White House unveils token bank pay restrictions

[Hannah Bell]

The Obama administration on Thursday confirmed plans to introduce what amounts to token measures regulating compensation at seven of the firms bailed out by the federal government...

The plan affects only two banks (Citigroup and Bank of America), along with insurance giant American International Group (AIG) and four auto-related companies (Chrysler, General Motors, and their respective finance arms). The regulations apply to the 25 most highly paid executives and employees at each of the companies.

The headline announcement was that the cash salaries of top executives at the companies will be limited to $500,000—in itself more than ten times the median pay of American workers. This, according to some calculations, will amount to a 90 percent salary cut on average across the firms. Overall compensation, on average, will supposedly be cut in half.

These percentages are essentially fraudulent, however. An article in the Wall Street Journal Thursday noted, “Several Citigroup officials briefed on the company’s dialogue with Mr. Feinberg’s office said salaries and total compensation of the company’s highest-paid employees aren’t expected to shrink dramatically.” One executive called the announcements “a bit of a hoax,” while others dismissed it as political posturing.

Companies will be able to make up the loss in salary through compensation in the form of stock, with constraints on when the stock can be sold...Feinberg’s proposals were worked out in close collaboration with the executives affected. According to a New York Times article published Thursday, these discussions lasted for months. The companies themselves “played a central role in the process and its outcome,” the Times noted.

Perhaps most significantly, the regulations will not apply at all to the vast majority of banks and financial institutions...The banks under Feinberg’s purview have a combined market capitalization of less than ten percent of the financial sector. This is only a small segment of the financial system that has received government aid. As Lawrence Summers, director of Obama’s National Economic Council, acknowledged earlier this month, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

Indeed, the largest beneficiary of the AIG bailout was Goldman Sachs, which pocketed a significant portion of the $182 billion expended by the government to bail out the insurance company...

http://www.wsws.org/articles/2009/oct2009/bank-o23.shtml

[AllentownJake]

1. Oh this one is going to be fun to watch

:popcorn:

[Hannah Bell]

4. hardly. it's radioactive.

[Hannah Bell]

6. kick

[napi21]

2. The info I read earlier also said it would limit the amount of stock they

could receive in a compensation package. I don't believe they gave a $$ figure, but said it would reduce the $ value of the stock compensation to about 50% of what they got in 2009. I;m sure they're going to give it up kicking and screaming obscenities, but it WILL be fun to watch!

[Hannah Bell]

3. The 50% is kind of a bullshit figure.

"Companies will be able to make up the loss in salary through compensation in the form of stock, with constraints on when the stock can be sold. This corresponds with the administration’s position that compensation should be more closely linked to long-term profit—and therefore the interests of top investors."


"The bottom line: The restrictions are stricter than the Bush administration's, but provide plenty of wiggle room for execs to do well. There is no real limit on executive compensation, just restrictions on the type of compensation."

"The top five executives at those firms will be prohibited from receiving compensation in excess of $500,000... with a caveat. They can land more as long as the extra compensation is somehow dependent on long-term performance, such as stock awards or options that can only be cashed out after a certain period of time. Today's press release is vague in defining just how long that might be: either after the government gets all of its money back plus interest or until the bank seems relatively stable and on track to pay the government back. It's unclear who will decide that.

The new guidelines also require a vote by shareholders on the pay packages for the top execs -- but the vote would be a non-binding resolution, just a chance for shareholders to make their views known.

The restrictions on “healthy” banks will be even looser (and these aren't retroactive, only affecting a future round of investment in the nation's banks). There, the $500,000 limit isn't really a limit, but merely a disclosure requirement: Banks that want to pay their top five execs more will have to publicly disclose it. In that case, the shareholders would also have a chance to make their will known if the execs want more."

http://www.propublica.org/article/bailout-plenty-of-limits-to-obamas-new-exec-pay-limits-090204

[Hannah Bell]

5. Pay Czar Decides to Collect a Few Scalps, a Sign of Weakness

The Wall Street Journal reports that the pay czar, Kenneth Feinberg, is going to cut executive comp at 7 TARP recipients for the 25 most highly paid employees.

Does this really mean anything? The press will noise it up as significant (and some outlets will no doubt finger wag at this “interference”) but the short answer is no.

First, recall Feinberg’s hollow mandate. He is limited to only TARP recipients, not the beneficiaries of other forms of government largesse. And as anyone who has an operating brain cell knows, the number of firms on the dole and the degree of subsidies is much greater than the TARP...

The point is that the collection of these scalps will do nothing to comp levels ex these firms. The companies that also enjoy implicit government guarantees are free to do the “heads I win, tails you lose” game of privatized gains and socialized losses. And Ken Lewis is the poster child of why these measures are completely meaningless. He sacrificed his 2009 pay, but will still collect $125 million when he departs Bank of America.

If the government is going to backstop the industry (and this isn’t an “if” anymore), it needs to limit those firm’s activities to what is socially valuable and regulate them heavily to contain risk taking. As we have said, reining in executive pay (and note there is no will to do that anyhow) is not an effective approach. Those employees who don’t like that are free to decamp and raise money in ways that do not involve the regulated firms in any way, shape, or form, save perhaps counterparty exposures on very safe, highly liquid instruments...

http://www.nakedcapitalism.com/

[Odin2005]

7. More WSWS spam.

:eyes:

[Hannah Bell]

8. here then.

http://www.propublica.org/article/bailout-plenty-of-limits-to-obamas-new-exec-pay-limits-090204

The bottom line: The restrictions are stricter than the Bush administration's, but provide plenty of wiggle room for execs to do well. There is no real limit on executive compensation, just restrictions on the type of compensation.



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Shoot that messenger, if you can.

[blindpig]

9. Scapegoating

These jerks are bad enough but ultimately the real criminals are the major share holders.

[lunatica]

10. I'm not reassured. But what do I know

I don't see any iron clad regulations being passed or enacted. It's more like they're making sure that no loopholes are being messed with.

See, we, the consumers (who used to be called the citizens) are too stupid to be given a break. The only people who are important now are the corporations because their talk is money. Serves us right for not putting our money where our mouths are. For that sin we are second class persons while corporations have become more important 'persons'.

Fuck us.