White House to push for big pay cuts

[alexmst]

Obama's pay czar will demand 50% decline in compensation, on average, for top earners at seven firms that received the most bailout funds

http://money.cnn.com/2009/10/21/news/companies/feinberg_compensation/index.htm

NEW YORK (CNNMoney.com) -- The Obama administration will soon order the nation's biggest bailed-out companies to drastically cut pay packages for their top executives, a senior administration official confirmed to CNN Wednesday.

Kenneth Feinberg, who was named the White House's pay czar in June, will demand that the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.

For the past two months, Feinberg has been reviewing pay plans at Citigroup (C, Fortune 500), AIG (AIG, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, Chrysler, GMAC and Chrysler Financial in an effort to put these firms in a position to pay back bailout money as soon as possible.

Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, the official said.

Another source in the Treasury Department told CNN that Feinberg is "trying to strike the balance" between protecting taxpayers and allowing companies to have the ability to "grow their way out of TARP."

Some compensation experts have worried that the firms that have received the most bailout funds could wind up losing top talent to companies that have already paid back the government and are not subject to Feinberg's pay restrictions, such as JPMorgan Chase and Goldman Sachs.

According to other reports, the plan will come down particularly harsh on embattled insurer AIG. Within AIG's controversial Financial Products division, the unit that led to the company's near collapse, no employee is expected to receive more than $200,000 in total compensation, several reports indicated.

The Wall Street Journal also reported Feinberg is expected to demand a series of governance changes at the seven firms -- including splitting the role of chief executive officer and chairman.

The Treasury Department had no comment. AIG, Bank of America, Chrysler Financial and GM also declined to comment. Chrysler, Citigroup and GMAC were not immediately available for comment.

But the moves by Feinberg should not come as a major surprise. Last week, outgoing Bank of America CEO Ken Lewis said he would not accept a salary or bonus for 2009, and the bank said the decision came after Feinberg "suggested" it to Lewis.

Lewis' decision followed an uproar over indications that he is poised to walk away with a minimum of $53 million in pension benefits after he retires.

Lewis' cash salary has been $1.5 million annually since he took over as CEO in 2001. But he actually made $63 million in pay and perks over the past three years, according to filings -- including almost $10 million last year.

Other high-profile CEOs have also taken it upon themselves to act before the government did. Citigroup chief Vikram Pandit, for example, declared earlier this year that he would accept pay of just $1 a year and no bonus until his firm returned to profitability. Nice, but not too much of a hardship considering just a year ago, Pandit took home $10.8 million in salary, stock and options.

CNN's Jessica Yellin, Gloria Borger, Miguel Susana, CNNMoney.com's Jennifer Liberto and Fortune's Colin Barr contributed to this report.

First Published: October 21, 2009: 4:18 PM ET

 

[papasmerf]

We should start at the top and work down through both boards of directors, with 60% pay cuts.

White House, Senate and Congress

 

[blackrock13]

I also like the idea of going after the preferred status/exemption that the insurance companies get under the anti trust laws. In short, they can collude with each other and no one can touch them on market/price.

 

[kkelso]

Again, socialists running businesses. Brilliant.

 

[WoodPeckr]

Again, socialists running businesses. Brilliant.

So you prefer the corrupt status quo???....

 

[FOOTSNIFFER]

So you prefer the corrupt status quo???....

Exactly.

Tell me how it's 'capitalist' for the CEO fuckers of alot of these Wall Street firms to stack their boards with their cronies who in turn recommend the outlandish salary/bonus to their minders, all at the expense of the shareholders?? For what they've wrought, for the failure, heartache that their catastrophically inept judgement has inflicted on all the innocent people out there, I'd SUE them to retrieve the salary they received during the false boom years. Actually, a ritual hanging or two in a public square wouldn't be out of order in my book. We can start with Dick Fuld of Lehman brothers.

 

[onthebottom]

JPMC and Goldman will be the big winners int his, the US taxpayer will be the loser.

OTB

 

[toguy5252]

Again, socialists running businesses. Brilliant.

I what sense could your statement have any relationship to reality.

 

[Aardvark154]

JPMC and Goldman will be the big winners in this, the US taxpayer will be the loser.

It is highly likely that this will be true.

 

[Aardvark154]

Tell me how it's 'capitalist' for the CEO fuckers of alot of these Wall Street firms to stack their boards with their cronies who in turn recommend the outlandish salary/bonus to their minders, all at the expense of the shareholders?

But is this really so? Is it not more that with the rise of investment funds there are now very large stockholders who almost always vote as management recommends rather than actually analyzing proxy questions.

Then there is the whole phenomenon of politically correct Directors: look at GM's BOD in the decade and a half before the deluge.

 

[toguy5252]

The pay restraints will only be imposed on those institutions which have TARP money. GS and MS have paid theirs back so it will not apply. For some restraint to be shown at those firms they will have to change their cultures which unfortunately is not likely. The present income and bonus model rewards instant gratification. It is that model which lead to unnecessary risk and ultimately the near collapse of the financial and credit markets which would have occurred without government intervention. The problem with GS and MS and others is that they are too big to fail. They reward risk and if the worst materializes they know they can count of the government to bail them out because they are too big to fail. Firms that pose a systemic risk to markets should either be broken up or more closely regulated. That is not socialism it is protecting the integrity of the market. The failure of the markets aver the past year would more than likely have more to hasten the end of capitalism as we know it than Marx ever could.

 

[Aardvark154]

The pay restraints will only be imposed on those institutions which have TARP money. GS and MS have paid theirs back so it will not apply. For some restraint to be shown at those firms they will have to change their cultures which unfortunately is not likely. The present income and bonus model rewards instant gratification. It is that model which lead to unnecessary risk and ultimately the near collapse of the financial and credit markets which would have occurred without government intervention. The problem with GS and MS and others is that they are too big to fail. They reward risk and if the worst materializes they know they can count of the government to bail them out because they are too big to fail. Firms that pose a systemic risk to markets should either be broken up or more closely regulated. That is not socialism it is protecting the integrity of the market. The failure of the markets aver the past year would more than likely have more to hasten the end of capitalism as we know it than Marx ever could.

I don't believe many would disagree with you. But instead of the Treasury Department saying to these businesses you must restructure your bonus system once this year's bonuses have been paid, the Government seems to be attempting to retroactively change what has already been contractually agreed upon.

Further, if bonuses are structured correctly (such as stock options) those who receive them have a vested stake in the growth and prosperity of the company not merely working 9 to 5, or in taking wild risks for potential short term gain.

 

[onthebottom]

I don't believe many would disagree with you. But instead of the Treasury Department saying to these businesses you must restructure your bonus system once this year's bonuses have been paid, the Government seems to be attempting to retroactively change what has already been contractually agreed upon.

Further, if bonuses are structured correctly (such as stock options) those who receive them have a vested stake in the growth and prosperity of the company not merely working 9 to 5, or in taking wild risks for potential short term gain.

It's more of an instant gratification business with longer term risks...... and there in lies the problem, the curtailment of 25 people's comp will have no effect on.

OTB

 

[Rockslinger]

My boss always say "pay your employees fairly but never overpay for fear of losing someone". A couple of years ago, our Treasurer left to a competitor and we all said "our gain our competitor's loss". We filled the vacancy by promoting his loyal assistant and we couldn't be happier.

So, those jackasses who screwed up AIG will now go to Goldman Sachs to weave their "magic" there? GS will need a lot of good luck to survive those jerks. (I actually heard a bunch of Bear Stearns ex-employees went to Asia to try and sell sub-primes there.)

 

[kkelso]

I what sense could your statement have any relationship to reality.

I assume you mean "In what sense"

The reality of running a business, which few in the current administration have ever done, is that the talent goes where the money goes.

With few exceptions you don't get to the top of a large corporate entity like these unless you are among the best at what you do. Someone messes with my pay (contractually agreed upon pay I might add) and I'll just take a hike to somewhere the government isn't running the show. Let someone else less skilled take my place and deal with the headaches of being second guessed.

There is likely a reasonable question as to whether or not this is even legal.

 

[Rockslinger]

is that the talent goes where the money goes.

It is such a false assumption that these guys have "talent". They are not rocket scientists or transplant surgeons. Let me give you a couple of examples.

1) A trader is a hero one year because he gambled with the Bank's money and got lucky. Then the next year, he is a bum and loses the bank $5 billion.

2) Mutual fund managers. You'll do better by buying ETF's. "Professional money managers" is all hype. Plus, a bunch of them (led by Madoff) are crooks. Did you hear they just arrested another hedge fund manager a couple of days ago (was on TV)?

 

[WoodPeckr]

2) Mutual fund managers. You'll do better by buying ETF's. "Professional money managers" is all hype. Plus, a bunch of them (led by Madoff) are crooks. Did you hear they just arrested another hedge fund manager a couple of days ago (was on TV)?

Exactly!
Madoff and a buddy or two went to jail. The rest of the crooked Banksters that frenchy LaRue luvs to apologize for were left on their jobs. They should ALL be in prison or have received the RED Chinese solution. A bullet in the head! I vote for the RED Chinese option...

 

[alexmst]

I assume you mean "In what sense"

The reality of running a business, which few in the current administration have ever done, is that the talent goes where the money goes.

With few exceptions you don't get to the top of a large corporate entity like these unless you are among the best at what you do. Someone messes with my pay (contractually agreed upon pay I might add) and I'll just take a hike to somewhere the government isn't running the show. Let someone else less skilled take my place and deal with the headaches of being second guessed.

There is likely a reasonable question as to whether or not this is even legal.

That is one reason the Europeans are trying to pass rules on financial company bonus pay, limiting short term yearly cash bonuses, allowing clawbacks of bonuses paid out in previous years if the deals cause the company to lose money down the road, paying stock instead of cash, etc. Forcing a few companies that are in debt to the government to cut pay will encourage talent to move, so to level the playing field better if financial companies agree to the guidelines to all limit excessive bonus pay. If all are restricting it, there is less incentive to move.

The flaw with this is that financial institutions in the U.S. and UK love to poach key talent from competitiors. They do this through bribery basically - we'll give you even bigger bonuses, signing bonuses, free private schools for you rkids, chauffer driven car, pied a terre in London to use when you work late, etc. As long as the investment banks want to poach each others top performers (which they do) we will have very high compensation.

In a way it would be better to let them pay what they want, and if the comapny tanks, let it. Then their contracts will mean nothing as the company is kaput. Worked for Lehman Bros lol. When the government has to bail them out, people say "well, we are still in business, therefore my contract and pay should be honoured". But they aren't still in business really - they effectivly tanked as soon as they need to call in the government to save them. As has been said, the risk to the total economy was too great to let most of the investment banks go belly up at once.

 

[alexmst]

It is such a false assumption that these guys have "talent". They are not rocket scientists or transplant surgeons. Let me give you a couple of examples.

1) A trader is a hero one year because he gambled with the Bank's money and got lucky. Then the next year, he is a bum and loses the bank $5 billion.

2) Mutual fund managers. You'll do better by buying ETF's. "Professional money managers" is all hype. Plus, a bunch of them (led by Madoff) are crooks. Did you hear they just arrested another hedge fund manager a couple of days ago (was on TV)?

As regards top investment bankers and CEOs, many are smart. The problem is they are mostly also greedy in a lightly regulated environment that doesn't punish transgressions very severely. In such a situation, very smart + very greedy = trouble.

As regards traders, in London they are not usually very smart or highly educated. They are crafty, tough, crass and forceful. Many are gamblers and huge risk takers. The rewards for risk taking correctly are high. Flash a wedge (roll), drive a Porsche, impress your mates.

As regards mutual fund managers, I am generally not impressed with the ones I've met.

 

[toguy5252]

I assume you mean "In what sense"

The reality of running a business, which few in the current administration have ever done, is that the talent goes where the money goes.

With few exceptions you don't get to the top of a large corporate entity like these unless you are among the best at what you do. Someone messes with my pay (contractually agreed upon pay I might add) and I'll just take a hike to somewhere the government isn't running the show. Let someone else less skilled take my place and deal with the headaches of being second guessed.

There is likely a reasonable question as to whether or not this is even legal.

Thank you for correcting my typo. What I meant was which socialists are you referring to? The idiots who created this mess are now benefiting from the free or cheap money given or lent to them by the Government. But for these programs, TARP etc, these business would be broke and they would be unemployed. Unfortunately the consequence of this would also be to wipe out peoples savings and create massive unemployment perhaps for a generation. They are making record profits with the assistance of TARP etc. The socialists here are the people at the firms that are "too big to fail". When the F#$k they are the first to run to government seeking help. Once again this is socialism for the rich and capitalism for the middle class and poor. The government is trying to change the compensation model so that massive government intervention will not be required in the future. Protecting the integrity of markets is the role of government in a capitalistic society.