Yesterday, Kenneth Feinberg, the U.S.’s new Pay Czar, announced that the cash compensation of top level execs at banks the received bailout money would be cut by up to 90%. Total compensation would be decreased by about 50%.
My first thought was to wonder how anyone could live on 10% of their previous salary. I sure couldn’t. Granted, I know that 10% of a multi-million dollar salary is a lot of money. But these execs probably have mortgages in the thousands of dollars per month, too. And to suddenly cut their salaries by 90% might just send them into bankruptcy.
My second thought was that these companies chose to accept bailout money, and that money came with strings attached. This is one of those strings, and the execs are going to have to play by the new rules.
And after thinking about this situation a bit more, I’m wondering how many of these high level executives are going to stay at the bailed out banks, when they can go to other banks and make more money. And if they leave their current banks, how are the bailed out banks going to attract the kind of executive that will be able to turn things around, so the banks can pay back the government?
This is a new era of government for the United States. I’m not aware of any time in history, where the government had the authority to determine pay rates of publicly held companies. Of course, I’m also not aware of any other time in history where the government used taxpayer dollars to bail out failing companies, either.
I don’t like the government getting involved in setting salaries, even if the salaries are ridiculously high. But because of the bailouts, they are involved.
Which leads me to the point I made when this all began. A year ago, I said the following about the bailouts:
My other fear is that rather than fixing the problem, this bailout will just postpone the real consequences of bad decisions that were made. And rather than paying for them now, our children will have to pay the consequences later.
I don’t think the bailouts were a good idea in the first place. They only postponed the inevitable. Our country’s financial situation is a mess. If talented execs move to other companies that can pay them more, and these bailed out institutions can’t attract strong execs to get them through this mess, how many of these companies will fail, despite the bailout?
And what happens if these companies are never able to pay back the government? Will the government eventually force the companies to liquidate? Will the companies be stuck with pay caps for an indefinite number of years?
I didn’t like the bailouts, and I don’t like an appointed “Pay Czar” determining how much people are allowed to earn. I understand why he’s capping salaries of these companies, but I don’t like the fact that taxpayer money is involved in the first place. I’m not comfortable with our country moving in this direction.
How about you? Do you think the Pay Czar should be able to set salaries?
Photo by ~MVI~(on disaster response mode).
{ 29 comments… read them below or add one }
If you play with a snake, don’t be surprised when you’re bitten.
The bailouts were a bad idea altogether. I think the government is overstepping it’s bounds, but that’s the nature of a powerful government and that’s why our Founding Fathers structured our Constitution to give maximum power to the states and to the people.
Now, the fourth branch of government (The Federal Reserve) wants to determine pay structures at more financial institutions — whether they received bailout money or not. The Fed claims it’s to make sure “risky practices” aren’t rewarded. But reward is exactly what the Federal Reserve did by providing the bailout money in the first place.
The people who voted for Obama are getting exactly what he promised. Change. Remember, “America is a great country….now help me change it.” The government shouldn’t have a say in what people are allowed to make with regard to salary level. I do think that there needs to be some standards in place, but that would be the job of the trustees or overseeing boards within the institutions. Government tentacles are going to be stuck in every facet of our lives and we are no doubt giving up our liberties. What astounds me is that the people of the United States are just sitting back and letting all of this happen. I’m waiting for the day when people will wake up one morning and say to themselves, “Whatever happened to the United States? It doesn’t exist anymore.”
Once the banks accepted the bailouts, they came with the strings, and while they might technically be publicly held, the govt. holds the pursestrings and was ‘allowed’ to do whatever.
I personally don’t believe the govt. has any business in any public business… I think it’s the short road to communism or socialism… we have been on the way for awhile and this will just get us there even faster, unfortunately.
Allowing banks to govern themselves directly led to the worldwide financial collapse. They knew there would be strings attached to the bailout money. So although I am not comfortable with the government cutting salaries of bank executives; we know what can happen if we let the banks regulate themselves.
I thought beside salary cuts, compensation packages of top executives will be based on how well the bank performs – the top bank executives’ salaries would be tied to overall (long-term) performance of the bank’s stock. Pay for performance – now there’s a novel idea!
I referenced Proverbs 22:7 in a conversation with a friend about this:
The rich rule over the poor, and the borrower is slave to the lender.
The simple fact is by taking this money from the government, they’ve lost their freedom.
If they weren’t currently in debt to the government, it would be wrong. The government shouldn’t interfere in this kind of stuff.
But they took the money.
It’s just like when you loan money to a relative and you watch everything do and every dime they spend.
The difference is government can step in and do something.
People forget that the financial services industry is the most heavily regulated industry in the US … and has been for years. All those “toxic” assets were encouraged by the quasi-federal agencies, Fannie Mae and Freddie Mac, through their willingness to purchase those assets and rebundle them into CDO’s.
Regulation didn’t help because the fox was guarding the henhouse. Who regulates the regulators?
Another thing that bothers me about this: Only a few of the banks were unstable at the time of the “bailouts,” but the gov’t forced all of the largest of banks to take the TARP money because the gov’t believed the whole system was shaky.
Now, they are dictating to even the healthy banks pay, etc and citing the fact the banks “needed” bailout money as the reason why.
No wonder so many of the banks are paying off the gov’ts investment. “Appearing before the Congressional Oversight Panel for Tarp in Washington, Herbert Allison, the assistant secretary for financial stability at the Treasury department, revealed that of the 679 US banks that received Tarp funds, 30 have fully repaid government money and paid more than $6 billion in interest and additional fees to the government.” http://www.risk.net/risk-magaz.....-repayment
I worked at a major media company for ten years. The top three execs regularly banked millions of dollars in salary and bonus while their employees were robbed of health benefits and huge chunks of their retirement funds. One year, the Big Three made over $150 million while the company lost 18% of its stock value.
This is a fact of life in the private sector, sure, but I’ll be damned if the government allows my taxes to support the CEO lifestyle. If banks accepted federal bailout money, their brass should be beholden to whatever regulations are placed on their personal earnings. Obama’s doing the right thing here.
It’s just one more step on our road to socialism. Too much government these days – in a few years you won’t be able to find anyone who’ll admit to voting for this “change”. Our great country is on a frightening path. Whose salary is next? Yours? Mine? Where does it stop?
I admit to voting for Obama and I will not deny it later. I think it is fine that the executives pay is cut. We are only talking about 175 people or so and from what I understand some of that cut will be given back in the form of stocks in their company so that they have a motivation for making their company succeed and can finally pay back the government. If the talent leaves and the companies fail, well… then maybe we should have let them fail in the first place. I didn’t like the bailouts done under Presidents Bush or Obama, but we have them. I think it is a fair approach.
I too wondered how anyone could suddenly change their lifestyle to making only 90% of their expected salary but I don’t feel sorry for them as many have had to change to making only 50% of their salary on unemployment. As far as the execs going to greener pastures, aren’t they the ones that got their banks in trouble in the first place? So I say “good riddance”. Only a foolish corporation would hire them into a position with that much power again. Perhaps there will be enough of a salary in their abandoned positions to attract people who were able to help their banks avoid needing a bailout. Those are the people we want to see in the top positions now.
This is just another sympton of a government that has gotten too big and too powerful. It has happened under both Democrat and Republican rule. But this administration has shown itself to be hostile to free markets.
I have made the decision not to vote for any incumbent of either party in the next couple of elections. I guess there is no way to discuss a topic like this without bringing in politics.
Yes some of these banks made stupid and unethical mistakes. And yes government involvement encouraged those mistakes. They should pay a price for that. That price should have been the loss of customers and firing of the people responsible by the stockholders of the companies.
But, they took the money and now they have to live by the rules the government imposes on them. Just hope is serves as a warning to other companies to think more than twice about doing the same thing in the future.
It should also serve as a warning to us Americans to live within our means. And to be wary when someone says “we’re from the government and we’re here to help”.
Please remember some of these CEO’s made the choices that led to their companies needing a bail out. They may have been pressured at times, however at the end of the day the CEO’s job is to make sure the company makes good decisions. Most CEO’s who make these kind of choice would have been fired. So I don’t feel bad for them.
Instead of discussing the pros/cons of CEO pay cuts, why are we not concerned about separation of private industry and state? Where is the concern about the unconstitutionality of our President’s actions?
Regardless of their poor choices, these CEO’s are working in private industry. No federal employee, whether “Pay Czar” or President, has a right to impose pay cuts on private industry, or to fire execs in private companies (as Obama essentially did to the CEO of GM in March 2009) — and the US government has no constitutional right to own private companies (e.g. GM).
This country has bigger problems than pay cuts, folks.
You hit the nail on the head. That is the root of the problem. We ran into trouble the minute the government stepped in and essentially bought the companies with taxpayer money.
I have to agree with Aggie CO and Jean…the executive salaries at these banks is the least of our worries. The fact that we own these banks, that is a huge problem. We own shares in GM and Chrysler, too…scary, scary stuff. The line between what is public sector and what is private sector has been blurred. We had no business stepping in…the bail outs were just the next step in a long train of bad decisions.
Obama has admitted that he’d like to restructure our Constitution–that it is inherently flawed and that our Founding Fathers didn’t know what they were doing. I think that is scary and I can’t support it.
What is scary is that there are A LOT of people who CAN support it…and him.
I really don’t like the government getting involved in setting salaries for execs of private companies. Yes, the companies accepted TARP money, but for many of them they weren’t given much choice. This is just another power grab for the administration, and this isn’t going to help anything – honestly it’s just a big PR move.
In fact, this may end up hurting some of these companies. I was reading in another article today that at two of the biggest companies this move has already prompted almost half of the best and brightest of the execs to jump ship for companies that didn’t take TARP money, so they can be compensated in line with the industry, and not worry about government interference.
I really think this move, and the bailouts in general, are just bad ideas.
Sorry, folks, but I agree with Kris above. The bottom line is that these CEO’s and other overpaid employees are being paid with OUR tax dollars. I don’t want my tax dollars paying for their country clubs, ok?
When you are the boss the buck stops with you. These CEO’s need to be held accountable for what goes on in their corporations. They should have been watching their employees just a bit more closely, don’t you think?
And, if knocking them back to 10% of their salary gets their attention, so be it. In case, you haven’t been reading – nothing has changed on Wall Street.
As for pushing them into bankruptcy, no way. These guys have been paid MILLIONS for many years so I wouldn’t worry that they might have a little cash flow problem. Come on, seriously. Rick Wagoner of GM is doing just fine, thank you. I would love to have their reduced 10% salary – as would many others, I’m sure.
And, the “brain drain” argument – please… if they don’t want their jobs, there are plenty of other talented people just frothing at the mouth to get their jobs.
I wanted to add to this..something I read this morning – and of course, Mitch Albom says it best: http://www.freep.com/article/2.....1001/rss01
There is something we can do. Join asamom.org. It is a national group of moms and grandmoms who insist the govt. quit spending our childrens money. Almost every state has a group. We are planning on taking a million moms to DC next Aug. to voice our concerns. Please visit the site and if you like it,pass it on.
Allowing the government to penalize (tax) through reduced compensation members of a privately held entity that accepted government money is a slippery slope, in my opinion. What about defense contractors? They accept government money. What about any organization that receives a grant for research, or government subsidies. Is the Pay Czar going to start cutting salaries there, too?
My second issue is that an unelected, unconfirmed member of this administration has the authority to act alone in issuing such an edict. How did these czars get in their positions? Who pays their salary? How much do they earn? Do they have more or less power than cabinet-level appointees? These are the tough questions people (namely Congress) should be asking.
1. Let’s not forget which administration initiated the bailouts in the first place. Hint: It wasn’t the present one…
2. Like it or not, the bailouts were needed. These under-regulated banks were allowed by previous administrations (plural) to get too big to fail — meaning that the failure of one would have systemic results. We should all be frothing at the mouth to see legislation put in place to make sure that single PRIVATE companies cannot put our entire financial system at risk. Where’s the outrage on that?
3. Most people here seem to be arguing about the bailouts in the first place. That’s a little bit like arguing about whether or not we should have reinforced the barn doors before the horses got out. The horses are out, so now what?
4. I agree with the others: I don’t want my tax dollars funding huge salaries for inept executives. My experience is that there’s not such a big difference between those who earn 6 or 7 (or 8!) figures and those who earn just 5. These execs are no more entitled to this kind of compensation in the first place than welfare moms are entitled the their handouts.
5. Erin said: “Obama has admitted that he’d like to restructure our Constitution–that it is inherently flawed and that our Founding Fathers didn’t know what they were doing.”
What? Can you please cite a source other than Faux News for this?
This is just the golden rule, he who has the gold makes the rules and right now it’s the US government making the rules.
These bankers would have been out of a job if they weren’t bailed out by the tax payers. Before they pay themselves bonuses, they should be paying us back first.
Don’t be too sure there are a whole lot of jobs for bankers out there. Over a 100 banks have failed so far this year and the number is rising. Many industries have taken a haircut lately, so now it’s the banking industries’ turn.
I’m excited to see if the community actually realizes the pay cuts are just for the TOP 25 employees of these organizations.
Folks on Wall St. are going to get paid this year simply b/c revenue is back to 2007 levels, and there are 15% less people to pay.
The economy is back folks! Just like that, all is good in the world again. Unbelievable.
thanks for the information great food for thought, its amazing how much we don’t want to account for?
Don’t confuse Wallstreet and the stock market with the economy – they are two different things. When you hear the talking heads on TV telling you that it’s another jobless recover take the time and think about it, is there really a recovery if no jobs are created?
How are people going to spend more unless as a whole they are making more?
If you don’t create jobs during an economic expansion (i.e. recovery), they those jobs are lost permanently.
An that leads to the understanding the current run up on the stock market is not driven by job growth and an expanding economy, it’s financially engineered through the creating of a “bubble.”
This time the bubble is being driven by the creation of government debt through the printing of money. Before that it was the personal creation of debt through artificially low interest rates.
So far this year my pay has been cut 14%. That doesn’t count the frozen pension, discontinuation of 401k matching, and health benefit cost increases. And you know what? I count myself lucky to still have a job. If those who played out unnecessary and greedy risks are sad that they accepted money from the government and now they don’t get paid as much I don’t have any sympathy for them. Wah. Maybe they should think about being happy they still have jobs, too. And any bank that would hire them after their irresponsible actions probably needs to rethink their HR perspective.
Executive pay should be in line with performance and if cutting salaries is a move in that direction, I’m for it. Even if salaries are cut, my guess (without knowing all the details) is that bonuses and stock options will be there if they perform. Besides, it’s absolutely criminal that the banking and mortgage industry was so greedy that they got us in this mess. I wouldn’t care if the government legislated that all executives at all public companies could earn only a limited salary based on performance. Maybe I’m cynical but it seems like every time we turn around, there’s some other irresponsible and dishonest CEO. Take for example, Bruce Karatz, former CEO of KB Homes, one of the biggest homebuilders in California. He was just indicted in March on 20 counts of fraud and making false statements regarding backdating of stock options between 1999 and 2006 during which time he earned $232 million! So far, he’s been forced to return $20 million. What a joke! And, in the meantime people are now losing their homes left and right…