Cut exec pay or government stay away?
Many readers of this blog have expressed outrage at the excesses of executive compensation.
But many readers also have expressed dismay over the amount of government intervention in the economy.
Now, those two views appear to be at odds with the latest news development.
The Obama administration will order the companies that received the most taxpayer bailout money to slash compensation to their highest-paid employees, the New York Times is reporting.
The plan, for the 25 top earners at seven companies that received exceptional help, will on average cut total compensation this year by about 50 percent, the Times said.
The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.
What do you think of the government’s action?
Is it at odds with too much intervention? Or are these seven cases worthy of an exception?
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82 comments Add your comment
RSC
October 22nd, 2009
10:22 am
Funny, some folks raise cain at the thought of someone buying pizza or ice cream with their measly foodstamps, but think it’s perfectly acceptable for taxpayer funded companies to pay out billions of dollars “rewarding” poor performances.
RSC
October 22nd, 2009
10:25 am
Shareholders of any company should be allowed a say in the compensation of the executives of that company. As major shareholders in these bailed out companies, US taxpayers, with the government as our representatives, have the right to determine what is appropriate executive pay. I only wish that all shareholders of these failed companies had the wherewithal to band together and sue the former execs who drove these companies into the ground and then bailed out with golden parachutes to recoup some of those undeserved billions of dollars.
Chris
October 22nd, 2009
10:26 am
HerewithaPurpose…I too have had to take pay cuts and furloughs…I am now back to making the very same amount I did 11 years ago when I started. Glad to have a job however.. No one ever said life is “fair” But contracts should be honored and not changed…The democrat congress wrote and passed the bailout, Bush enacted it their law…If pay decreases and no bonuses were wanted in the legislation, it should have been written in at the time
playthatfunkymusic whiteboy
October 22nd, 2009
10:29 am
Oh this one is easy. If I borrowed $1000 from my dad because I was about to lose my house – then turned around 2 months from then and bought a big screen television, without first paying him back or even offering to pay him back (my dad wouldn’t take the money anyway – but you have to make that offer if suddenly your financial situation turned around); I think my dad would “strongly urge” me to take the new tv back – I mean that’s just common sense.
Plus, if the banks and institutions have that much set aside already for compensation, then it can easily now be funneled back to the US Govt and the taxpayers toward their repayment of the loans we extended to them.
And don’t worry about “losing the top talent” from these institutions. Only Bob Nardelli can sink company after company and still get a good job handed to him – that guy must be a heckuva interviewee.
Chris
October 22nd, 2009
10:31 am
But Brent…If we have an agreement that I will pay you back “in a month” and I go out that same day and win $500 on a scratch off lottery ticket…That shouldn’t mean that you can demand payment of your $$$ back early. Morally it would be right for me to go ahead and pay you back…But shouldn’t be something you could “demand” of me.
I hate white people
October 22nd, 2009
10:32 am
Thank you Obama for sticking it to the white man! It is about time that Black Power rise up. Thank you Thank you Thank you.
P.S. Please don’t cut my welfare checks.
Chris
October 22nd, 2009
10:35 am
AH…Thank you ” I hate white people”…Finally gotten to the real truth of the matter.
HereWithaPurpose
October 22nd, 2009
10:35 am
Regardless of where the windfall comes from, whether profit or luck, the honorable thing to do would be to pay back the person who extended a helping hand to you when you most needed it. And if you do it in a timely manner (ahead of schedule) that person wouldn’t think twice about lending to you the next time you need it.
Chris
October 22nd, 2009
10:51 am
I agree with you Brent on a moral basis…my only point is that is not what Contract Law is supposed to mean in our country. Of course why am I surprised that contract law mean nothing anymore…Sports figures have been sticking their tongues out at owners for years and refusing to honor their contracts when it so suited them.
Whatever
October 22nd, 2009
10:51 am
Ah yes, the Race card. Hate it when its used by every race. Now that we have a Black President its ok for a white guy to say that we are being screwed because we are white. It’s not “Sticking it to the white man” it is “Sticking it to people who have more money than sense”
I’m white and felt screwed by my government LONG before Obama came into office. But its easier to say something that boneheaded, isn’t it? Welfare is welfare, be it blue collar (poor folks) or white collar (these poor executives who can’t buy another vacation home this year, boo hoo) and it upsets me whenever it is abused in either case.
And I guess its ok to demand morality from the everyday american (Drugs, Abortion, etc) but not ok to demand it from these people who can affect the entire country when they screw up.
Brent
October 22nd, 2009
10:54 am
I don’t know the contracts, and neither do you CHris. I will say this though, these companies have plenty of lawyers to argue there side. They don’t need you, to argue for them. These companies owe us money, they have no money for bonuses until they pay us back.
Suburban Mom
October 22nd, 2009
10:56 am
Something tells me that “I hate white people” is not a minority at all, but someone who is trying to bring race and tension into the discussion. If so, you should be ashamed of yourself!!!
Wing nuts of the confederated Taliban GOP have lost it
October 22nd, 2009
10:58 am
After the GOP messed every thing up this is part of clean up. If the clowns has left some rules to follow and not belive the market know all. Man left to himself will screw up. if there is no rules and watchdogs this is what happens. The GOP don’t want rules free market free to rip you off and take every body Else under greed !!
Cry Me A River
October 22nd, 2009
11:13 am
First, these Wall Street pigs STOLE our money with fraud, deceit and corruption of the unregulated derivatives market. (Thanks to the IDIOT PAC of Alan Greenspan, Robert Rubin, Tim Geithner and Larry Summers.)
Then, the G.W. Bush (the guy who bankrupted EVERY business he ever touched — BEFORE he was elected) added insult to injury by giving them MY tax money, for FREE. Free loans for them; foreclosures for the rest of us.
Then, the Wall Street Robber Barons had the gall to think they were entitled to bonuses while middle class America was being strangled to death with rising unemployment, skyrocketing health care costs, rising education costs, sagging wages and rising taxes from bankrupt local governments (like our own Sonny Perdoo-doo).
I’d be p—ed off if the government DIDN’T step in and stop the madness. This is like the friend who owes you money coming over and showing off their brand new Rolex. WTH??? And this garbage about “we need bonuses to attract the best and brightest” is ridiculous. (Would you like a little cheese to go with that whine?) What they’re really saying is that they need to attract the best THIEVES and the brightest LIARS.
As long as they are playing with MY money, they need to sacrifice a few furs for the mistress and a Swiss ski vacation or two. And if it takes the Government to act on my behalf to enforce the debt (because that’s really what this “government” action is, debt enforcement) then, that is OK with me.
Matt
October 22nd, 2009
11:13 am
Tort reform
AB
October 22nd, 2009
11:13 am
Allow me to give you an example…Company X hires employee Z to lead division Y within company X. Employee Z’s total compensation package (legally agreed to by both parties) includes a base salary & annual bonus paid based upon division Y’s performance during the previous fiscal year and ranks Z within the top 30 in X’s salaries. Here comes bad times for Company X, where X’s profits fall, margins & cash flow begins to contract. Company X’s top management tries to trim the fat: layoffs, furloughs, etc. but cannot stop the “bleeding.” Company X’s top management decides to go to bank A to get a loan realizing that it cannot meet its legal obligations (debt repayment, salaries, benefits, etc) without one. Bank A gives Company X the loan on the premise that it will be paid back within 5 years. Keep in mind the interest paid on the loan is little to none because Company X is extremely important to the well being of Bank A. Company X now has the means to meet it obligations as it approaches the end of the fiscal year. Within company X, division performance reports for the year begin to come in and division Y has shown sales growth YoY (year over year) in excess of 12%, client growth YoY of 8%, & decreased division expenditures by 10% YoY. Employee Z is thrilled because their division performed better than other divisions although overall Company X struggled tremendously. Employee Z gets their annual bonus because of the division’s performance. But wait. Clients of Bank A are mad that Bank A “bailed out” company X and that company X used the loan to meet its obligations, which included compensating it’s employees. So Bank A’s mgmt demand that Company X slash the compensation of its top 30 employees which includes employee Z. All of a sudden, Bank A is telling Z that Z must repay the already paid out (& spent) bonus. Employee Z is mad because they met their end of the compensation agreement (see above) but is now being forced (read shaken down) by Bank A to repay it. Is this fair to Z? Do you understand that salaries are part of legal obligations a company has – you expect to get paid for how ever many hours you worked or based upon the terms stated in the offer letter right? A loan is just that, a loan. The recipient can do whatever they so choose to do with the proceeds, unless stated otherwise in the contract i.e. mortgage, car, or student loan. Should the banks have been bailed out? Hard to say. But unless (& we’ll never know) it was stated in the agreement that the banks could not use the proceeds to pay bonuses, then there is no reason why the gov’t should dictate how the proceeds are used. We should be more upset that we as taxpayers will a) never see a dime returned to us & b) how “sweet” the terms were to the banks. Little to no interest rate…
Chris
October 22nd, 2009
11:23 am
Well said (or typed AB) That is the point I so poorly tried to make…
Sluggo
October 22nd, 2009
11:24 am
Governments control people. It’s what they do. We should all be afraid when we see the power and scope of government expanding.
Whatever
October 22nd, 2009
11:36 am
So say my house was destroyed by last months flood and FEMA loans me the money to get back on my feet and I use that money on hookers and beer. I should be entitled to more of that money because it was given to me to fix my house and re-establish my life, but there were “prior obligations” that I had to spend the money on first. Do you think they’re going to care I have no home and they want their money back that they loaned to me in good faith? What if I use the argument “You gave me the money and I did what I saw was fit to do with it, stay out of my life (unless I need more help)”? Would that make a difference? No. And I’d have to learn that no matter what “prior obligations” I had that money was loaned to me with a specific purpose, and should have been used for said purpose ONLY. But I spent that money on hookers and beer. They deserved it more than my family, who depended on my judgment to stabilize their lives after the flood, and for the life of me I can’t understand why they’re upset! I was entitled to said hookers and beer, I should be able to replace my home and keep throwing money away for useless compensations to Budweiser and The Pink Pony, because after all, THEY DID EARN THE MONEY, right?
/sarcasm
citizen
October 22nd, 2009
12:22 pm
Democracy only thrives in a stable environment and a stable environment depends on the rule of law, parameters, and ethics. The greedy actors on Wall Street have stacked the deck. Even in the ‘Bernie Madoff’ scam, some investors made a profit because he controlled ALL of the 65 Billion so he was the one who controlled who made a profit and who lost. With the unregulated derivatives market we don’t know who controls our investments nor who to trust to oversee our investments.
American consumers should boycott all corporations who lobby to keep the derivatives market unregulated.
AB
October 22nd, 2009
1:40 pm
Exactly what are you trying to say, Whatever?
Situation A) FEMA gives you a loan to “get back on your feet” with the hope you actually do that but the only legally binding term is that you repay it in XX years, but instead you go buy beer and visit the Pony with the proceeds?
Situation B) Situation A and you don’t want to repay it?
Situation C) Situation A + B & you want another FEMA loan?
Situation D) You give InBev and the Pony promissory notes for payment of services rendered and use proceeds from Situation A to pay those notes off? **Well situation D is flawed from the start because last I checked both those involve payment at point of purchase**
Mr. Whatever, let me ask you this. You expect your company to pay you based upon the terms you and your employer agreed upon at the time of your hire correct? If that’s true, then you mean to tell me, you’re completely okay with having your pay cut in half or not getting paid at all should your company get money from the gov’t? Just stop and think about it, look at the big picture. This isn’t about some top level exec at AIG getting a bonus. No, this is about gov’t interference in private enterprise. It all starts with a “He got a fat bonus with my money!” and before you know it, pre-clearance has to be given to pay individuals more than $50k/year and business plans have to be presented along with an application to any type loan all while Gov’t sets the benchmarks. But in case that’s just a little beyond your scope, reverse this situation. Every April you pay taxes and should you over pay you get a refund. Still with me? That money you got back was essentially money you leant to the gov’t to do whatever they so chose to do with it: invade countries, bail out banks, increase congressional salaries, etc. I didn’t have a say in any of it, did you? Do I agree with how they spent it? Heck no, but I got what was owed to me and that’s it. Or if that doesn’t make sense, you go purchase a Treasury note or savings bond. Guess what, you just leant money to the gov’t. But do you have a say on where your money goes or how it’s spent? Again, the answer is no. So, unless the terms agreed to by both the gov’t and those firms bailed out explicitly said, “Cannot use proceeds to pay salaries and/or yearly bonuses”, then the gov’t should just expect nothing more than to get their money back at date XX. As for me, I’m doing the best I can to take advantage of the situation. If you need a new car, GM deeply discounted their product (I’m more of a Ford man, but I looked at the Silverado), I took advantage of BAC’s depressed stock price and invested in it, and if I had the courage (and $$$) I’d buy some of their paper.
playthatfunkymusic whiteboy
October 22nd, 2009
2:23 pm
AB – you sound like exactly the kind of person that helped lead us into this mess, possibly moaning “securitization” and “bundled securities” in the throws of passion with your steady right hand.
You nerds outsmart yourselves everytime – “Long-Term Capital”, Black Scholes, Enron, Bundled Mortgage Backed Securities… 1+1 will always equal 2, nerd.
Why don’t you go back date some options or something?
AB
October 22nd, 2009
3:12 pm
Playthat-
Sorry you’re wrong. Those who got us into this mess are not those on Wall Street, but Mr. & Mrs. Keeping Up with the Jones’ on Main Street. They are the ones who bought a house they knew they could not afford. They are the ones who bought furnishings for said house using credit instead of cash. They are the ones who bought a big fancy SUV again with credit because their old one was “embarrassing”. They are the ones who failed to save money from their paychecks. They did all these things knowing that should one or both of them loose their jobs, that it would all come crashing down. Did the banks act as enablers? Of course. But as I suspect, the mortgage lender, nor car salesman, nor furniture salesman were putting Mr. & Mrs. KUWTJ’s under duress to sign the papers. Now am I one of those Wall Street types? Hardly. But am I smart with my money and let it work for me instead of me working for it? Yes, and for that I’m not ashamed. And please, don’t let your envy of those who were smart and saved and resisted the temptation of excess debt get in your way of seeing the truth. Wall Street didn’t cause this mess we’re in, Main Street did. And until people stop drinking the Washington Kool Aid, the divide between the haves and have nots will only get bigger.
just a question
October 22nd, 2009
3:27 pm
the Fed is now proposing a review of the pay at financial institutions, all the way down to the local level. Hope you work there and get your 90% pay cuts ….
AB
October 22nd, 2009
3:42 pm
Just a question-
Was that remark aimed at me? If so, I’m sorry you loath someone you’ve never and probably will never meet. But I refuse to lower myself to that level. If you’re currently facing financial or employment difficulties, I can certainly relate as I was once in your shoes (mid 20’s, living a champagne life on beer budget, then crash…laid off & out of work for 6 months) but wishing ill on me won’t make you feel better. Again, we only have ourselves to blame for this mess and gov’t intervention will only make it worse.
just a question
October 22nd, 2009
4:01 pm
no, not you AB. I agree with what you have said.
It was directed to those who think the government should step in. At what point (as proposed, the entire banking industry) does government intervention stop? Executive pay is an issue, yes, but the government solution in the past (limit CEO pay that can be expensed) lead to the bonus / option fiasco we have today.
AB
October 22nd, 2009
4:09 pm
Just a question-
Previous comment cheerfully withdrawn.
Steve
October 22nd, 2009
4:09 pm
If we have a government czar cutting salaries for banks that took bailout(tax money). Then why doesn’t he cut the salaries for our elected officials as they are driving the government into the financial ditch
whatever
October 22nd, 2009
4:12 pm
Thanks AB. You sure put me in my place. I’ll be sure to tell my aging parents that they lost all of their retirement savings and pensions that they saved for but lost because they were used in the stock market. They saved all of their money, have suffered from Cancer (depleting what was in the bank) and have lost almost everything when the market melted down their pensions that were “Invested” in the market without my parents consent. I sure am thankful that the former president didn’t actually put their social security into the stock market as he had planned on doing, because that would be gone too.
And my rant about FEMA and the sorts was sarcasm, because to us “non educated” peons that the way that it seems. I understand that you have a point about protecting contract law and people deserve to be paid what they are offered, but for gods sake if you are already rich shouldn’t you have a conscience and see that there are so many people that have lost nearly EVERYTHING because they were FORCED to bail out said company with Tax dollars. Legally, yes, those people should have what was promised – but should it be at the expense of the Middle Classes “American Dream”? There are those of us who have fallen on hard times even though we did everything correctly. It makes no sense that my neighbor was laid off from one of the banks that received a large amount of bailout money because they could not afford to keep her @ $35,000 a year but their CEO resigns and gets a $53,000,000 severance??? That fifty three million dollars could pay the salaries of over 1500 people for a whole year. Your argument and point are both valid, I am not debating that or calling you any names – sometimes what is right is not ethical.
I’m sorry but if you take public money then the public has the right to demand it not be squandered!
One other thing amazes me. Why are the people defending a wall street bailout the same people who now despise GM because they took a bailout? Is it because Bush (the uninformed conservatives wildest wet dream) bailed out wall street because of mismanagement under the mantra of “Saving Jobs and Restoring the economy” but when Obama (same uninformed conservatives worst nightmare) bails out another sector that built the American economy that made THE SAME TYPES OF MISTAKES that wall street made it all of the sudden turns out to be a bad thing?
Next year when GM proposes to give their execs compensations built on Tax dollars I hope every single one of you who think its moral and correct when Wall Street Does it feel the exact same way. Wouldn’t want someone calling you a hypocrite. Especially someone like me who needs an economic lecture about honoring what is promised to wall street executives, when I see promises to normal people (”your pension will be safe with us!”) melt away.
I’ve gotta stop typing in this forum. The more upset I get the harder it is to express in a civil fashion that sometimes contracts are made to be broken – especially when its to benefit those who have broken us.
just a question
October 22nd, 2009
4:27 pm
hey, whatever
sorry for your parents trouble. my investemnt adviser told me to transfer monies from the market to more stable investments as I got older. There is risk and reward. Higher risk, higher reward. I can absorb it now, not when I am 65. Many failed to head that advice.
the initial reason for the bailouts was that the market is based on confidence and liquidity and we hoped to avoid a run on the banks, as in the great depression.
contracts can be broken if you can demonstrate they were entered into illegally or one party has failed to live up to their end of the agreement. I would have no problems if the justice department, not an unaccountable Czar, found the execs guilty of breach of contract.
And some banks, notably BBT, decided to forego expansion by taking on unecessary risky loans (as mandated by the government).
Suggest you research a bit on the reasons for the housing bubble (not the first time the government caused one)…..
AB
October 22nd, 2009
4:52 pm
Whatever-
First, I’m truly sorry to hear about yours and your parent’s situation. Now then, if you did everything right as you say you’ve done, then you wouldn’t be in the pickle you’re in now. Think about it. Now before you get on to me about not having a conscience, help me to understand your logic when you said:
“…see that there are so many people that have lost nearly EVERYTHING because they were FORCED to bail out said company with Tax dollars. Legally, yes, those people should have what was promised – but should it be at the expense of the Middle Classes “American Dream”?”
So are you saying that everyone has a right to the American Dream regardless of whether they can afford it? You shouldn’t have to work towards the American Dream; rather it should just be handed to you? Is that the gist of your statement? And while I feel for your neighbor, understand that their $35k job is easier to replace than that of the CEO. And chances are that position actually will cost more (in terms of salary, benefits, etc) over time than the CEO’s. Is it fair, no but it’s the truth. But what do I know? I’m just a cold hearted person without a conscience who made a conscience decision to work for free with people helping them to avoid bankruptcy, foreclosure, & just general financial ruin.
S
October 22nd, 2009
11:08 pm
Why is it these companies think they should pay out huge salaries plus bonuses when those said companies lost money. Brain Drain, I hardly think so. The so called brain drain of these companies brought said companies to the brink and would have gone under except for said taxpayers. They are lucky to have a job, let alone bonuses.
We don’t have a Kingdom in the United States, why should we be creating little Kingdoms with these huge Salaries with even bigger bonuses to these creatures of Greed. Enough is never enough and yes limits of salaries and bonuses are in order. Capitalism will only last if it is shared amongst all. How soon we forget.