporate
America at the White House, with his new Treasury secretary, Timothy
Geithner, at his side. The president said the executive-pay limits are
a first step, to be followed by the unveiling next week of a sweeping
new framework for spending what remains in the $700 billion financial
industry bailout program that Congress created last year.
The
move comes amid a national outcry over huge bonuses going to executives
heading companies seeking taxpayer dollars to remain afloat. The desire
for limits was reinforced by revelations that Wall Street firms paid
more than $18 billion in bonuses in 2008 even amid the economic
downturn and the massive taxpayer-dollar infusion into their industry.
“We all need to take responsibility,” Obama
said. “And this includes executives at major financial firms who turned
to the American people, hat in hand, when they were in trouble, even as
they paid themselves their customary lavish bonuses. As I said last
week, that’s the height of irresponsibility. That’s shameful.”
The
pay cap would apply to all institutions that have negotiated agreements
with the Treasury Department for “exceptional assistance.” Those would
include AIG, Bank of America and Citi.
Firms
that want to pay executives above the $500,000 threshold would have to
use stock that could not be sold or liquidated until they pay back the
government funds.
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Is this the first step in a complete overhaul of Executive Compensation or is it one of the last steps to punish or handcuff those companies who are getting abiled out?
I know that many companies unrealted to the bailout in the financial industry have been going out of their way to look into acquring troubled banks in order to get a share of TARP money. Will this new restrictions stop those discussion mid-stream?
What does this mean for companies like AIG who may not pay back their loans for several years? Will they be able to keep their senior staff?
How do you feel about this development and do you think it will affect you, your company, or your profession?
from Reuters...
NEW YORK (Reuters) - U.S. President Barack Obama
set a $500,000 annual pay cap on Wednesday for executives at companies
getting taxpayer bailouts as part of a wider process to clamp down on
excessive corporate pay.
The new rules would require banks and other companies that get
government funds in the future to abide by the new cap going forward,
with any additional compensation being limited to restricted stock that
does not vest until government funds are paid back.
The following are comments from the market on the new plan:
COMMENTS:
BRADY DOUGAN, CREDIT SUISSE CEO, DURING WEBCAST
"The industry will need to find a balance. There have clearly been
excesses. Clearly, a lot of performance issues in 2008. Clearly, it is
natural that compensation should be down a lot.
"But in the long run, we are still going to need to find a balance
between making sure we have appropriate shareholder returns, making
sure also that there are some incentives and some ability to build
wealth for people who work in the business.
"Maybe a lot of the things that have happened and the direction they
are going may help to achieve a better balance ... between shareholder
return and employee return in the business In the short run there is
obviously a lot of noise about the compensation playing field.
Actually, right now with regards to attracting employees it's actually
got much more to a point where people are just most interested in being
part of a platform that they think is going to be successful and
durable.
"I actually think it's a move away from just: How much can I get
paid here? How much can I get paid there? But actually people ... being
more interested in being part of a platform where they think they can
build a career in the long term."
LAUREN SMITH, ANALYST AT KEEFE, BRUYETTE & WOODS
"There is certainly a possibility" of talent flight from the big
firms to the smaller investment banks if there are compensation limits.
"If those big firms that have taken TARP capital will have a noose
around the neck with what they can pay people -- and we can argue
whether that was too much or not -- I think we will see some of that.
"(But) you would go to a Lazard, Greenhill, Evercore because of the
difference in the business model relative to the big firms and because
of the cultural aspects. It's a real cultural divide."
CHARLIE CRAY, POLICY ANALYST, CENTER FOR CORPORATE POLICY,
WASHINGTON
"It looks like a good first step. Whether or not there are any
loopholes is not easily determined at this point. These people are
pretty good at devising creative compensation schemes. Continued...
http://www.reuters.com/article/newsOne/idUSTRE51358020090204
I have a much simpler solution. We all know that the vast amounts of compensation these top executives get have little to do with consumption. After all, they are getting paid so much, and are so motivated as a result, that don;t have time to spend it anyway. It's really about measurement and recognition.
So here is my solution. Pay them much less and take the billions in bonuses they now won't be getting and use it, instead, to hire singers, composers, dancers, architects, writers. artictss, etc. all of whom will have as their new job adulating the CEOs. The $18 billion that would have gone to Wall Street Executives alone would hire about 500,000 creative people at the median national wage. 500,000 new jobs just like that! And just think of what it would do to motivate employees who now know their boss is so extraordinary. And all the wonderful art and music generations would enjoy (after all, that's just what we do much of the time we go to Europe -- see the works of adulators).
I know this is a good idea. My own adulators here at the National Center for Employee Ownership tell me it is so.
This is hilarious. You may be on to something here!