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February 04, 2009

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This information has made me squee.

Thanks for the late-night post, publius. Good to see I am not the only ObWingnut up, although I'm hitting the sack in 3-2-. . .

Anderson Cooper had a very good sitdown with President Obama Tuesday night and the president alluded to what would be in the news today.

This is very good to see.

Thank you, Mr. President.

-1.

If, as a result, people suddenly start thinking “hey why do those guys get paid so much anyway?” – i.e., if they start rejecting the norm of gross inequality – then political momentum will grow for policies that strengthen wages, etc. over the long term.

I really hope you're right about this. And thanks for the late-night heads-up!


What do you guys mean by "late-night"? It's only 1:30 ferchrissake.

Publius, the tide of battle will turn when the New York Times labels those guys properly: "Welfare Queens".

--TP

Yep. Some people apparently need to learn that $500,000 a year is nothing to complain about.

(I mean: I'm not the sort of person who might say: hey, live on the median income! I do get why some people say: oh, $100,000 a year isn't enough to raise kids on, though I also wonder about them if they don't try to do anything for the majority of Americans who have to accomplish this impossible feat. But I do see what they mean.

But complaining about $500,000 a year??? That's insane.)

Hopefully we will get similar salary caps in sports and entertainment: lets push that prosperity down to the concession workers too.

hopefully we will get similar

Magic Fairy: "Poof. Now there is a salary cap. Where does the saved money go? It goes to the equity holder."

Vladimir Publius: "Grrr. Congress ought to make a law that equity earnings should be capped."

Magic fairy "Poof. Now equity earnings are capped. Where does the saved money go? It goes abroad where it can earn a yield commenserate to the risk. It disappears from the country along with original capital and many many many jobs."

Vladimir Publius: "Grrr. Congress ought to make a law that jobs continue even when capital leaves."

Magic fairy: "Poof. Now jobs continue even though profits and wages do not. The people begin to starve."

Vladimir Publius: "Grrr. Those canadians have food. Let's go take it."

d'd'd'dave,

These companies have lost hundreds of billions of dollars. hundreds. of. billions. There is no saved money.

Hopefully we will get similar salary caps in sports and entertainment: lets push that prosperity down to the concession workers too.

Side comment 1 - I think this pent up frustration and resentment is not something to be ignored by politicians. Republicans dismiss it at their peril. When folks are applying it to totally dissimilar situations as the banks and entertainments....

Side comment 2 - complatints about salary caps aren't taking into account that there are, and always has been, strings attached to the money provided.

Side comment 3 - because of the strings attached, this is a self limiting situation...

Side comment 4 - unlike business, you CAN directly tie pay and performance in sports and entertainment.

br
Going forward...
Capping salaries going forward.
Not capping past salaries.
Not necessarily capping the salaries of just the guys responsible for the past sins who might still be employed there.

So we're talking about future savings.

d'd'd'dave,

maybe if they can turn things around, start making money again, and open up the credit markets, they can try to negotiate a new contract! they can come before congress and ask for more!

oh, man, that would be so awesome.

Hopefully we will get similar salary caps in sports and entertainment: lets push that prosperity down to the concession workers too.

The second premise does not follow from the first, and actually points to something that d'd'd'dave almost has right. If you impose a salary cap, the extra money just flows to equity. Placing a maximum salary on athletes doesn't mean the concession workers get any more money, it just means that the owner gets to keep more money. (And, no, higher salaries don't drive up ticket prices; it's the other way around.)

What d'd'd'dave misses (or at least does not state here) is that there should be a second half of this development, and one where I think the Obama administration is clearly falling down. Another consequence of accepting the bailout money should be that equity gets wiped out, too. Really, the TARP is an admission that these companies are bankrupt, and they really should be treated that way.

The third consequence also flows from that, which is that the bondholders need to take a haircut, too. They shouldn't be wiped out, but they shouldn't be made whole, either. All of these various assets paid a premium relative to Treasuries. It's called the risk premium for a reason. If you don't want to take the chance that you'll lose principal, invest in Treasuries.


Going forward, the Welfare Queens can settle for $500K/yr or forgo any more help from taxpayers whose median income is $50K.

The Welfare Queens are perfectly free to forgo the help and lose their jobs altogether because their companies go broke. (Presumably their awsome talents will quickly get them new jobs at higher wages.) Alternatively, they can accept the help, subsist on $500K, and let the Magic Fairy hand over the "savings" to the "equity holder". If the equity holder is the taxpayers, the Magic Fairy's work is done.

--TP

i'd be more than happy to take over GM for $500K.

no, i'm not a certified Captain of Industry (member Local CEOs Affiliated 190), so i might not be the best choice. but, it's not like i could do much worse. right? a ship can only run aground so far.

Gregg Easterbrook had a good response to the argument that limiting executive pay will drive away talent: These are the people who drove their companies into the ground -- we want them to leave.

I’ll be the Obsidian piñata. Cleek, they wouldn’t pay you $500K, because you would do much worse – stick to cheap shots. What right do any of you have to determine what the executive market should pay? Huge industries need to be led by huge leaders; skilled, competent executives that know what they’re doing. If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under. That’s how it works. So you want our Congress to run industry like they run Congress? Holy Crap Batface. This is the silliest post from the silliest poster. Hilzoy, you don’t need publius to make you look better. Hell, I could post better than that; then you wealth jealous socialist apologists could really get your rocks off. At least Kleenex stocks would go up. It’ll be interesting to see how Obsidian conducts itself the next four years as you dredge up smoke screen issues to cover President Obama and the Democrat’s misdeeds and stumbles – but it looks alright on them.

Where's Norman's picture? That's the guy who's causing us all of the headaches!

If $500,000 is not enough to attract executive talent, then Cabinet Secretaries require a substantial pay raise, as do all of the Civil Service executive positions below them.

(Pauses .... waits for everyone to switch sides in the executive talent search argument)

Bank America pays bank tellers a nominal salary. I don't think it's enough to keep them from stealing from the cash drawer, incentives and disincentives working as they do in the minds of the rational people who have taken us logically, rationally, and richly recompensed over the cliff.

I read the other day that home foreclosures take such a long time to happen because the banks and mortgage companies can't find the paperwork and the records.

They probably outsourced those jobs to low-wage people who weren't incentivized enough to do their jobs, which, by the way, is not a reason to raise anyone's pay.

Raising wages at the low end would sink us for sure. Think of the wasted productivity.

I say we put the three grinning optimists above in a room with shareholders and see if shareholders are incentivized enough to not hack them to pieces with machetes.

So John, if you ran a bank, you would give everyone but yourself a raise? How big a raise? 10%, 25%, 100%? Or do you think that after years of experience, history and track record, they kinda mostly know what pay range attracts the right talent that does a commendable job most of the time. And once you raise the cost of doing business, what would you charge for your services. Probably higher fees. Yeah, more fees and charges. That's the ticket. Better yet, let Congress do it. I wonder how much they will decide to contribute to political campaigns. Will industry have to pay taxes under Congressional leadership. How about charities, Democrats are big on charitable giving - well some might be. Silliness upon silliness.

Why stop with top executives? I mean, with bonuses, there are plenty of other employees at some of these companies who make more than $500k… Why should the top executives work for less compensation than the manager of Division X? Take the next logical step – just call it nationalized in this situation and everyone in the company works for the Civil Service pay scale from that point forward. I’m sure that critical employees would accept that and wouldn’t all leave the company on day one or anything…


Hopefully we will get similar salary caps in sports and entertainment: lets push that prosperity down to the concession workers too.

Agreed. The Hollywood bailout should require that movie stars get no more than $500k per picture. Given what big Obama supporters they (generally) are, I’m sure they’ll be on board.

Or do you think that after years of experience, history and track record, they kinda mostly know what pay range attracts the right talent that does a commendable job most of the time.

You might have a case if the banksters hadn't lost billions to trillions over the last ten years. As it is I'd prefer Thullen to Thain, and you're just being silly.

"If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under. That’s how it works."

Cite?

Why stop with top executives? I mean, with bonuses, there are plenty of other employees at some of these companies who make more than $500k… Why should the top executives work for less compensation than the manager of Division X?

Oh, don't you worry. I'm pretty sure that without the government doing anything, companies will clip wages to less than 500K right down the line. Salaries are not just about compensation; they're also for reinforcing the corporate dominance hierarchy. I used to work closely with an airline that nearly lost a lot of business with large corporations because they implemented a program that would randomly give free upgrades to frequent fliers. The first time that big bossman and little underling flew together with little underling getting the upgrade while bossman languished in coach was enough to make enraged travel departments pull out of major contracts.

Agreed. The Hollywood bailout should require that movie stars get no more than $500k per picture.

Is there a Hollywood bailout?

I’m sure that critical employees would accept that and wouldn’t all leave the company on day one or anything…

And go where? Who's hiring?

And if they really, really don't like it...they can always not accept hundreds of billions of taxpayer money. Which would be, um, tragic or something? Unjust? A travesty? A crime against humanity?

What exactly?

...from the silliest poster. Hilzoy, you don’t need publius to make you look better.

i actually agree with all that

Hollywood is self-regulating. Make a couple of bad pictures and your salary heads downwards again. Don't forget they are all temporary workers.

Sports teams? The only change I want there is to scrape the owners off the public teat: they can pay for their own stadiums.

I don't know how to fix the executive non-accountablity problem. Can the shareholders sue the board of directors for negligence? Because I think any lawyer capable of tying their shoes could demonstrate that.

The Hollywood bailout...

BWAHAHAHAHAHAHAHAHAHAHHAHA!!!

"Hollywood" is about the best run, most vicious, most lucrative form of capitalism this country has. "Hollywood" isn't going to need a bailout because the capitalist system actually works really damn well when it doesn't make a goddamn difference if the individual companies succeed or fail - a thousand different movie companies could fail and there would still be companies there to pick up the pieces.

You only need a "bailout" when an industry fails AND the capitalist model fails to be able to pick up the pieces AND the industry is so goddamn important to the health of the nation that it is "too important to fail". One bank fails? Who cares, we've got more. All the banks fail? Capitalism seizes up and needs a hand. Which is why the Grod-damned banksters KNOW they've got us by the short and curlies and can whine about how they should still keep getting paid their stupid high salaries despite the EPIC FAIL that their entire industry is in (and in a normal, healthy capitalist system they'd have lost their shirts already and be sitting on the curbside selling pencils instead of whining about how they need that extra million dollars a year to pay for their penthouse).

"Hollywood", on the other hand, could fail tomorrow and no one would give a shit because a dozen new studios would crop up overnight to fill the void if the current crop all went bankrupt simultaneously.

http://www.answers.com/topic/list-of-notable-business-failures

d3dave and blogbudsman,

The cap is only for companies that receive government bailouts. In other words, for companies that are in trouble, largely because of mismanagement.

CEO's who are not asking for govt help, can be paid whatever their cronies on the board (not "the market," please) want to pay them.

To echo John Thullen, there are some similarities between these execs and dave's tenant, Norm. The word "dole" comes to mind.

No one is calling, or should, IMO, call for restraints on entertainers' or athletes' incomes. These are determined by direct negotiations between the individuals and the people who are actually paying them. If the Yankees think having Sabathia produces the extra revenue to pay him, that's their business and their money. This is not true of the execs. (Though I agree with BigHank53 about stadiums, etc.)


The third consequence also flows from that, which is that the bondholders need to take a haircut, too. They shouldn't be wiped out, but they shouldn't be made whole, either. All of these various assets paid a premium relative to Treasuries. It's called the risk premium for a reason. If you don't want to take the chance that you'll lose principal, invest in Treasuries.

This point needs to be hammered home until people's ears bleed and small children are frightened by the words "bank" and "bondholder" ("Mommy, I'm scared and I can't go to sleep - there's a Bill Gross hiding in my closet.")

The equity shareholders have already taken a drastic haircut (as a quick glance at the stock price chart for the IB's will show), but the bondholders are getting the greatest ripoff deal in history - they were paid a risk premimum, and now their risks are being socialized onto our backs. All ur moniez b3long 2 PIMCO now.

though it's not getting any play in the lefty blogs, there really was a Hollywood bailout (of sorts) on the table.

    Broadly speaking, the Senate bill includes a one-year extension through 2009 of a provision enabling companies to write off 50 percent of the cost of equipment placed in service during that year, same as in the House Ways and Means version. But the Senate bill amends the definition of "qualified property" to include "certain motion picture film or videotape," bringing the cost of the Senate provision to $5.32 billion, up from the House's $5.07 billion version.
    Companies that use the tax break would then forfeit the right to use the existing incentive, which allows companies to deduct 100 percent of production costs up to $15 million. That provision is backed by groups such as the Directors Guild of America and is aimed at keeping smaller productions from relocating to foreign countries; it was extended as part of the $700 billion financial rescue plan in October.

Is there a Hollywood bailout?

"Hollywood" isn't going to need a bailout…

Not really a huge bailout as the word is quickly becoming known to mean, but there was something for them in the bill, yes.

The Senate bill includes a tax break worth up to $246 million over 11 years for investors in bigger-budget movie projects that don't necessarily qualify for incentives currently. The provision is backed by firms like the Walt Disney Co., and the industry trade group the Motion Picture Association of America, according to aides and lobbyists.

Coburn’s submitted an amendment to strip this out and it passed yesterday (52-45).

To the extent that Hollywood receives a bailout, I am more than comfortable requiring those businesses that take advantage of bailout money to rein in their profligacy.

Although I'm not sure how that would be accomplished given the nature of the H-Wood bailout. Which is really more of a tax break than a bailout.

So if it had remained in the bill can we agree that the studio top executives should have been limited to $500k compensation?

And sports teams are trying to get in on this action. And they’ll get it IMO labeled as “infrastructure improvements.

Everyone wants a piece of this thing...

Well, I'd be OK with offering the troubled banks corporate income tax breaks instead of an actual bailout. They could even keep their bonuses.

Don't really think it would extend their lifetimes by more than an hour, though.

And sports teams are trying to get in on this action. And they’ll get it IMO labeled as “infrastructure improvements.

Everyone wants a piece of this thing...

Fine. As long as they put a cap on their own profits. You take the money, you take the strings. Perfectly legal in the capitalistic world--contract law, remember?

If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under.

That's the company paying a price, not the decision maker (and as we're seeing now, even the company doesn't always pay). The executives who make bad decisions are facing the horrible risk of making huge piles of money rather than incredibly colossal piles of money. That's not much of a price to pay, and not surprisingly the result is bad behavior.

"Generally speaking, the government doesn’t need to be setting private companies’ salaries. But putting conditions on handouts seems perfectly acceptable and far less intrusive. If the companies don’t like the terms, they can take a hike."

I actually have no trouble with this whatsoever, so long as the companies actually have a choice. I want the bad ones to go under, and I want companies to not come to the government until they really need it. The only thing that worries me a little bit, is if the government takes control of these companies and then lets them operate under different rules than non-government-controlled companies. No Sarbanes-Oxley exemptions for example. No special environmental favors. No special rates from the government. No special treatment on contracts from the government. One of the things that we saw from the whole way that Fannie Mae was run is that you can cause trouble by letting the government company have special favors. It either drives everyone else out of the market (creating typical monopoly laziness problems which are much more common in the real world than monopoly over-pricing problems), or incentivices the private companies to be much more agressive to get to even. Neither of which lends to a good system.

So if it had remained in the bill can we agree that the studio top executives should have been limited to $500k compensation?

i dunno.

the size and form of the 'bailouts' are quite different. offering a few billion in tax breaks for an entire industry is not exactly the same as giving hundreds of billions in cash to a handful of companies.

So if it had remained in the bill can we agree that the studio top executives should have been limited to $500k compensation?

Nah, it's a tax break. You actually have to have profits to use it. If the banksters use their mad skillz to get profitable again without capital injections then we can talk.

OCSteve,

I've gotta say that link is pretty thin gruel. And I've always opposed public financing for sports stadiums used by private companies. Trust me, I've seen it happen. In the past 8 years or so my city has spent approximately 1.3 billion on new stadiums and arenas.

And after a city builds a team a new stadium through near 100% public spending I wonder. Why does the franchise get to keep the money for stadium naming rights?

But all that aside, in the grand scheme of things that article actually gives me hope. Teams are actually paying at least part of the cost themselves which is an improvement in my eyes.

What right do any of you have to determine what the executive market should pay?

Some of us own stock in some of these companies. I therefore think we should be entitled to decide what our employees make.

If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under.

Clearly not.

So if it had remained in the bill can we agree that the studio top executives should have been limited to $500k compensation?

No. Unless you want to argue that no one who works for any company that takes advantage of any sort of tax break should make more the $500,000, your premise does not lead to your conclusion.

Nah, it's a tax break. You actually have to have profits to use it. If the banksters use their mad skillz to get profitable again without capital injections then we can talk.

Exactly. I did say “Not really a huge bailout as the word is quickly becoming known” and qualified it as “there was something for them in the bill”. I think it’s interesting though how many folks are responding “it’s a tax break not a bailout” as if tax breaks are not as bad or should not require the same pre-conditions. i.e. tax breaks are somehow preferable to handing out truckloads of cash.. I’m down with that. ;)


OT: Obama undermining Pelosi over this bill?

"Well, I probably shouldn’t tell you this, but I actually got some quiet encouragement from the Obama folks for what I’m doing," said Cooper, one of about 55 House Democrats to sign a letter criticizing Speaker Nancy Pelosi for suspending normal debate and committee rules on the $819 billion package.
[…]
"They know its a messy bill and they wanted a clean bill. Now, I got in terrible trouble with our leadership because they don’t care what’s in the bill, they just want it pass and they want it to be unanimous. They don’t mind the partisan fighting cause that’s what they are used to. In fact, they’re really good at it. And they’re a little bit worried about what a post-partisan future might look like. If members actually had to read the bills and figure out whether they are any good or not. We’re just told how to vote. We’re treated like mushrooms most of the time."

// Another consequence of accepting the bailout money should be that equity gets wiped out, too. Really, the TARP is an admission that these companies are bankrupt, and they really should be treated that way.

The third consequence also flows from that, which is that the bondholders need to take a haircut, too. They shouldn't be wiped out, but they shouldn't be made whole, either. All of these various assets paid a premium relative to Treasuries. It's called the risk premium for a reason. If you don't want to take the chance that you'll lose principal, invest in Treasuries.//

I agree with this. I'd add a small caviat for banks like Wells Fargo who were forced to take TARP money. Did you know that TARP money goes to almost any bank who wants it? I have a friend who owns a by-all-accounts healthy bank and it looks like his bank is going to get $18 million. I'm not sure what the govt is trying to do.

Seems Obama's tenure in the White House will be ending shortly:

The Joint Chiefs of Staff HAVE AN ABSOLUTE CONSTITUTIONAL DUTY to stand behind Guantanamo Military Judge James Pohl UNTIL OBAMA OVERCOMES “RES IPSA LOQUITUR” BY SUPPLYING HIS LONG FORM BIRTH CERTIFICATE AND PROVING HIS ELIGIBILITY TO BE PRESIDENT UNDER ARTICLE 2 OF THE US CONSTITUTION.

Ted's right. I'd give his tenure about 24 hours. 48 hours tops.

Unfortunately, Ted's caps lock key seems to have stuck in its fully upright and locked position, making the prospect of a nap during this flight seem remote at best.

Alas, Ted supplied no link, so while his ideas are intriguing to us, we'll be unable to subscribe to his newsletter.

I think it’s interesting though how many folks are responding “it’s a tax break not a bailout” as if tax breaks are not as bad or should not require the same pre-conditions. i.e. tax breaks are somehow preferable to handing out truckloads of cash.. I’m down with that. ;)

Since having a corporate income tax break presupposes you have some positive corporate income, the receiver could be said to be somewhat more deserving than a essentailly bankrupt bankster. If I read your Hollywood thing correctly, it's just accelerated depreciation, which has been given to corps like oilcos for a long time.

What also was done for a long time was restricting compensation for the management of bankrupt companies. That was the norm, not creeping governmental interference.

Whoops. Italics off, hopefully.

Alas, Ted supplied no link, so while his ideas are intriguing to us, we'll be unable to subscribe to his newsletter.

What, were you expecting delivery via email or something?

I get my free copy of his newsletter via the tinfoil hat delivery network - it's sort of like Twitter, only the transport technology is different. The best part is, you only need to exercise your imagination to subscribe (the unsubscribing part is a little bit more involved).

What right do any of you have to determine what the executive market should pay?

Lots, if we own a big piece of their enterprise. Which, in fact, we do.

Huge industries need to be led by huge leaders; skilled, competent executives that know what they’re doing.

Let us know if anyone like that applies for the job.

If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under.

They made plenty of mistakes. So now they will pay the price. I don't see a problem.

It could be worse. They could be on the street or in jail. They should thank their lucky stars, if you ask me.

However, if it's all just too much for them to bear, they can decline to take federal money, or go find another job.

Perhaps it hasn't really sunk in with you yet, but these guys burned down the candy store. They're f**kups on a world-historical scale.

No soup for them.

There are lots of executives who didn't run their businesses into the toilet. Nobody's putting any caps on their compensation.

What we're talking about here is pay for performance. Mighty generous pay at that, given the performance.

According to everything else you've said here, you should have no objection to that.

They were crappy managers, so now they should get crappy pay. And "crappy" here needs to be in quotes, the compensation in question is something like 10 times the national median.

If they want to cry, they'll need to find a shoulder other than mine to cry on.

So, the President makes $400,000 a year. Are we going to argue that the President needs to be paid a zillion dollars a year to attract the best talent?

You know, this could really be interesting. It's not clear how long the restrictions are for, but let's say they go away if the company gets out of trouble and gives us a profit on government investments.

That's a healthy incentive, I'd say. Let's see who really wants "pay for performance," and who can earn it.

"I’ll be the Obsidian piñata. Cleek, they wouldn’t pay you $500K, because you would do much worse – stick to cheap shots. What right do any of you have to determine what the executive market should pay?"

Cause we own they ass now. They our bitch. Next.

"Huge industries need to be led by huge leaders; skilled, competent executives that know what they’re doing. "

So pay them what we pay generals who move 50K strength corps, oe several, from one continent to another, set up self-sufficent cities on bare sand, prosecute actual shooting wars, etc.....

"If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under."

Falw in your argument: It is quite obviously not the CEOs who are going bankrupt. Second flaw: They are not paying anything close to the price for their sabotage to the economy and to society. The price would be paid with them kneeling in a row down Wall Street, bullet in the back of the head - televised - and the family billed for the bullet.

"That’s how it works."

If you are referring to my last, then we agree. otherwise, no, it doesn't work very well at all.

Why sigh after the non-existent (?) newsletter?

We don't need it.

TED IPSA LOQUITUR!

Look, I don't know whether the $500,000 cutoff makes sense in terms of getting the best management, or whatever. But I would make a couple of points:
1) the companies are also allowed to give equity or options (I forget the details) that could pay off if the companies recover, but only some years hence.

2) The optics, and the politics, are obvious. It's offensive that a company begging for public funds would nonetheless think to act like some firehose of money for its top executives.

3) The notion that top salaries and benefits are set in a system accountable to the shareholders or justifiable by performance is just ludicrous. A great example is Merrill-Lynch a couple of years ago: from profits of around $6 billion, bonuses of $5 billion were paid out. Leaving aside whether those profits were all real, they were the rightful property of the taxpayers. Too many companies these days are being run like Soviet state enterprises, for exploitation by their officers rather than to benefit either the low-level workers or the companies' theoretical owners.

"Huge industries need to be led by huge leaders; skilled, competent executives that know what they’re doing. If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under. That’s how it works."

In dreamland.

It's already having an effect. Excerpt:

Pay cuts could be coming to a corner office near you, even if you're not the CEO of a troubled bank.

The new federal rules limiting executive compensation announced by President Obama Wednesday may affect only a handful of the nation's most battered financial institutions currently.

But experts say the moves could be a sign of more government action on the issue of executive pay in the future.

Executive pay activists say the attention being given to the $18 billion in Wall Street bonuses at the same time many financial firms are losing money and tapping hundreds of billions of federal funds is making it easier for politicians to justify why salaries should be cut.

Alexander Cwirko-Godycki, research manager for executive compensation research firm Equilar, said that the U.S. public, not just Corporate America, has been reluctant to accept anything that smacks of pay caps in the past. But he said that the mood is now changing.

"In this case, it's the first time it's palatable to most people. There's a total lack of trust on Main Street for Wall Street," he said.

What Bernard Yomtov (and others) said: when banks come to us asking for billions of dollars in assistance, we have the right to make that assistance conditional in any way we want. No one is forcing them to take it. (Seb: I believe this applies only to future money.)

I really think that the bankers/hedge fund people/etc. have no idea at all how angry people are, and how much they have to lose if they don't try to defuse it.

I am pretty unimpressed. This is like closing the barn door after the horse has bolted. Rather than cap direct executive compensation,tax people who make such insane amounts of money to the hilt. Also, fire these characters and sic the IRS and FBI on them.
There is a very fine rant by Yves Smith of
naked capitalism on this topic here:
http://tinyurl.com/cl5e2e

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

This doesn't seem hilarious to me. If, within this subculture, $500,000 really does seem "draconian," this is a valid point. Company loyalty isn't a footnote. I don't think it's in our long term interests to run our government like a giant record company. If we bail these companies out and then they fail anyway, we threw all that money away. How exactly is that better than unintentionally investing it in lavish bonuses for upper management?

Effectively calibrating the maximum degree to which you can raise the bar without losing everything requires taking seriously the kind of feedback you're making fun of here. Even when it seems nuts.

"Effectively calibrating the maximum degree to which you can raise the bar without losing everything requires taking seriously the kind of feedback you're making fun of here. Even when it seems nuts."

First of all, Mrs. Columbo, the only way to make sure they don't "fail" is to nationalize them (which I'm for). But as to executive compensation, you mean to tell me that there aren't 100, or 1000, public spirited smart people who can't run these corporations? I mean, if there aren't enough competent bankers in the whole United States who would accept $500,000 as salary in the name of being patriotic Americans, there's something more wrong with the United States than just the economy.

Forcing fiscal responsibility is like forcing desegregation. Things can get a hell of a lot worse before they get better. If the company fails while the new team is in training, who benefits from the bailout?

Keeping these companies from failing is a separate issue from reforming the deficient-in-social-interest subculture within them. Aiming for both simultaneously is ambitious but extremely risky. Like it or not, the ones with their hands the farthest in the jar often know the most about the jar. Remember how well it worked when we disbanded the Iraqi Army?

I agree with the principle of setting strict conditions on handouts. I just feel that if those conditions lead to a situation in which the handouts dissolve, the handouts shouldn't be given in the first place. If Mr. Reda can't present a reasonable plan to incentivize his employees to stay with his company under the bailout restrictions, I think he shouldn't get any bailout money.

My main issue with limiting executives' salaries to $500K is that it isn't happening in a vacuum. These companies need GREAT managers right now, but they won't have them for $500k. Granted, these companies made HUGE mistakes, but these mistakes were made industry-wide (actually industries-wide). And keep in mind that while the mistakes were being made, boatloads of money was also being made (not earned, but actually created).

The problem is not too much compensation; it's incentivizing the wrong behaviors. It's too easy for talented (yes, I think they're talented) executives to make a quick buck and jump to the next opportunity. Similarly, during the good times, the execs preaching a more responsible approach were probably shown the door. Cutting pay is only going to reduce the competence of our new investments' leadership. If we want to set directives about executive compensation, it should be focused on what for, not how much.

If we've decided it's the lesser of two evils to keep these companies afloat (rather than letting them all fail, preserving the balance of risk-reward), then let's at least try to help them turn things around rather than ride them into the ground with punitive measures.

A less steeply stratified socioeconomic structure is a noble goal, but it isn't going to be accomplished by arbitrarily forcing a few companies not to pay their employees market value. That only handicaps the regulated companies.

And keep in mind that while the mistakes were being made, boatloads of money was also being made (not earned, but actually created).

No, they didn't create money - you go to jail for that. They created credit. Which is easy to do, even in huge amounts, as long as you aren't too concerned with the amount of leverage you are using. Creating credit doesn't always work out to well in the long run.

Companies like Citigroup, for example, have managed to earn for their investors around zero dollars return over 22 years in nominal terms. Which means that in real terms, someone who bought a piece of the company in the early 80s is still waiting for it to increase in value. These are the geniuses you worry might be underpaid going forward. The bums begging for change on the corner have a better rate of return on capital invested and are more honest to boot.

arbitrarily forcing a few companies not to pay their employees market value

Haha, "market value".

What is the "market value" for an employee of a corporation that survives only by deducting its bailout money from my paycheck. I call troll.

If you're on welfare, there is a maximum income you can earn before you can't get welfare anymore. Just saying.

Troll indeed.

Not trying to be inflammitory. I don't agree with the practice of building a house of cards to capture short-term profits. It's unbelievably foolish in the long run. Unfortunately, compensation for exectuves isn't being effectively tied to long-term performance. My point was that they were accomplishing what they were being paid to do (as defined by incentive structure). And you can't blame the big bad corporate tycoons. The problem is that we all want to get rich quick, so we (investors) reward companies for short-term returns rather than stable growth and moderate profits.

Market value of an employee isn't based on the performance of the company...it's based on the percieved value of the employee. It's very possible that corporations are over-estimating the difference between a multi-million dollar executive and a $500k executive (which approaches zero if you screw up the incentives). I doubt it though, and they're in a better position to make that assessment than we are.

"Hollywood" is about the best run, most vicious, most lucrative form of capitalism this country has. "Hollywood" isn't going to need a bailout because the capitalist system actually works really damn well when it doesn't make a goddamn difference if the individual companies succeed or fail - a thousand different movie companies could fail and there would still be companies there to pick up the pieces.

Ahem, Hollywood actually is and has always been one of he most heavily unionized industries in the US. And while everybody likes to talk about the mega-rich top 50 actors and directors, there are hundreds of thousands of people with moderate incomes affected if the industry hits a slump and this does happen like in any other industry.

Market value of an employee isn't based on the performance of the company...it's based on the percieved value of the employee.

Well, I agree with this. Those employees get paid exorbitant sums when the company does well, but, on the other hand, those employees get paid exorbitant sums when the company does poorly.

The problem is which group is "perceiving" the value of the employee.

The current framework is for comp committees and boards to do that. And who appoints the comp committees and boardS?

The employees that are going to be evaluated!!!!

Anyway, I'm not overly concerned about losing some of those overpaid, overhyped, ineffectual employees.

Let them send out some resumes in this job market. Go ahead. Greeener pastures I'm sure.

A great example is Merrill-Lynch a couple of years ago: from profits of around $6 billion, bonuses of $5 billion were paid out.

Companies like Citigroup, for example, have managed to earn for their investors around zero dollars return over 22 years in nominal terms.

Take 80% of the company's profits for yourself, and return zero to your investors after 22 years. Those are the folks we're talking about.

We're not nationalizing the investment banks. We're not aggressively pursuing criminal charges against upper level management for fraud and gross malfeasance.

What we're saying is that, if you take public money to keep your business afloat, you have to accept a limit on executive compensation. That limit is a half million dollars a year.

If they balk at that, I say our counter-offer should be a pink slip.

Seriously, tell me why any of these guys deserve "market value" compensation.

Some financial institutions are not on the verge of flaming out. Their C-level execs will probably be well paid. They will have earned it.

The folks we're talking about are the ones who rode their companies over the cliff. The money that they played with was not their money, the businesses they were charged with managing were not their personal possession, in all or nearly all cases they did not create these businesses by putting their own, personal wealth at risk.

But they treated them like their own personal piggy banks, to the tune of billions of dollars. Billions.

They hollowed out the economy of the US and put the gleanings in their own pockets.

They should, really, be very very glad to not be in jail.

If they don't like the deal, they can go get another job. If they can't find another job, tough sh*t. If they leave, we will find somebody else to step in and run things, and they will not do a worse job than these thieving bastards have done.

Enough is enough.

Obama's proposed 500k cap on executive comp. and all the other hating on Wall St. is starting to look pretty good in terms of incentives - it has incentized Goldman-Sachs to ask if they can give us back the TARP money they accepted.

Like now.

Feb. 4 (Bloomberg) -- Goldman Sachs Group Inc. wants to repay the $10 billion it got from the U.S. Treasury last year to signal the firm is healthy and to escape limitations that were imposed with the money, Chief Financial Officer David Viniar said.

“Operating our business without the government capital would be an easier thing to do,” Viniar said today at a conference hosted by Credit Suisse Group AG in Naples, Florida. “We’d be under less scrutiny and under less pressure.” He added, “It would send a very good signal” if the firm could repay the money.

Gee, ya think?

H/t lolfed

Great point LeftTurn. Now you're speaking my language. I love this cap as a strong disincentive for accepting more government capital (a practical benefit).

I only worry about it's long term impact on the quality of upper management. I really think the government can do alright on this investment long-term if it doesn't get in it's own way. How about a two-year cap on current employees (wouldn't apply to new hires)?

Cleek, they wouldn’t pay you $500K, because you would do much worse

that's probably true - i wouldn't be caught dead with my hat in my hand, begging the government for billions in cash so i can pay my co-failures billions in bonuses after betting the bank on worthless paper.

i just don't have what it takes to be a great Capitalist Captain of Industry these days.

stick to cheap shots.

ouch! i been zinged.

What right do any of you have to determine what the executive market should pay?

it's not about the fncking "executive market". it's, as everybody else has already explained to you (and which you should be able to figure out by yourself), about the fact that we've shoved hundreds of billions of dollars into these particular companies.

Huge industries need to be led by huge leaders; skilled, competent executives that know what they’re doing. If they make a hiring mistake, they will pay the price; go bankrupt or worse, lose stock price or go under. That’s how it works.

wait. ok, you're trolling, right?

because there's no way you could actually write such a thing, given the events of the past six months.

I only worry about it's long term impact on the quality of upper management.

How about: you make more money if you don't run the company into the ground.

Sheesh.

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