Pay Pals
"The executives targeted by Feinberg are among the most talented and productive at their companies."
Martin Crutsinger and Steven Jacobs, Associated Press
"These people are considered the brains of the machine....this (pay limit) will give them reason to leave."
Steven Hall, executive compensation consultant
If you work for one of seven companies that received a federal bailout last year (1), US Treasury official Kenneth Feinberg decided you must get by with no more than $500,000 in salary this year. Firms that have repaid their government money are no longer subject to the compensation limitations.
Along with many other Americans, I will get by on less than half a million dollars in income this year and every year thereafter, but what will the top executives of the affected firms do?
Steven Hall fears they will quit their jobs, either for work at other firms or to retire. According to reporters Crutsinger and Jacobs, they are particularly talented, and so will be sorely missed.
I, on the other hand, salute Mr Feinberg and the Obama Administration for taking this action. I consider the consequences of the pay cut beneficial, both in the short term and long term.
Short Term Effects: Maybe the people earning multi-million dollar salaries are talented, but every one of them was (in part) responsible for the colossal failures that impelled their firms to seek a federal bailout. Since each of these firms continues to hold my tax dollars in its treasury, I should have some say on how this money is spent; I prefer that the millions slated for executive pay and bonuses be repaid to the treasury, rather than used to reward failure.
But who will replace those execs who leave because of the pay cuts? Just below the top earners at every firm are legions of middle-management people, now earning $200,000 to $400,000, who would be standing in line to take the top jobs for a mere five hundred grand per year. ( Even the President of the United States gets by with only $400,000 per annum (2), so $500,000 is nothing to sneeze at. ) Those who would move up to the top jobs bear less blame for the debacles that ruined their firms than those who would be leaving, so I contend that the quality of executive leadership would improve. In addition, the shake-up will open up middle and junior management positions throughout each firm, creating more opportunity for younger people to get into management and move up. Good!
Long Term Effects: One of the most cogent criticisms of the bailouts of 2008 was that they transferred the risk of bad investment decisions from the investors to the public. While millions of Americans are suffering economic hardship as the result of the recession, brought on by the banking crisis, the executives whose bad judgment triggered the crisis have not borne the consequences. The pay-limitation for bailed-out firms will be a sign for future business leaders that if they take risks that throw their firms onto the mercy of the US Government, they will lose their multi-million dollar paydays as a result. If this prospect is a deterrent to reckless conduct with other peoples' money, then I am all for it!
Full disclosure: Since my employer (Mount Mary College) did not accept any federal bail-out money, my salary will be not adversely affected by Mr Feinberg's rule. So, it's easy for me to support it!
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(1) Bank of America, AIG, Citigroup, GM, GMAC, Chrysler and Chrysler Financial.
(2) OK, the President also gets free housing, rides on AF 1, free postage, lifetime Secret Service protection, and other perks. In addition, former presidents make millions on book deals, speeches and the like.
Martin Crutsinger and Steven Jacobs, Associated Press
"These people are considered the brains of the machine....this (pay limit) will give them reason to leave."
Steven Hall, executive compensation consultant
If you work for one of seven companies that received a federal bailout last year (1), US Treasury official Kenneth Feinberg decided you must get by with no more than $500,000 in salary this year. Firms that have repaid their government money are no longer subject to the compensation limitations.
Along with many other Americans, I will get by on less than half a million dollars in income this year and every year thereafter, but what will the top executives of the affected firms do?
Steven Hall fears they will quit their jobs, either for work at other firms or to retire. According to reporters Crutsinger and Jacobs, they are particularly talented, and so will be sorely missed.
I, on the other hand, salute Mr Feinberg and the Obama Administration for taking this action. I consider the consequences of the pay cut beneficial, both in the short term and long term.
Short Term Effects: Maybe the people earning multi-million dollar salaries are talented, but every one of them was (in part) responsible for the colossal failures that impelled their firms to seek a federal bailout. Since each of these firms continues to hold my tax dollars in its treasury, I should have some say on how this money is spent; I prefer that the millions slated for executive pay and bonuses be repaid to the treasury, rather than used to reward failure.
But who will replace those execs who leave because of the pay cuts? Just below the top earners at every firm are legions of middle-management people, now earning $200,000 to $400,000, who would be standing in line to take the top jobs for a mere five hundred grand per year. ( Even the President of the United States gets by with only $400,000 per annum (2), so $500,000 is nothing to sneeze at. ) Those who would move up to the top jobs bear less blame for the debacles that ruined their firms than those who would be leaving, so I contend that the quality of executive leadership would improve. In addition, the shake-up will open up middle and junior management positions throughout each firm, creating more opportunity for younger people to get into management and move up. Good!
Long Term Effects: One of the most cogent criticisms of the bailouts of 2008 was that they transferred the risk of bad investment decisions from the investors to the public. While millions of Americans are suffering economic hardship as the result of the recession, brought on by the banking crisis, the executives whose bad judgment triggered the crisis have not borne the consequences. The pay-limitation for bailed-out firms will be a sign for future business leaders that if they take risks that throw their firms onto the mercy of the US Government, they will lose their multi-million dollar paydays as a result. If this prospect is a deterrent to reckless conduct with other peoples' money, then I am all for it!
Full disclosure: Since my employer (Mount Mary College) did not accept any federal bail-out money, my salary will be not adversely affected by Mr Feinberg's rule. So, it's easy for me to support it!
------------------------------------------------------------------------------------
(1) Bank of America, AIG, Citigroup, GM, GMAC, Chrysler and Chrysler Financial.
(2) OK, the President also gets free housing, rides on AF 1, free postage, lifetime Secret Service protection, and other perks. In addition, former presidents make millions on book deals, speeches and the like.
Labels: bailouts, exeutive pay
posted by Gerald S Glazer at 10:49 AM
2 Comments:
Short term effects
Mr Glaser writes that they should not get more than $500K because they caused the problem. If so then why give them anything? Why is the government allowing them to get paid at all if they caused the problem?
I don't see the logic or ethics of having it both ways. Either they caused the problem and therefore they should not be rewarded with anything, or they did not cause the problem therefore, they should be rewarded for their work as all other similar executives.
Long term effects.
Mr Glaser indicates that since the penalty for what they did was transferred from them to us, they should be punished by having a limit on their income of $500,000and then they will learn this lesson so it will not happen again. This is lame.
How is getting $500,000 in salary a punishment for anyone for anything? How does rewarding them with $500,000 teach them any lesson? This is the idiocy of socialism.
The pooper course of events, which would have solved the problem for everyone and taught the right lesson to the people who needed to learn it and which would have limited the exposure of the genral public to these probeksm is below:
1. The businesses in trouble should have been allowed to fail and the executives therefore would have gotten $0 in salary.
2. The general public should not have had to bail out anyone else and put their children in debt for the next two decades to save these crimninals.
3. If the government had stayed out of this problem and allowed them all to fail, the problem would have been limited to them and we would be well on our way out of this mess right now and we would not be in debt of $15,000,000,000,000 over the next 10 years.
The failed businesses: banks and insurance companies, would have been bought up by other busineses because they would have been dirt cheap. This is how and why capitalism always works when it is allowed to. When it is allowed to work and when government does not get in the way to mess things up, the system takes care of itself.
Your analysis is simply wrong.
Firstly, many of those responsible have already left those companies. Many of the people affected by this are those who either had no part in causing it, or, even more unfairly, were recruited to help clean up the mess, and are now having their contract agreements disputed after they've done the work.
Second, since all the private companies that didn't take TARP money can and are paying higher salaries for qualified executives, this will but cause a further exodus of top-tier talent from these firms and act as a disincentive for qualified people to accept positions there.
Simply put, this is a populist policy that is profoundly unfair to honest workers who negotiated terms, faithfully did work, and are now being screwed. It will hurt these companies in the short and long terms.
It also runs the risk of messing up the entire contractual system of business this country's economy runs on. If you can't assume that a contract will be honored...
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