The New York Times published a critical
article yesterday about the effectiveness of Obama pay czar Kenneth Feinberg's
recent salary cuts and restrictions. On Feinberg's cuts, the consensus seems to be that they are useless in fact, but admirable in spirit. Americans want to see Wall Street executives get punished, and that's what it looks like—until you consider the facts.
Earlier this month, Feinberg moved to link pay to performance among the high-level executives at the seven corporate recipients of federal bailout money; he mandated that large portions of their salaries be paid in company stock, and that they retain the stock for several years. Feinberg also said that he hoped his new restrictions would inspire companies outside of his jurisdiction to follow suit.
But many Wall Street companies had already enacted similar practices. In 2008, Morgan Stanley restructured its executive pay so that higher-ups received 65 percent of their earnings in company stock. Around the same time, Goldman Sachs capped cash salaries at $220,000 for partners, who are also required to retain 75 percent of the firm's stock until retirement.
But even if Wall Street is taking the initiative on pay-to-performance alignment, The Times says these measures will do little to curb executive profits, even among the companies that are under Feinberg's control. If you combine their cash and stock salaries, 14 of Citi's executives are still going to make $5 million to $9 million this year. And if the companies are able to recover, those stocks will only be worth more—which is fair, but might further enrage Americans that blame big banks for the recession.
And a lot of the compensation matters are, unfortunately, outside of Feinberg's jurisdiction. Bank of America's lame-duck CEO Kenneth Lewis agreed to go salary-less this year at Feinberg's request, but Lewis will still receive a $70 million retirement package. In the ruins of Wall Street, he'll come out a winner. Similarly, AIG is going to give out $200 million worth of bonuses next March because of contractoral obligations, another loophole Feinberg can't touch.
But instead of putting all the weight on Feinberg, experts are pushing to give power to the company shareholders. Congress is in line to approve a "say on pay" bill, which will allow shareholders to offer advisory votes on executive compensation, but that's only a first step. If we really want Wall Streeters to clean up their acts, advocates argue, we should allow majority shareholders the power to vote executives on or off the company boards, thus limiting directors' authority and making them accountable.
How happy are you with the pay czar's performance? What changes do you want to see on Wall Street?
Comments (3)
i believe that i went to wall st or past wall st before
You said that the pay czar could not interfere with contracts at AIG. But that is not exactly true now is it? Didn't Ken Lewis have a contract to be paid X amount of money? Didn't the pay czar just tell him that he can't be paid at all? I realize that Ken Lewis did it "willingly" but I think there was a little bit of coersion there.
For that matter, the CEO's of all those big firms, should have pay contracts that include bonuses. If the pay czar just limited CEO pay, he just interfered with a contract. So tell me again, why can't the pay czar stop AIG?
Here is what I want to see. I want to see capitalism. I have yet to see it ever in my lifetime. I want companies to go bankrupt if they make stupid choices. I want companies to be able to charge whatever they want for a product. I also want to see unions go bye bye. If you are unable about your working conditions, find a nother job.
@ProudToBeAChristianFruitcake@xanga - So people being able to vote to organize and collectively ask for better conditions is not part of your free market. You don't want Capitalism, you want Corporatism. Exactly how would unions be gotten rid of? Oh, right, it would have to be a law, wouldn't it? You are all for government intervention when it suits your beliefs.