Wednesday, October 21, 2009
Federal Government Overrides Executive Compensation Packages
CNBC reprints a NYT article:
I don't have the time to look into this more carefully, but I'm really hoping that the "pay czar" is only overriding compensation packages at companies that still have tax money (as opposed to ones that paid it back).
Regardless of the legal niceties, this is a very bad development. Now the unruly masses get a taste of seeing the noble DC crusaders pushing back against the corporate fat cats. Hip hip hooray! People not profits!
Oh one question: Where does the clawed back money go? I'm assuming it goes to the corporate shareholders, and not (say) a fund for baby formula for the homeless.
Responding to the growing furor over the paychecks of executives at companies that received billions of dollars in the government’s financial rescue, the Obama administration will order the companies that received the most aid to deeply slash the compensation to their highest paid executives, an official involved in the decision said on Wednesday.
Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the annual salaries of their 25 best-paid executives by an average of about 90 percent from last year. Their total compensation — including bonuses and retirement contributions — will drop, on average, by about 50 percent. The companies are Citigroup..., Bank of America..., American International Group..., General Motors, Chrysler and the financing arms of the two automakers.
I don't have the time to look into this more carefully, but I'm really hoping that the "pay czar" is only overriding compensation packages at companies that still have tax money (as opposed to ones that paid it back).
Regardless of the legal niceties, this is a very bad development. Now the unruly masses get a taste of seeing the noble DC crusaders pushing back against the corporate fat cats. Hip hip hooray! People not profits!
Oh one question: Where does the clawed back money go? I'm assuming it goes to the corporate shareholders, and not (say) a fund for baby formula for the homeless.
Comments:
How does the government intend to keep these businesses competitive when the top business minds in these particular companies will move elsewhere to get properly compensated for their efforts. Altruism is fine in fantasy land, however we are dealing with the harsh reality of a competitive business environment that is going to see the energy and intellect of these companies stripped dry.
Man this one is SO tough, cause it's like on the one hand they used tax payer money, that's why they are still around, on the other hand some of them gave it back, and others also didn't even want it... and how long does this go on for? Like say you receive federal grants for school, does that mean they can control how much you get paid from there on out? different situation but similar enough
Bob, this is not any kind of clawback, but a prospective lowering of salary.
I`m not fan, but might this policy have a salutary effect in lowering the moral hazard problem that led to too-big-to-fail firms running to the government for assistance?
I`m not fan, but might this policy have a salutary effect in lowering the moral hazard problem that led to too-big-to-fail firms running to the government for assistance?
Bob, hopefully this will serve as a warning to other executives. If you make a deal with the devil, your soul, in this case your business, is no longer yours.
From an economic perspective, it would seem to be that despite the populace outrage, these businesses will be harmed by making their executive pay less competitive. So, as usual, the gov't wastes the tax payer money to bail out these institutions and then does the exact opposite of their stated intent by making them less competitive.
Jason
ProudProfiteer.com
From an economic perspective, it would seem to be that despite the populace outrage, these businesses will be harmed by making their executive pay less competitive. So, as usual, the gov't wastes the tax payer money to bail out these institutions and then does the exact opposite of their stated intent by making them less competitive.
Jason
ProudProfiteer.com
I would imagine that the money stays in the companies coffers to pay back the loans and maybe even be used by the companies for investments in operations -- what a concept!
I wonder how much tax revenue states and other taxing authorities lose in the process. This will create bigger private investment and banking businesses, with some of these execs being lured offshore, perhaps, where there is even less transparency to operations.
I wonder how much tax revenue states and other taxing authorities lose in the process. This will create bigger private investment and banking businesses, with some of these execs being lured offshore, perhaps, where there is even less transparency to operations.
The Treasury plan only targets companies that received bail-out funds. The Fed has its own plan, however, which would allow it to review (and potentially veto) compensation policies at all banks including those which never received bail-out funds.
# posted by 
: October 22, 2009 at 2:12 PM
: October 22, 2009 at 2:12 PM
The biggest victim of TARP is contract law. Had these companies been "allowed" to go through bankruptcy, contract issues would have been dealt with through a court where both sides would be represented and there would have been an orderly process (bound to be long, unfortunately), but at least based on law, and not makin' it up as they were goin' along.
Still, no one has suggested that politicians who received monies from TARP recipients should give their money back as ill-gotten gains.
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Still, no one has suggested that politicians who received monies from TARP recipients should give their money back as ill-gotten gains.
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