Am I still living in America? It seems that everyone believes that the government must "do something" about executive pay. I have a suggestion, let's do nothing at all!
Executive compensation, and leaving such matters to the shareholders, is NOT, I repeat not, what got us into this mess. Deregulation wasn't the problem either. Let's not forget what caused the financial crisis — borrowers who never cared about the consequences of their loans first and foremost, and secondly, the institutions that relaxed standards (sometimes at the behest of government) in order to give out these loans. This was the problem. Everything else we are seeing is a result of that. You could cap an executives pay at 1 dollar a year and that wouldn't change the mess we are in.
But there is a deeper point here that people are missing. Obama isn't just talking about bailed out companies:
"This is America. We don't disparage wealth. We don't begrudge anybody for achieving success. And we believe that success should be rewarded. But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."
Especially, meaning not only those companies subsidized by taxpayers, but any company that has failed should not be rewarding executives.
As part of Obama's executive compensation "plan" is "A Treasury-sponsored conference on a long-term overhaul of executive compensation" which is not limited to companies that are getting government bailouts. We aren't just talking about the short term here, not just talking about companies bailed out by tax payers. This is extremely serious business.
Carly Fiorina wrote a great article on CNN today saying that caps aren't needed — transparency is. And I agree with her. Shareholders should be involved in these decisions. Not President Obama. Of course, looking at the comments below the article, Carly is roundly criticized and her performance at HP brought out as a counterpoint to her argument. Of course, there is the messenger and the message. This type of character attack, ignoring the argument and focusing on the person making the argument, is something I have come to expect from a certain half of this country for the last eight years.
Article comments
— go to most recent comments1 - Dave Nalle
Many good points here, OA, but you left out the biggest one.
If we cap executive salaries, how can we expect to attract the best talent to these companies.
When a company is in trouble it needs the smartest executive it can get. If we cap salaries at below market rates for the best executives, why would they take those jobs. They can go work at a non-failing company where less will be expected of them and earn much more money, so why help out the failing company?
Is the plan to fill these jobs with dewey-eyed Wharton graduates and to hope we get lucky?
Dave
2 - Dr Dreadful
Good to see you back writing, Obnox. Where've you been?
I think Obama's point was not that all failing companies' CEOs should have their salaries capped. He has no power to do that, obviously. But he does if the companies come cap in hand to the government. It's not so much that he thinks it will make a difference to the companies' performance, but that there should be seen to be consequences for incompetence. Plus it doesn't look good for the President to criticize struggling corporations for going on spending junkets and then happily continuing to pay them mega-salaries out of the taxpayer's purse.
Dave's assertion that capping salaries will turn off the most talented executives sounds a bit shaky to me. If someone's more interested in earning better money elsewhere doing less work, I'm not sure that's the sort of person you're looking for to turn around a struggling company.
You want someone with talent, energy and integrity, and for such a person monetary remuneration wouldn't necessarily be the prime motivation.
3 - Dr Dreadful
And as a Citi shareholder, Obnox, what think you of the fuss du jour, which involves Citigroup's planned sponsorship of the Mets' new stadium?
4 - Dave Nalle
You want someone with talent, energy and integrity, and for such a person monetary remuneration wouldn't necessarily be the prime motivation.
Is the thrill of rescuing a failing company outweighed by the possibility of getting a permanent black mark on your record for presiding over its failure even when backed by government funds?
Dave
5 - The Obnoxious American
Doc,
I've been working really hard at my job, etc etc. Won't bore you with the boring details. Thanks for asking though, hope all is well with you.
One of the points you raised, about companies with cap in hand is fine, if that is what this would be limited to, and an agreed part of a bailout. But it's not limited to just failing companies given Obama's own rhetoric.
Dave's absolutely right about losing the best and brightest. It won't be a migration from bad companies to profitable ones. It will be a migration from American companies with pay caps to companies overseas where there are no caps. Think about that one for a minute. Mediocrity here we come!
To answer your question, my thoughts on the new Mets stadium are, it's a shareholder concern.
I was never a big believer in these types of marketing opportunities. I actually think most marketing people are totally full of it. And I've been to Shea, and Yankees stadium, and Giants stadium. Why are we rebuilding these wonderful, historic landmarks of sports legacy exactly?
But it's a shareholder concern, nothing more.
6 - Cindy D
Hi O.A.,
Am I the only one that sees this for what it is? Namely the end of America as a land of opportunity?
Of course not! Just buy a lottery ticket like everyone else.
7 - handyguy
I think you're reading a lot into a single use of the word "especially."
This president has not thus far been one to use populism cheaply. From his campaign right through to today, he chooses carefully when and how to align his statements with public outrage about an issue. This was one of those instances, and his well-rehearsed anger was superbly effective. But it did seem to me to be aimed entirely and solely at companies receiving big federal assistance.
And yet...there is a part of Wall St culture that encourages risk by rewarding it.
Michael Thomas spewed forth his own very effective anger in this week's New York Observer:
Unfortunately, Mr. Obama missed the point. He emphasized “How much?” instead of “What for?” " which is the big, dirty truth about Wall Street. A truth that needs to be universally acknowledged: namely, that the size of a bonus in the finance trades (considered broadly) will invariably be in direct inverse proportion to the moral, ethical and economic utility of the work performed. Write that down, students.
This is the great and true “asymmetry” " a word much in current use " of Wall Street, a disconnect that is as much philosophical as financial. The big “performance-based” payouts went to the people on the trading-banking frontline who broke their banks and ours: the animals who generated the subprime/Alt A mortgages and the mortgage-backed CDOs, or built up the “naked” swap positions and the fat private-equity and hedge fund loans and fees and the SIVs in which the crap could be hidden.
These are the people who deserve to get it in the neck"along with their complaisant chums in Washington.
8 - Baronius
OA - I'm glad to see this article. I just replied to an article that takes the other side of the issue. I don't want to make parallel threads, so let me just say that you make some really good points here.
9 - The Obnoxious American
Handyguy,
Quoting from my article:
"As part of Obama's executive compensation "plan" is "A Treasury-sponsored conference on a long-term overhaul of executive compensation" which is not limited to companies that are getting government bailouts. We aren't just talking about the short term here, not just talking about companies bailed out by tax payers. This is extremely serious business."
Am I really reading into it, or just reading it.
"The administration also will propose long-term compensation restrictions even for companies that don't receive government assistance, Obama said.
Those proposals include:
Requiring top executives at financial institutions to hold stock for several years before they can cash out.
Requiring nonbinding "say on pay" resolutions - that is, giving shareholders more say on executive compensation.
A Treasury-sponsored conference on a long-term overhaul of executive compensation."
For realz
10 - handyguy
None of the three specifics bulleted in that news article from AOL you quote are nearly as scary as your rhetoric would imply. Not one of them would prevent America from continuing to be the land of opportunity. And the middle one parrots you and your beloved Carly.
11 - Dr Dreadful
And I've been to Shea, and Yankees stadium, and Giants stadium. Why are we rebuilding these wonderful, historic landmarks of sports legacy exactly?
Interesting question and one that has (for once) not entirely to do with money. New stadiums are certainly a fad right now, but there are also practical factors, if the experience in British soccer is in any way comparable.
Of the 20 teams currently in the English Premier League, eight play in brand new stadiums, at least two others have advanced plans to move to new homes, and all of the rest have rebuilt and/or refurbished their grounds extensively. A lot of the old stadiums were built in an era before widespread car ownership and when little was thought of cramming 50,000-80,000 people into a cramped arrangement of rickety grandstands every week. Because of the fan base, teams were originally based in working-class, industrial areas, and such neighborhoods struggle to cope with the influx of modern traffic on game day. In the face of that, new brownfield sites on the outskirts of town where better transport links can be incorporated into the construction seem very enticing.
Then there are safety considerations: after the 1989 Hillsborough Stadium disaster, new laws were brought in mandating that all top-level stadia be all-seater (previously most spectators stood on open terraces). In order to comply, stadium capacities got drastically reduced and clubs could no longer accommodate all of their fans. In many cases it came down to a choice between rebuilding to increase capacity, moving if there was no room to rebuild, or going under.
Of course, as with US pro sports teams, there are clubs with powerful historical ties to their stadia. It's difficult to imagine Manchester United not playing at Old Trafford or Newcastle no longer at St James' Park. In the same way, the Cubs leaving Wrigley Field or the Red Sox tearing down Fenway Park would be almost unthinkable. There's been much opposition from English fans to the new stadium boom. But in most cases, they seem to come around when confronted with their team's nice shiny new (and in most cases corporate-branded... that's where the money comes from to do all this building!) home.
12 - handyguy
There have been numerous examples of top executives getting either huge bonuses or gigantic golden parachutes at the end of bad years for their companies. Does this make sense? Yes, shareholders should have a say. In many cases, however, they do not.
If an exec lays off 10,000 underlings, should his own bonus be preserved? You might find that there would be far more than 10,000 saying, No Way.
Here's a quote from another obnoxious American who makes more sense to me:
"But you know what? In 2006 when the Democrats were in the minority, I had a bill to try to [curb executive pay]. I didn't get much attention from the media.
In 2007 the House passed a bill that I sponsored in the Financial Services Committee called "say on pay," which required a referendum by shareholders on any executive compensation. Once again, we were kind of ignored. So, frankly, the House and the committee I chair have been ahead of a lot of other people on this.
I welcome the fact that people now are joining us, and yes, in 2009 we will pass, at the very least I believe, legislation that says you have to have a [shareholder] referendum on all forms of compensation: bonuses, golden parachutes, stock incentives, as well as salaries."
-- Barney Frank in Business Week, Dec 2008
13 - Hope and Change?
Oh nooooo....another one of Barry's nominees who didnt pay their taxes...
Solis Senate Session Postponed in Wake of Husband's Tax Lien Revelations
A Senate committee today abruptly canceled a session to consider President Obama's nomination of Rep. Hilda Solis to be labor secretary in the wake of a report saying that her husband yesterday paid about $6,400 to settle tax liens against his business -- liens that had been outstanding for as long as 16 years.
Oh the humanity!!
14 - Baronius
OA - You used the word "shareholders". That reminds me of recent bit of Orwellian rhetoric, which I barely even noticed as it came into fad - the word "stakeholders". Anyone can be a stakeholder; all he needs is an interest in the company's results. That includes shareholders, executives, employees, government regulators, and public interest groups. By shifting attention from shareholders to stakeholders, we devalue the meaning of ownership, putting the owner of a company at an equal footing with people who are often his adversaries.
15 - Hope and Change?
Baronius...thats true. My experince even working with large corporations there is this trend to involve all internal and external stakholders.
So the people putting in their money and risk many times have to share with people who have no skin or risk in the game...
16 - Matthew T. Sussman
"And I've been to Shea, and Yankees stadium, and Giants stadium. Why are we rebuilding these wonderful, historic landmarks of sports legacy exactly?"
[dies laughing]
17 - Glenn Contrarian
OA -
Of course, of course! THAT's why our economy was SO horrible before 1980!
Our economy was so WONDERFUL when the top marginal tax rate was 25% until 1931, wasn't it? And then that EVIL FDR raised it to 63% the next year - that really made things worse, didn't it...since our economy turned around and began growing once more - it grew 7.7 in 1934!
And our economy TANKED for nearly a half century, didn't it? Especially when it was over NINETY PERCENT from 1951 to 1963 - yeah, HORRIBLE economy we had then, huh?
Yeah, our nation's economy was HORRIBLE indeed until Reagan came along, slashed tax rates (which the TRUE Goldwater Republicans did NOT do), and introduced America to the golden wonder of deficit spending! And look how WONDERFUL our economy is now!!!!!
"Reagan proved deficits don't matter."
Dick Cheney
P.S. The top marginal tax rate from '17 to '21 ranged from 77% to 73%. The next three presidents - all Republicans - took that down to 25% by 1925 and kept it there...and what happened? Depression. And FDR comes along and jacks the top marginal rate back up to 63%...and what happened? Recovery and progress.
18 - Clavos
I deplore the administration's plans to move beyond interfering in the business decisions of private corporations which receive government "bailouts" to those that don't. Such decisions as executive compensation are internal matters and should not be subject to government regulation.
If an exec lays off 10,000 underlings, should his own bonus be preserved?
Depending on the outcome of the layoff, and its effect on the firm's bottom line, shareholder dividends, etc., it's possible he could be receiving the bonus for the layoff.
In a private corporation, executive (or anyone's) bonuses are internal matters; no one outside the corporation should have any say in them.
19 - Clavos
P.S. The top marginal tax rate from '17 to '21 ranged from 77% to 73%. The next three presidents - all Republicans - took that down to 25% by 1925 and kept it there...and what happened? Depression. And FDR comes along and jacks the top marginal rate back up to 63%...and what happened? Recovery and progress.
That is such a total misinterpretation of events as to be staggering in its wrongheadedness.
Just one point -- there was NO "recovery and progress" under the New Deal until WW II pulled Roosevelt's jackass "recovery" out of the fire for him. The war ended the Depression, not Roosevelt's mismanagement.
20 - CT conservative
If the government is permitted to cap CEO salaries, this will take away the initiative and the will power to rebound and become over-zealously successful. Just because a business has one bad year; how can you deny the fact that many of these CEOs have propelled their companies to past glories in prior years? Just because they take a hit for one year, they should not be penalized.
There is no need for the government to install a glass ceiling. This pork-bill was not designed to stimulate the economy and create new job opportunities...it was to promote the liberal agenda as a wolf in sheep's clothing. I hope it rots.
21 - The Obnoxious American
Matthew,
You got me there buddy. I was referring to 1986, as well as all those subway series where the yanks beat the mets. Also trying to be somewhat politicially correct - as embarrased as I am to say it, there are some mets fans in my family...
22 - Glenn Contrarian
Clavos -
At least I presented some proof of what I posted, that the RECOVERY from the Depression was already well underway in 1934. I can also provide other proof in terms of overall GDP, lessening unemployment...and frankly, I'm not sure what standards you want to go by when determining just how long the Depression actually lasted.
If you're going to claim that the Depression lasted until the war, don't just CLAIM it, and don't just give this or that nebulous reference...PROVE it with the NUMBERS.
And it's pretty hard for you to refute how the track of the top marginal rate seems to give a very good indication of the performance of the economy after the delayed effect of the tax increases and decreases is taken into account.
23 - Glenn Contrarian
CT con -
"just because of ONE year"?
Dude...you haven't been paying attention, have you? And you sure as heck ain't one of those who had their jobs shipped overseas while your CEO took in FOUR HUNDRED TIMES your salary (which disparity in salaries was matched only at the beginning of the Depression).
24 - Brunelleschi Oil Ltd
Leave it to a bunch of conservatives to argue that someone making many times what they do isn't making enough!
I have a hard time weeping for the poor soul that can only make $500K....
If you coming begging for government help, you have no room to bitch if government caps ridiculus expenditures.
25 - Baronius
What would a cap on bonuses really mean? It would take the lawyers and accountants about an hour to get around it. Executives would have a $100k salary, a $500k bonus, and a $20 million "entertainment, housing, and investment stipend" or something. That's how employers started paying for medical insurance, during the 1940's salary caps.
Of course, 60 years later, we'll have people calling for mandatory employee housing stipends, and you'll see "A Home Is a Right" bumper stickers.