Obama seeks rules on exec compensation
How did we get into this economic mess, and how do we prevent something similar in the future? U.S. Sen. Johnny Isakson of Georgia is leading an effort to create an independent commission with subpoena power to help answer those questions. Versions of the proposal have passed both the House and Senate, and President Obama is likely to go along as well.
We understand some of the problems, at least in general terms. We had
regulators who didn’t regulate; analysts who didn’t analyze, credit raters who didn’t rate and legislators who didn’t legislate.
But we also know that exorbitant Wall Street pay schemes encouraged excessive risktaking by financial executives; they got paid huge sums if they failed, and massively huge sums if they succeeded. The normal links between success and reward and failure and penalty morphed into something quite different.
As part of the reform effort, the Obama administration is willing to use government power to force a reform of the compensation system. Says the AP:
WASHINGTON — The Obama administration wants government to have a say in how financial institutions pay their employees and is working to change Wall Street practices so that compensation is more closely tied to performance over time.
The attention to pay practices arises from the Obama administration’s belief that lucrative compensation packages encouraged financial sector executives to engage in short-term risky ventures that had adverse consequences and contributed to the financial crisis.
Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, as recently as last week, called for new compensation standards and principles that would guide banks and other institutions. … Such standards would be included in a broader effort by the administration and Congress to adopt new regulations some time this year that would govern financial institutions for the long-term and reduce the kind of risk that can lead to a financial system meltdown.
“We had a period where compensation practices just became completely unmoored from reality, defied gravity, and they created incentives for risk-taking that overwhelmed all the basic checks and balances in the system,” Geithner told PBS’ Charlie Rose last week. He stressed that the goal was not to set specific limits on compensation.”
Separately, the Treasury is close to releasing new pay restrictions for institutions receiving federal money. Those regulations are in response to legislation included in the $787 economic stimulus package that Congress passed in February. Those limits would apply only to banks benefiting from the $700 billion Troubled Asset Relief Program.
But officials want changes in compensation practices for the long-term, as well. The pay standards also would apply to sectors of the industry that have been less regulated before, such as hedge funds and private equity firms.
“That is going to apply — has to apply across the financial system,” Geithner said on PBS.
The proposal has touched off another round of complaints about socialism and excessive government regulation. But the truth is that even after asking for trillions of dollars in taxpayer bailouts, Wall Street continues to pretend that nothing has changed, that they can go on setting pay and dishing out bonuses the way they always have.
Well, no, they can’t. If the federal taxpayer is going to be on the hook for their mistakes, the federal government has not just the right but the obligation to defend the taxpayer’s interests.
It’s that success/failure thing, remember? Wall Street execs failed; they didn’t act responsibly. As a result, they don’t get the free hand they used to have.
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114 comments Add your comment
Redneck Convert
May 13th, 2009
4:32 pm
Well, I been down in the dumps most of the day after Bookman’s piece on Social Security. The Conservatives say it’s real bad for us, so they must be right. But I can’t save enough on $20,000 a year to live on after I stop work. Without Social Security I’m going to be in a big hurt. Maybe little Sonny Zell George will let me move in with him when he grows up.
Anyhow, my buddy Jim Earl says we should keep a eye out for the first pickup put out by Obama Motors Inc. It might not be any good but with the guvmint warranty it could last for about 40 years. Guvmint programs never quit or go broke.
Now this Obama wants to get into the business of how much to pay bank people. I guess they’ll get lifetime jobs too the way guvmint workers have it. I say he needs to look into the beer business too. Maybe he could juggle the pay around so us beer truck drivers make alot more and we can save up enough to live on after Social Security goes away. Or maybe he could start up Obama brand beer and the motto “It will make you throw up and pee all over the place after you’ve had a little.”
Have a good night everybody.
getalife
May 13th, 2009
4:35 pm
Yes, they can.
Congress investigating is a joke.
RW-(the original)
May 13th, 2009
4:36 pm
Of course they “protect our interest” by demonizing these companies, severely restricting their marketing efforts, and micro managing their business plans so that nobody wants to deal with them or work for them.
Nothing could go wrong there could it?
And why are we going to have yet another “independent” commission to see what went wrong if we already know what the fixes are?
Taxpayer
May 13th, 2009
4:45 pm
Amen to that, Jay. Call it socialism or whatever, I don’t care. Just reel in the arrogance and the bonuses and the excesses and tell them if they don’t like, move. There are plenty of other companies more than willing to go along with the changes.
jewcowboy
May 13th, 2009
4:46 pm
RW-(the original),
“Of course they “protect our interest” by demonizing these companies, severely restricting their marketing efforts, and micro managing their business plans so that nobody wants to deal with them or work for them.”
In theory, I agree with you, but when compensation practices directly lead to these financial institutions putting our entire economy at risk, I would almost posit as a national security matter.
pat
May 13th, 2009
4:48 pm
I think you make to much Jay, your sinking AJC let’s limit your pay…The government has absolutely no say so in how a private company pay plans or the way it does busienss…Bailed out businesses asked for the governement to get involved. The government needs to stay out where it is not invited.
You may consider pay a problem but bottom line, that had nothing to do with the melt down. Nothing, and not one of you can provide a single shred of evidence to the contrary. This is purely a socialist move. The same kind of thing Chavez did in Venezuela.
Fortuntately, I do not think obama has a constitutional leg to stand on in this case. Unfortunately, this will not stop him as he considers the constitution a piece of toilet paper.
Maggie Thumpskin
May 13th, 2009
4:50 pm
Taxpayer,
…none of which [companies] you’ve started or run. You call it arrogance in these industries but what about others. Are the workers in these industries at fault or just the CEO’s. Should the government regulate ALL wages or just the big ones?
Thanking you in advance for your “insight”
Maggie Thumpskin
I Report :-) / You Whine :-(
May 13th, 2009
4:51 pm
The title to this blog could have easily been “Top US executives seek employment elsewhere, hahahaha”
It’s all a part of the socialist plan to crash and burn our economy.
Plain and simple.
RW-(the original)
May 13th, 2009
4:52 pm
jewcowboy,
You think you might be oversimplifying this a tad? If compensation was the sole reason then we certainly don’t need a
show trialcommission to investigate. How about a two trillion dollar deficit for next year to dwarf the problems of Wall Street compensation?I Report :-) / You Whine :-(
May 13th, 2009
4:53 pm
Idiotic Obozo voters, thought they could have their socialism and eat their cake too.
There ain’t no cake in the work camp.
Truth
May 13th, 2009
4:53 pm
Taxpayer… The Anti American socialist! WOOOOOOOOOOOOOOOOOOOOOO
Taxpayer
May 13th, 2009
4:55 pm
Dear Maggie,
Which companies have the power to destroy economies. Which companies asked for and received legislation that allowed the creation of financial giants with virtually no regulation or oversight even though they controlled enough money to bankrupt countries.
Paul
May 13th, 2009
4:56 pm
Didn’t we have people on this blog a while back saying the Obama Administration wanted to regulate compensation, even for companies not involved in the bailout, and others derided them as fearmongers?
Didn’t we?
I think jewcowboy has a point: “when compensation practices directly lead to these financial institutions putting our entire economy at risk, I would almost posit as a national security matter.”
It’s the old “do what you want as long as it doesn’t affect me” thing. But it has affected us.
And oh, BTW – wonder how one of Pres Obama’s economic advisors – that guy who heads GE, who’s overseen their stock prices plummet over the years yet still keeps raking in his multigazillion a year salary – I wonder what he thinks?
Still can’t figure out why Obama appointed him. Surely there’s a ‘rest of the story’ to this.
jewcowboy
May 13th, 2009
4:57 pm
RW-(the original),
“If compensation was the sole reason then we certainly don’t need a show trial commission to investigate. How about a two trillion dollar deficit for next year to dwarf the problems of Wall Street compensation?”
I did not say it was the sole reason, but it was certainly a strong contributing factor. I personally feel these financial institutions should be so large they are “too big to fail.” But if the gov’t is going to allow them to affect our economy in such ways, there needs to limits on how they operate to make sure they do not fail. Compensation is but one part of it.
jewcowboy
May 13th, 2009
4:59 pm
” personally feel these financial institutions should be so large they are “too big to fail.”
Sorry, it should have read “not be so large”
Paul
May 13th, 2009
4:59 pm
Hey Taxpayer
Was looking for confirmation down below that it’s now official? Forcing people to listen to Eminem and grabbing the front of their shirt and shaking them constitutes torture? That is what your link said, I do believe -
RW-(the original)
May 13th, 2009
5:01 pm
jewcowboy,
I’d much rather find a truly independent commission to investigate Congress’s role. I think it would be a lot more interesting and definitely more beneficial.
Taxpayer
May 13th, 2009
5:03 pm
The compensation issue is just a small part of the work that will be done to reform the financial industry. Further, it seems to me that it has not been that long since there was a huge public outcry about the Obama administration allowing these very companies to give out enormous compensation packages. Have things suddenly changed now that the administration has basically said to we the people, I hear you and I’m going to do something about that. Then again, perhaps the real truth is that the Party of No is still behaving as the Party of No — No to whatever the Obama administration does, even if is precisely what we the people asked for or even if it is precisely what the GOP would have done if it were not the obstructionist party of the 20 percenters.
Taxpayer
May 13th, 2009
5:05 pm
It’s the truth, too much of the WOOOOOOOOOOOTEN mindset will transform anyone into a socialist. And that’s a good thing.
jewcowboy
May 13th, 2009
5:06 pm
RW-(the original),
“I’d much rather find a truly independent commission to investigate Congress’s role. I think it would be a lot more interesting and definitely more beneficial.”
I’ll second you on that one.
Taxpayer
May 13th, 2009
5:08 pm
Paul, have you heard of shaken baby syndrome. Well, shaking someone too violently, even a more aged person, can cause brain damage. Further, loud music can cause ear damage. Finally, have you seen the prices on some of those designer shirts. So, I suppose the scenario that you describe could be considered as torture under certain circumstances.
Truth
May 13th, 2009
5:14 pm
Sorry Taxpayer… the WOOOOOOOOOOOOOOOOO comes straight from “The Nature Boy” Ric Flair! WOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
md
May 13th, 2009
5:17 pm
I’m a free market kind of guy, but there is a problem at the top. It has become a good ole boy club just like congress. These club members sit on the boards of each others companies and constantly pat each other on the back and approve each others compensation. Just like congress voting themselves raises, thats wrong.
These are publicly traded companies that are supposed to be working for the stockholders – they aren’t. They are working for themselves. You can not convince me that CEO Joe needs many millions to do the same job CEO Bill is willing to do for a fraction of that. There are many qualified candidates that would jump at the chance to do the job for less money. Which one is better for the stockholder?
The CEO club needs to be cleaned out and brought back to reality just as congress needs to be flushed down to start over.
Taxpayer
May 13th, 2009
5:24 pm
Ric Flair,
That old geezer with the looks that match his years of abusing the steroids. Why didn’t Congress go after the wrestling industry for their abuses — not enough money on the sidelines to bother anyone.
AmVet
May 13th, 2009
5:26 pm
So let’s see if I have this straight.
Many, many many of the men who ran and worked in these institutions exercised no market discipline. They created false values. Then they extracted profits that didn’t exist.
And finally got their paid for pals in government to “bail them out” with the taxpayers money.
Now there is this strangely misguided teeth gnashing about the consequences that affects these unindicted criminals.
Many of these men belong in an 8 X 12…
If that is demonizing, we’ve got some
Hillbilly Deluxe
May 13th, 2009
5:27 pm
Teddy Roosevelt was smart enough to know that a few corporations could sink the whole economy if allowed to. Like all people, we forgot the lessons of the past so we have to learn them again the hard way. I agree that when a few can sink the whole economy then it becomes a national security issue.
“I’d much rather find a truly independent commission to investigate Congress’s role. I think it would be a lot more interesting and definitely more beneficial.”
I’ll third that one.
I think we probably had enough regulations in place before Phil Gramm got some of them repealed and then they chose not to enforce some of the ones we had.
All the people who’ve been in charge of solving this problem, Paulson, Geithner, and Bernanke, have all been part of the system that gave us these problems. It gives me a queasy feeling to see the foxes trying to solve the problems of the hen house. I just don’t trust them to put my interests ahead of those of their peer group.
We need an Andrew Jackson who knew how to deal with Nicholas Biddle. Unfortunately, he’s unavailable.
Paul
May 13th, 2009
5:31 pm
Taxpayer 5:08
But there’d be a doctor standing by. As far as loud music, it could be metered appropriately.
But the question, under the rules let forth by the Obama Administration, do not allow for under ’some’ circumstances. It is or it isn’t. My read on that, and your reference to Paul Begala, seems to indicate that under any circumstance (okay, not ‘any’ – just when done by the US to Muslim terrorists) it is torture. Agreed?
getalife
May 13th, 2009
5:41 pm
Sure, they will investigate themselves and their donors.
That’s funny.
I Report :-) / You Whine :-(
May 13th, 2009
5:44 pm
Many of these men belong in an 8 X 12…
Aahhh, yes, the piano wire posse is on the prowl again.
The socialists set up their little work camps, keeping with their long and sordid history, here’s your weekly turnip, Mr. Bigshot, be thankful we didn’t strangle you this week. But who knows, maybe next week!
Hopeandchange.duh brings us class warfare, wonderful.
pat
May 13th, 2009
5:44 pm
Those who are for this should have thier pay limited first. If you like it then you can be fore it for others. You guys are do unto others as long as you don’t do it to me. Problem is, it don’t work that way. This opens the door for accross the board compensation regulation which effects everyone.
Brad Steel
May 13th, 2009
5:46 pm
The Whiner screeches with emphatic paranoia:
“It’s all a part of the socialist plan to crash and burn our economy.”
Please explain where ACORN and the boogeyman fit into this plan. Also, please buzz-in “sticking to core conservative values.” huh huh huh
Or just sub-in your own American Speculum/AM-radio brainless drivel
Taxpayer
May 13th, 2009
5:57 pm
Paul,
But, what about the expensive designer shirt. It could get ripped. It could be a one of a kind.
Joe Matarotz
May 13th, 2009
6:00 pm
Where we are today and how we got here is no mystery (except to Jay Bird). The root cause is a group of people who were out for themselves and found ways to circumvent the system and the law for personal gain. They followed this path because there were no perceived negative consequences for their actions. Conversely, they were reaping benefits that were excessive to the point that words cannot convey the level of excess. If the Justice Department reacted swiftly and decisively and sought to prosecute these clowns, it would certainly have limited the damage done. If Bush was actively pursuing these criminals and looking to punish them the way Reagan’s administration went after Milken, Boesky et el., maybe the Republicants would still be the majority party. Instead, the crooks are still walking free, the pendulum has swung the Democraps way, and on Wall Street it’s business as usual. In the meantime, millions of average Americans who didn’t make billions for running companies into the ground are paying for the misdeeds of those creeps. And don’t blame only the Republicants; there are plenty of Democraps in Congress who have been there for decades and who also failed to go after the bums.
Paul
May 13th, 2009
6:04 pm
Taxpayer
They won’t wear those. It’s their version of 666 – Mark of the Infidel and all that.
Just making a point – get past a couple of obvious examples and it gets quite difficult to justify, without relying on the same methods (DOJ) the previous administration is under attack for. That, and justifying to the American public under no circumstances would we do something like play Eminem… Are those things even necessary, given enough time, skilled interrogators and pliable detainees? Maybe not. But to say ‘never’ in such a war strikes me as a problem. Keeping options open and all that. ‘nuther point – especially if we prosecute people now. Imagine – you’re an interrogator. You are notified there’s been a complaint filed against you under an anti-torture statute because you grabbed a detainee and yelled at him. Not just a reprimand, but criminal charges. We have precedent, you know.
As I’ve maintained for a while, the bright lines are dim, the black and white has lots of grey in between and the precedents can be troubling.
Hillbilly Deluxe
May 13th, 2009
6:06 pm
Pat @5:44
It does give me a queasy feeling to see the government setting anybody’s pay (other than gov’t workers) but they did pretty much bring this on themselves. Most all are suffering for what they did and they are taking tax dollars from us to right their ships. I’d like to seem them all go straight down the tubes but too many innocent people would be hurt by it.
I think their should be some kind of regulations on how many corporate boards a person can sit on. The conflicts going on there are obvious. In most corporations the deck is stacked and the share holders have almost no say in what happens. How else can a CEO tell a meeting of stock holders he isn’t going to discuss his pay? (Bob Nardelli/Home Depot) True he did get bounced eventually but it was a mighty soft landing with that golden parachute. He’ll probably get another when when he gets axed at Chrysler.
Hillbilly Deluxe
May 13th, 2009
6:07 pm
*Most all of us are suffereing* Makes more sense that way.
Taxpayer
May 13th, 2009
6:12 pm
Paul,
That’s not what I heard. I heard that many succumbed to the money, the wine, the nude photos of the beauty contestants. The Great Satan had its way with quite a few of them. The next thing you know, they’ll be pigging out on a pork barbecue instead of fasting or is that another religion.
booger
May 13th, 2009
6:17 pm
Jay, just to clarify, the article says they will regulate compensation for all financial institutions, not just those who recieved a bailout. Your follow up referred only to those who recieved a bailout. If a company recieved absolutely nothing from the govt. then the gov.t should not have anything to say about how they pay their employees other than they pay minimum wage. The arbitrary limits the govt. has already set show they no nothing about compensation.
This on top of the feds. threats to cut California’s stimulus money unless they restored paycuts to state union employees shows that this admin. fully intends to control everything.
We have a president who 4 months ago had never run anything now running two auto companies, several banks, the largest insurance company in the country and now he apparently wants to try his hand a being govenor.
Forget words like socialism. If the mere fact that this admin. has siezed so much power in such a short time doesn’t scare you , you are not paying attention.
Paul
May 13th, 2009
6:19 pm
getalife
[[Sure, they will investigate themselves and their donors.
That’s funny.]]
You’ve been demonstrating quite the knack for getting to the heart of the matter, you know that?
Taxpayer 6:12
It’s another religion- plus theirs. They just don’t like to acknowledge they have anything much in common with Jews.
But you do bring up another point. Failing to keep in mind their cultural and religious needs is also a no-no.
Seriously, I just hope it works, cause the minute anything slips through… might’ve been politically wiser for the Obama Administration to say “Look, we waterboarded three guys. Years ago. We’re taking that off the table. It’s not necessary. But we won’t say what else we reserve the right to do, given extraordinary circumstances. We intend to keep our enemy guessing.” So if something does slip through, at least the focus will be on other factors, not ‘an intelligence failure because the Administration did not do everything it could to protect us.”
md
May 13th, 2009
6:19 pm
CEOs are like football coaches, even the bad ones get recycled.
Ask Delta about the band of merry robbers (Mullin and crew) that came through and pilfered the richs before going off to pilfer some other unsuspecting company. Did the stockholders get a pension plan as they did? Nooooooooo.
Simple guidelines to manage others’ assets is all it would take. If you lose their assets (and deemed responsible), you go away and you take nothing with you. You increase the assets, you get rewarded. Very simple concept.
Curious Observer
May 13th, 2009
6:24 pm
Seems pretty simple to me. If there’s a profit, pay bonuses up to the extent of the profit and no more. No profit–no bonus. And give the shareholders strong input into the compensation paid to executives.
I worked in a private corporation for many years. No one there could have imagined a situation in which executives would be paid bonuses without regard to profit. No one could have imagined distributing bonuses to any other employees in a year in which there’s no profit.
If compensation isn’t tied to corporate performance, why pay people at all? If the performance is abysmal, fire a lot of people and bring in new ones who will turn a profit. Perhaps I’m stuck in the last century, but that’s my understanding of the way businesses should operate. Or perhaps I should toss my MBA and all my decades of work experience out the window.
Hillbilly Deluxe
May 13th, 2009
6:26 pm
If you lose their assets (and deemed responsible), you go away and you take nothing with you. You increase the assets, you get rewarded. Very simple concept.
They’d all squeal like stuck hogs at just the thought of that. Probably would be interesting to hear them explain why this idea would never work because “we’re just too valuable for that”.
Sort of like Leo Mullin giving out all that money because they “had to keep the team in place”. Like it takes a special group to lose money hand over fist.
Paul
May 13th, 2009
6:27 pm
Taxpayer
I can’t believe I actually wrote “wiser for the Obama Administration to say “Look, we waterboarded three guys”
We? We? The Obama Administration, months into their term, has still been all about “we’re not Bush. They were naughty, we are nice.” There hasn’t been the collective ‘we’ in the sense of the nation, especially when presented to the rest of the world. It’s still in ‘them’ vs ‘us’ mode – part of the ‘I’m nice so please do what I ask” strategy, I suppose.
How silly of me. But I hope that naive phrasing didn’t detract from the message.
Taxpayer
May 13th, 2009
6:32 pm
Paul,
The testimony from someone that supposedly has first hand knowledge is that the ‘enhanced interrogation’ does not work. Further, people have checked the time-line and found all kinds of holes in the claims that the torture does work. Maybe we’ll eventually get some form of corroboration from other credible sources such as memos, etc. Any way it goes, some higher ups, and likely in several administrations, are going to have a whole lot more than egg on their faces because this whole thing just keeps building into a bigger and bigger bubble of You did it / No, you did it, You lied / No, you lied, or something like that. It will eventually come to a head and burst. Will that be the end of it though. Will heads roll. Will some people be found to be above the law.
md
May 13th, 2009
6:35 pm
CO,
The capital companies are now playing an entirely different game. They buy companies, some doing OK some not so good, and they charge them a management fee. Mother bird takes the fee and pays themselves large salaries from the baby birds, then as the baby companies start to falter, they sell them off at a nice profit to another capital company, which uses the remaining assets/liabilities to offset their own batch of baby bird companies, all the while charging the “fee” for their own salaries. The employees get the shaft and the companies eventually are used as writeoffs if they can’t strip them down enough to make money. Some are bought just for the writeoff.
Greed for the sake of greed is just not healthy for the business community. There needs to be some sort of guideline to do whats right.
Paul
May 13th, 2009
6:35 pm
booger
[[ust to clarify, the article says they will regulate compensation for all financial institutions, not just those who recieved a bailout.]]
That’s how I read it. Which is why my first post questioned if some here questioned some time back if that wasn’t in the future and the response was ‘fearmonger!”
Curious Observer
Always got me, the strict performance standards for mid and low level folks, but these top level guys get away with “you’re in charge of “X” but regardless of profit, market share, share values, you’re gonna get a bonus of a gazillion dollars.”
Most workers would’ve been fired for performance results like that, not rewarded.
md
May 13th, 2009
6:40 pm
HD,
“Sort of like Leo Mullin giving out all that money because they “had to keep the team in place”. ”
And that team bailed as soon as they possible could by contract (but they got a pension for being there all of 3/4 years). That valuable line is a bunch of hogspittle. There are always good reliable people that have some ethics that would be happy to do the job, and many for less money.
AmVet
May 13th, 2009
6:46 pm
Huh, who woulda thunk it.
The welcher going soft on crime…
Paul
May 13th, 2009
6:52 pm
Taxpayer 6:32
It’s usually the higher ups who get away with stuff. Look at the financial meltdown – higher ups in the financial industry and in Congress.
Yet the Congress keeps getting reelected at about a 95 percent rate.
The other – you’re right. It’s like a trial, one side brings out their expert witness, the other brings out theirs. Both can’t be right. Yet I think we’ll never get to the bottom of it. Especially after it became bipartisan and some of the people making the charges had one of those ‘oh s…” moments of ‘you mean I might have exposure on this?!!?”
Yup, lotsa people will get away with little accountability.
N.J,
May 13th, 2009
6:55 pm
When Ronald Reagan was president he gave this long and grandfatherly speech to Congress about how those who do the hard work for a company deserved to be paid for that work.
Of course Reagan was not talking about the American Worker, he was talking about the American CEO when he removed the deductability cap from executive compensation in the tax code.
There was no law preventing a company paying an executive whatever they wanted. But no sum that exceeded 25 times the total compensation of that company’s lowest paid employee could be deducted on a corporations income taxes. Before Reagan made these changes to the tax code, the average corporate executive made about 17 times the median wage in America. Today, the CEO makes about 500 times the median wage.
This was a wise law, because it created the conditions where the only time an executive could be give a huge amount of compensation was if they performed so well that the loss of the tax deduction was more than compensated for how much money he made for the company. Reagan, in one fell swoop decoupled executive performance from compensation. A CEO could get a ten million dollar increase in his salary whether he earned a billion dollars for that company, or lost it. In the end, the increased salary was justified because every cent of it allowed them to take a tax deduction as a legitimate business expense. Its another way of having a company avoid paying taxes. If they made a hundred million dollars profit this year, and they give 10 executives ten million dollar each in bonuses, the deductions match the profits and…no taxes.
This is the way “not for profit” companies work, and Reagan created the conditions by which profit corporations could work the same way not for profits do. Once the CEO’s take their bonuses, they too use other parts of the tax codes to avoid paying full taxes on their income as well.
Lest some Republican claim that these executives need to be “incentivized” in order to do a good job, the executives of the worlds 500 largest companies in the world who work in France, Germany and Japan on average make between ten and 25 times the median wages in their own countries. They are occasionally given good sized bonuses when they perform in some exceptional way. But not just because they own enough of the company’s stock to vote themselves a big raise and bigger bonuses at ever annual shareholders meeting:
Why Obama, Congress must curb CEO pay
Excessive compensation, sense of responsibility at heart of financial crisis
…primacy of profits
Way back on Sept. 13, 1970, just as I was starting my second year at Stanford Business School, Milton Friedman authored his seminal opinion piece in The New York Times titled “The Social Responsibility of Business is to Increase Its Profits.” But unlike many of Friedman’s other writings, this particular opinion piece was only modestly embraced, and was embraced by almost no one credible.
In fact, from the end of World War II until the mid-1990s, prominent public and private company CEOs almost universally viewed their responsibilities as being equally split among shareholders, employees, customers and the nation. This broad sense of corporate responsibility was actually so widely and comfortably held that in 1981, the Business Roundtable, which is the key public policy arm of the nation’s largest public companies and their CEOs, officially endorsed a policy that said that shareholder returns had to be balanced against other considerations.
However, just as the Business Roundtable was making its policy statement, the deregulation and laissez-faire era that was born in the Reagan administration was starting to chip away at the statement’s core contention. And by 2004 — even after many of the myriad scandals and outright thefts that have hallmarked the last decade of American business had already come to light — the Roundtable amended its position. It said, just as Friedman did in 1970, that the job of business is only to maximize the wealth of shareholders. And at that point, because of the prevalence of stock option and restricted stock grants, shareholders included many if not most senior managers at a large number of publicly traded companies.
And this narrow single-mindedness has taken corporate America down a very bad path that has resulted in executive compensation that is truly excessive.
For most of the past century, CEOs earned roughly 20 times as much as the average employee, according to the Economic Policy Institute, as quoted in The New York Times on Dec. 18, 2005, and again on Jan. 1, 2006. And also for much of the past century, there was nothing like the excesses within the financial industry that we see today, which enable its managers to earn almost obscene levels of compensation — and then get favorable income tax treatment to boot.
Today, however, average public company CEO compensation is 400 times that of the average employee. And thousands of senior managers in addition to CEOs are drinking at the same frothy trough, especially, as we have all just seen, senior managers in the financial services industry. (By contrast, the ratio of CEO pay to that of the average employee has remained around 22 in Britain, 20 in Canada and 11 in Japan.) And with such U.S. exalted compensation, management has so elevated itself above average employees as to have become, in my opinion, a constituency unto itself — and one that, to compound the inequity, largely sets its own compensation.
http://www.msnbc.msn.com/id/27555714/
These changes were among the first that Reagan called for within months of being elected. The first thing to occur was that executives were to receive huge amounts of stock options as compensation, the next thing to occur, was to remove the deduction cap for executive compensation.
What followed was that the executives held enough of the companies stock to vote themselves whatever amount of compensation they wanted.
The idea of the meritocracy vanished. Executives started awarding themselves “RETENTION” bonuses. Meaning they were paying themselve to remain at jobs that only someone out of their minds would leave.
The number of bonuses and their variations mutated exponentially. Eventually everyone in the company was in on it. Executives were giving their administrative assistant quarter of a million dollar “retention bonuses” every two years. Amazing stuff and all of it started with Reagan’s deregulations in 1981. And kept going.