Regulating Executive Pay

By Big Tent Democrat, Section Economy
Posted on Sun Mar 22, 2009 at 08:58:29 AM EST
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Booman writes:

I'm just guessing, but I think this story is going to get a lot more favorable treatment in Left Blogistan than the toxic assets plan received yesterday.

The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said...

Let me be the first to disappoint Booman. I do not want the government regulating executive pay, except when the government is propping up a company through a bailout. I do want executive pay to be fairly taxed in the interest of the common good of the Nation. What I do applaud about what is being reported is the intention to prudently regulate an industry, the financial industry, that turns out to be more like a public utility than a typical private sector concern. More.

Yesterday, I was discussing the issue of the tax on the AIG bonuses with MaryB, a very astute commenter. The point I was trying to make to her is that the issue about AIG and other bailed out firms is that they are dependent on their survival on the largesse of the federal government. In those circumstances, payment of any bonuses is extraordinary and requires strong justification. Sympathy for person who make 250,000k/year is all well and good, but if you are looking to provide sympathy, you can consider the millions out of work or with less work than they need to survive first.

We are in a moment of great economic crisis and upheaval. Economic pain has been scattered all over the country and at all income levels. SOME people in the country are better equipped to handle it than others. Right now, the Obama Administration plan is to devote almost all of its energies in the financial crisis to making sure Wall Street and the "Masters of the Universe" can avoid all pain. This was true regarding executive pay in bailed out firms and it is true regarding counter party payments from bailed out firms.

I am a strong adherent of the free market and free trade. But that is not what is going on in the government's response to the financial crisis. What the government is doing is stepping in to make sure the "Masters of the Universe" and their financial concerns are put back together again with no repercussions. It is the opposite of a free market approach.

Of course the financial system must be "saved." But how it is saved it the question. There is real doubt that the Obama Administration is adopting a policy that will, in fact, "save" the financial system and that its approach is best for the country.

I wish folks who scoff at the people who are critical of the Obama Administration approach (critics like Krugman, Stiglitz, Roubini, Dean Baker, Brad DeLong and Simon Johnson) to the financial crisis could consider the merits of the critique instead of engaging in knee jerk defenses of anything Obama.

Perhaps all the critics are wrong and Obama, Geithner and Summers are right. Let's debate the merits. Instead of engaging in ad hominem attacks. If you support the Obama Administration's approach, say so and say why. If you disagree with the critics, say so and say why.

Let's accept that this is indeed uncharted waters and we have no encyclopedia to go look up the answer on this. No need to be nasty about it all.

Speaking for me only

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Regulating Executive Pay | 87 comments (87 topical)

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Well BTD, I agree with your point (5.00 / 2) (#1)
by andgarden on Sun Mar 22, 2009 at 09:14:00 AM EST

that none of these bonuses could be paid if the government hadn't bailed out AIG. But I also take MaryB's point about the extraordinary nature of the 90% tax.

I could go either way on the remedy passed by the House this week, but personally I don't think it will get past the Senate. Not because I think it wouldn't pass, but because I think Obama indicated on the Tonight Show that he didn't support it.

The answer is (5.00 / 3) (#5)
by Steve M on Sun Mar 22, 2009 at 10:10:08 AM EST

better disclosure and more empowerment of the shareholders. Let them approve or disapprove these comp packages. The government can safely stay out of it once those structural reforms are implemented.

It never made sense to me how shareholders (5.00 / 1) (#8)
by Militarytracy on Sun Mar 22, 2009 at 10:29:01 AM EST

weren't a part of approving these giant salaries and bonuses.


That's because the large majority (5.00 / 1) (#9)
by inclusiveheart on Sun Mar 22, 2009 at 10:44:08 AM EST

of individual shareholders are invested through programs like 401ks where someone else is managing their investments. Very few, in terms of percentage, of the shareholders in he market are offered the opportunity to vote on anything anymore.


Yes (5.00 / 2) (#11)
by Militarytracy on Sun Mar 22, 2009 at 10:50:22 AM EST

And in my opinion the whole 401k concept is not a good one. I never felt it was that great to begin with, it is never a good idea to just hand your money over to someone else for them to worry about. America in general really fell asleep at the investment wheel. It's just me but I now even more firmly believe that it is important for people to invest in things they BELIEVE IN and make the time to do it! Believe in alternative energy? Find an investment to your taste. And companies need to have to prove their investment worthiness.


Unfortunately, Congress has (5.00 / 3) (#15)
by inclusiveheart on Sun Mar 22, 2009 at 11:15:06 AM EST

set it up so that you can't just go buy and manage your own stock portfolio and call it a "401k".

In a way, the 401ks, IRAs, Roth IRAs, etc. are a good argument for government's ability to regulate to some degree or another the inner workings of publicly traded companies including compensation packages for the executives. Not that I am supporting that particularly, but those financial instruments are a government giveaway to Wall Street and publicly traded companies in a sense. Seems to me that we should be able to expect some protections in return for our trouble.

I had an investment that I had had since I was a teenager. The company was bought a few years ago and as a shareholder I was asked to vote on the deal. I got a call from the company and was told by their canvaser that if I didn't take the deal, I would lose everything. I reported them to the SEC who did basically nothing about it. That "prediction" piqued my interest and I started reseaching what was really going on. Turned out that was a lie as I had suspected; and that the CEO and Board of Directors would have been the real losers had we succeeded in stopping the sale - they were set to receive multi-million dollar golden parachutes.

There was a guy who held around 40% of the stock through his firm who tried to fight them because it wasn't a good deal for investors at all - just good for the CEO and the Board - he lost his bid to stop the deal in the end. It was interesting because he really had a lot of money and power, but even he couldn't mount a successful campaign against the sale - he spent on the project and contacted shareholders like me - the company turned around a sued him for talking to us. Can't imagine what a bunch of us less powerful and poorer shareholders could have done to stop them.

I am not going to offer suggested rules and regs that might apply to this sort of situation, but I will say that the SEC should have stepped in because they were lying to shareholders and probably scaring the hell out of little old ladies in the process - and that if a board and CEO can benefit personally to such a degree in a sale regardless of the impact on shareholders and the company itself - there is something wrong with the model.

This story isn't rare on Wall Street. I know of another great company that fell to the same fate where the cash payouts were so great for the CEO and the Board that the health and well-being of the company became irrelevant in their decision to sell - that company is a shadow of its former self now. I don't think that is a good thing, but I am not entirely sure what to do about it.


Yeah (5.00 / 1) (#18)
by Steve M on Sun Mar 22, 2009 at 11:22:57 AM EST

The SEC is basically ineffectual at dealing with that sort of thing. But the private class-action lawyers are not!

I remember years ago when Chrysler merged with Daimler-Benz, it was sold to the shareholders as a "merger of equals." Only after the merger, all the American executives got fired and all the German executives got promoted... funny how that works. Later the German CEO admitted that yeah, they had always planned it that way, but they couldn't say so because the American stockholders never would have approved the deal.

Not the smartest admission for him to make. One lawsuit later, those stockholders had a big chunk of the takeover premium they were entitled to.


Something about the model (5.00 / 2) (#21)
by Militarytracy on Sun Mar 22, 2009 at 11:33:24 AM EST

has to change though or people will not invest. They will seek different retirement solutions, and maybe we all should.


: I'm pretty sure that we're on our own, and (5.00 / 2) (#59)
by Inspector Gadget on Sun Mar 22, 2009 at 02:06:07 PM EST

have to find the solutions necessary. I also think we are all far more qualified to know what our concerns are and how they can best be fixed.

"There was a lot of excitement during the campaign and we were talking about the importance of bringing about change," Obama told the volunteer. "We are moving systematically to bring about change. But change is hard."
Rhetoric is not a solution.

State corporate law (none / 0) (#25)
by BackFromOhio on Sun Mar 22, 2009 at 11:50:34 AM EST

provides for a corporation's board of directors (or its compensation committee) to make decisions concerning salaries and to approve contracts. Shareholders only get to vote on this at annual meeting by approving or disapproving of management slate of directors.


Speaking (5.00 / 2) (#6)
by Ga6thDem on Sun Mar 22, 2009 at 10:13:37 AM EST

for me only, the problem I have with the bailouts mainly has been based on results and like you've said the failure of these people to suffer the consequences of their mistakes and greed. IMO, you're constantly working on stupid if the first bailout didn't work and then you're going to another and another. I feel like the taxpayers are being treated like a bunch of chumps by these people. And I also feel like we're being held hostage by these people who are saying "gimme my money or else!" Well, I'm willing to see what the "else" is at this point.

One commenter said that this "finacial rescue" could very well be Obama's Iraq.

And the alternative? (1.00 / 1) (#13)
by iluvela on Sun Mar 22, 2009 at 10:58:16 AM EST

You said:

And what would be your alternative to a financial rescue? What other choices do you see for Obama to take? And if you say nationalization then you believed in a financial rescue to the max. Because nationalization would be Obama's Iraq. Once in it is hard if not impossible to leave - just like Iraq. And if nationalization who would run the banks? The same people as now or some banking androids who don't exist? And have you considered that nationalization would be far more expensive that what is being employed now. And far more complicated with entangles with government bureaucracy?

So what is your alternative to a financial rescue?

I ask because daily all of the internet I read this type of comment like yours that never gives a viable alternative. People complain of the way it is being done now but offer no alternative that would make sense.


Nationalization is THE SOLUTION (5.00 / 2) (#16)
by Militarytracy on Sun Mar 22, 2009 at 11:21:09 AM EST

Because it would work. What is being done now is daily and hourly being placed under the economic microscopes and pronounced unable to solve it. Why do people continue to demand half-a$$ed solutions because they are in their opinion easier? Half-a$$ed is always going to be easier to do, and more costly and draining of time and resources in the end.


And as for your Iraq analogy (5.00 / 2) (#20)
by Militarytracy on Sun Mar 22, 2009 at 11:24:03 AM EST

Let us remember exactly how things went so badly after we made the pathetic choice to invade. Rummy convinced everyone to half-a$$ it and we are still there trying to quell the chaos that came with half-a$$ing it.


re: Nationalization is THE SOLUTION (none / 0) (#22)
by iluvela on Sun Mar 22, 2009 at 11:38:09 AM EST

So then explain how it would all work. Explain how it would not be more expensive. Explain how government bureaucracy would not make the management of it worse. Explain how entering into nationalization would not be like Iraq - i.e. in for the long haul. Explain how you taking over the assets and owning them, and then selling them to the private sector at what the market will bear is better than Obama trying to do the same thing with out entangling the taxpayer. In other words he is trying to create an environment where the banks sell to the private sector, instead of the taxpayer doing so. What is wrong with that?

I only ask this again because it is proper to respond top posts that are relevant to what I posted. You disagree with what I posted but just saying I'm wrong without a rudimentary effort on your part to explain why you are right does not make you right. Imagine if my post only said nationalization is not the way - and offered no reason why it was not. That would not be very credible. Ergo saying Nationalization is THE SOLUTION and offering no reason why it is, is not very credible either. Nationalization is a very complex proposition. It is not a quick flip with the wave of a magic wand.


: What does expense have to do with it? (none / 0) (#24)
by Militarytracy on Sun Mar 22, 2009 at 11:42:25 AM EST

Your solution is cheaper and it won't work but let's go ahead and do it because it is cheaper huh? This wouldn't be the first time the FED ran banks and then turned them back over so please stop acting like we have no idea how to do this and thirdly......the assets they have to sell at auction will have a reserve. Most economists don't expect the reserves to be met......what do you do after that? Oh yeah, and the private sector is going to be buying all this with who's money? Oh Yeah, my money.........it's f*ckin ridiculous.

The problem has been all along (5.00 / 2) (#27)
by BackFromOhio on Sun Mar 22, 2009 at 11:57:37 AM EST

the terms of the financial rescue, first, no quid pro quo, i.e., very little required of the bailed out institutions in return for OUR money, and second, the seeming total lack of oversight.


I'm with you ... (5.00 / 2) (#33)
by santarita on Sun Mar 22, 2009 at 12:43:59 PM EST

on this,

I wonder if one of the major reasons that there was so little quid pro quo and resulting oversight was that initially the thought was that the crisis was a liquidity crisis and that could be remedied in short order. Hence, the less interference with existing basically healthy institutions the better. The crisis moved very quickly from only a liquidity crisis to a solvency crisis.

I think the attitude still is we'll fix the crisis and return to business as usual. This attitude would explain the laissez-faire approach. This is beginning to remind me of the 5 stages of dealing with death - I can't remember them all but denial, anger and then acceptance are three of the steps that come readily to mind.


Santarita, I'm less kind (5.00 / 2) (#43)
by BackFromOhio on Sun Mar 22, 2009 at 01:28:47 PM EST

than you are about the sources of the Federal government's inept response to the financial crisis. If those who have been directing policy on this issue -- first Paulson, now Geithner & Summers-- initially thought the crisis was solely a liquidity crisis, they ought to have known better; I think they did know. The initial total lack of quid pro quo came before the election when Paulson was given unprecedented authority under legislation voted for by members of both parties in Congress, on a "trust me" basis. I think your analogy to the 5 stages of dealing with death is quite apt, but only because the policy-makers are part of Wall St., & could be said to be in denial about Wall St as part of the problem. If this analogy is correct, we need oversight by those who are not in mourning and might exercise some objectivity.


I'm Not Kind... (5.00 / 1) (#56)
by santarita on Sun Mar 22, 2009 at 01:55:54 PM EST

just not willing to condemn until we get a little further on down the road. After the G-20 meeting in April we should have a clearer direction.


: I don't think we have (5.00 / 2) (#65)
by BackFromOhio on Sun Mar 22, 2009 at 02:25:52 PM EST

time to wait, and I fear that the Obama Administration's ineffective response to the financial crisis will undermine the many good things the Administration aims to accomplish.

There has been (none / 0) (#32)
by iluvela on Sun Mar 22, 2009 at 12:40:38 PM EST

some quid pro quo. Obama stated he wanted to see certain units of banks split off from the actual banking units themselves and the banks for a large part are doing that. They have also been writing down their assets to better reflect what the market will bear when purchasing them. And they have been selling assets to private investors when they can find those who will buy.

What more quid pro quo would you like to see?

As for oversight, what is it you would like to see? Other than the bonus thing which obviously could not be stopped due to contractual obligations what oversight has been lacking?

You bring up some valid points of discussion but like so many you pose the question without providing an alternative. Which was the main point in my post you responded to. What are the alternatives to a financial rescue? nationalization is the only one I keep hearing but yet those advocating that are lacking on providing any details of why it would work and refuse to even discuss any of the downsides. That is not much of an argument, if any, for nationalization.


There's (5.00 / 2) (#46)
by Ga6thDem on Sun Mar 22, 2009 at 01:39:47 PM EST

plenty of alternatives offered on these threads by other posters that seem much more viable and likely to succeed than what we've seen so far.

You could do temporary nationalization that way you get have to absorb less losses and I frankly can't see it being that much more expensive than what we've had so far. So far we've poured a ton of money into things with zero positive results.

Your response seems to be this Obama plan is the only option we have. I know Obama is afraid to do things because the GOP might call him a socialist or whatever but the party needs to get back to it's Truman roots imo and not give a fig about what the GOP might say.


Maybe they're too worried (5.00 / 1) (#50)
by jondee on Sun Mar 22, 2009 at 01:46:17 PM EST

about what the major contributers will say.


: Perhaps (none / 0) (#55)
by hookfan on Sun Mar 22, 2009 at 01:55:24 PM EST

"are saying" is even more apt. . .

You repeat this falsehood in every thread (none / 0) (#14)
by Big Tent Democrat on Sun Mar 22, 2009 at 11:04:05 AM EST

and never ever address the responses given to you.

If you are unable to respond to them, please stop cluttering my threads with your repeated cant.


: What's with "iluvela"? (none / 0) (#51)
by DFLer on Sun Mar 22, 2009 at 01:48:59 PM EST

There's something odd in the style of the writing, ie. "cant"......reminds me of talking points from a campaign aide...something like that.

"Failure to suffer the consequences" (none / 0) (#63)
by gyrfalcon on Sun Mar 22, 2009 at 02:16:11 PM EST

Have you looked at the stock price of these companies lately? Any guess what the hit has been to the worth of "these people" as a result?

I'm crying not one single crocodile tear for them, but to pretend that the vast majority of the people involved in this mess haven't taken a substantial financial hit they will almost certainly never recover is just false. Yours and my and every 401(k) holder or puny investor's is vastly larger because we had so much less to begin with. But it's simply false to say they've suffered no consequences or expect to be made whole or any of the other terms being used.


Well (5.00 / 1) (#66)
by Ga6thDem on Sun Mar 22, 2009 at 02:33:22 PM EST

you would have to assume that they got no bonuses and that they had all their investments in their own company stock to go along with what you are saying. When the tech bubble burst did the big guys ever take much of a hit? IIRC, it was more the average Joe that worked for the company.


Stock holdings (none / 0) (#88)
by gyrfalcon on Sun Mar 22, 2009 at 07:00:30 PM EST

First of all, yes, I think they were heavily invested in their own companies' stock. That's the way it works these days. But even if they were invested in other stocks, would you like to point out a few other stocks they might have been invested in that haven't been devastated? I'd like to know that so I could invest in them myself.


I know that (none / 0) (#91)
by Ga6thDem on Sun Mar 22, 2009 at 07:08:22 PM EST

my mother has not lost much money over the last year. Her's all happened prior to that so there are some people who got sandbagged in 2001-2003 that really haven't been affected that much by what is happening now. She didn't have much money, if any, in financial instruments. Now, my other family members that were invested heavily in banks have lost literally tons of money. The people that ran these companies even sent out statements when other banks were going down lying and saying that their company was is great shape. if you want to feel sorry for these people then it's certainly your right.


: I've said repeatedly (none / 0) (#95)
by gyrfalcon on Mon Mar 23, 2009 at 08:16:27 AM EST

I shed not the slightest tear for any of them. Did that somehow end up in invisible ink?
It's not a question of sympathy. It's a question of factual accuracy. When people rail about how all those bad guys have "suffered no consequences," it's either a flat-out lie in aid of propaganda, or it's deliberately obtuse. Do we want to live in the real world or something we've constructed out of our own fantasies?

When the Wall Streeters are living in their cars (5.00 / 1) (#78)
by caseyOR on Sun Mar 22, 2009 at 03:38:16 PM EST

and standing in line at the food bank to feed their children we can talk about how they've suffered. "These people" are still doing quite nicely, thank you very much.

Their losses, brought on by their own actions by the way, pale in comparison to the wreck those actions have made of so many other people's lives.


: This is deliberately obtuse (none / 0) (#87)
by gyrfalcon on Sun Mar 22, 2009 at 06:57:10 PM EST

Nobody is weeping for these people, least of all me.
The point is that to say they "suffered no consequences" is false. I'm sure it feels real good to say that, but it's false.

Insiders and senior execs (none / 0) (#69)
by Green26 on Sun Mar 22, 2009 at 02:37:58 PM EST

at most of these financial institutions have lost huge amounts of their net worth.

Most had stock options or other types of equity in their companies. In many situtions, the majority of the huge bonuses paid to insiders and senior execs is in stock/equity. Often, the equity cannot be sold immediately. Insiders, and those with inside information, at public companies cannot sell their stock at various times, including when they may be in possession of material non-public information.

I believe that bonus payments to big producers may have different composition, at least at some companies.

The recent AIG retentions were presumably all cash, but retention bonuses are for a different purpose that most bonuses and are a different animal. The AIG retention plan in the news now was put in place prior to the time the current CEO came to AIG.

I previously noticed the amount and composition of the comp of senior AIG exec who was the 4th highest paid person for 2007. I believe he got about $7.5 million in total comp, of which "only" $2.5 was in cash. I assume this was probably typical for AIG, but don't know.


Practicality (5.00 / 1) (#10)
by gyrfalcon on Sun Mar 22, 2009 at 10:48:21 AM EST

I'm interested in what works.

I think the grotesque compensation habits need to be reined in economy-wide, not just in the financial system and certainly not just in financial companies receiving bail-out loans. I'd be very happy if we went back to the 90 percent marginal tax rates on income above a certain level, as we had in the '50s and '60s and into the '70s.

However, massively restricting compensation solely in the financial companies we are trying to rescue with our tax dollars seems to me wildly counterproductive. I say let AIG and the others pay people somewhere within the prevailing standards in the industry, and then let's hit everybody in the country with an overstuffed wallet with that 90 percent marginal tax rate.

Tax Policy Is Another Form of... (5.00 / 2) (#26)
by santarita on Sun Mar 22, 2009 at 11:55:39 AM EST

government regulation of compensation.

With regard to AIG, I just don't know if AIG couldn't find people less highly compensated to do the same or better job, which I think is your underlying premise.

As whether or not the government should regulate compensation practices on a going forward basis for companies whether they are receiving financial assistance or not, my answer is yes. Compensation practices that reward short term profits at the expense of the long term are a form of looting that favors current officers and employees.

Government regulation should probably be limited to publicly traded institutions and highly regulated institutions like banks and utility companies. And they need not be intrusive.


: I agree (none / 0) (#60)
by gyrfalcon on Sun Mar 22, 2009 at 02:06:29 PM EST

Tax policy is simply a form of regulating compensation. And I'm in favor of it-- strongly-- as long as it's throughout the economy and not targeted to certain subsets. The out-of-control compensation has had an absolutely malignant effect on the economy and our whole society, and it's in no way restricted to financial instutions or Wall Street, though there the effects have been most direct and obvious.
I very carefully made sure to say that AIG might well be able to find competent people willing to do the work at lower pay, although I suspect that would be more of a struggle than you might imagine, given that AIG is now a dirty word. My point is that it would without any question slow down the whole operation quite considerably, at the very least, when what we need is to have it wrapped up as soon as possible.

Why do you believe it is (none / 0) (#12)
by Big Tent Democrat on Sun Mar 22, 2009 at 10:50:37 AM EST

"wildly counterproductive?"


As I said in another thread (none / 0) (#23)
by gyrfalcon on Sun Mar 22, 2009 at 11:40:19 AM EST

If you're the owner of a struggling baseball team, do you start your rebuilding process by announcing a salary cap that's a fraction of the prevailing pay?

I'd like to have the best people possible working on disentangling AIG from its pigmess, wouldn't you? From what I'm reading, the idea that these folks would have nowhere to go if they weren't on the government dole at AIG is false. They were already starting to leave at a rate that caused Liddy et al to institute these retention bonuses to begin with. AIGFP is a pretty ugly and demoralizing place to work at these days.

Maybe Liddy et al could recruit new people who would be willing to take up the task, but even if they're as competent as the bunch they have now, that would inevitably slow the whole process down quite considerably while they try to get up to speed. It makes no sense to me. We want the crap wound down and the good parts shaped up and sold off as soon as possible, don't we?

On a larger scale and more importantly, what the House just did is a pretty serious disincentive to any company to get involved in any of the government's efforts to wrestle the financial system back into shape. When a political frenzy can blow up and in less than a week result in targeted legislation like that, it confirms these companies' worst fears about the unpredictabilty of being under the government's thumb.

The end result may well be that the financial entities the government is trying to incentivize to act in ways that benefit the health of the system as a whole, and so the larger economy, will instead hunker down and try to ride out the mess without exposing themselves to any more risk by actually, you know, lending anybody anything.


What empirical evidence is there (5.00 / 1) (#29)
by hookfan on Sun Mar 22, 2009 at 12:12:13 PM EST

that those bankers who participated in this mess are indeed the best and brightest? Can't tell by actual performance can we? The bankers who hired them either were willing to participate or were incompetent to prevent them. So they don't qualify either. For all we know, Joe the Plumber might very well perform better if clear guidelines, restrictions, required transparency and effective oversight were involved.
Oh wait. That's what banking used to be before The Indispensibles got involved.


You're right that.. (5.00 / 1) (#34)
by santarita on Sun Mar 22, 2009 at 12:59:39 PM EST

with the right training, policies, supervision and policies that most of us could do the highly compensated jobs. Of course that may take more time than we have or are willing to spend.

And it may be that existing employees have knowledge of specific transactions or series of transactions that can't be easily conveyed to their replacements.


I'd prefer (5.00 / 1) (#61)
by Inspector Gadget on Sun Mar 22, 2009 at 02:10:15 PM EST

To see the more vulnerable clients of AIG move their insurance, and assets to another company and watch these guys collapse under the weight of their own greed.


There are (5.00 / 2) (#64)
by BackFromOhio on Sun Mar 22, 2009 at 02:23:09 PM EST

hundreds, if not thousands, who understand swaps & derivatives. The claim that only AIG employees understand AIG FP's financial products is an attempt to justify lack of real oversight, IMO.


You Could Be Right... (5.00 / 1) (#76)
by santarita on Sun Mar 22, 2009 at 03:07:15 PM EST

there might be hundreds or thousands equally qualified people who could take over AIGFP and maybe even do a better job for significantly less money. It might take them some time to learn about particular transactions.

Retention plans are useful tools for retaining employees whose experience and knowledge would be hard or difficult to replace. I don't know enough about the people at AIG who were given retention money to know whether the money was wisely spent and whether or not they could have been bought at a cheaper price.

Of course retention plans can be misused to funnel money to worthless employees who just happen to be friends of the CEO, etc.

The problem with the government's handling of the bonus situation at AIG is that of justification after the fact. Perhaps if the retention plans had been disclosed and debated when made or when the government took a controlling interest in AIG, we wouldn't have this issue. The problem to me is that this episode indicates that not everyone in the government is on the same page.


It is extremely rare (none / 0) (#77)
by Green26 on Sun Mar 22, 2009 at 03:14:04 PM EST

for retention plans, or any comp plans, to funnel any significant amount of comp to worthless employees who are friends of the CEO, in my experience. Public companies, larger companies and even start-ups just don't operate that way.

Business is too competitive for this to occur--at least very often. In many situations, there are compensation committees, boards, whistle blowers, to make sure this doesn't occur.


Let's Just Say That... (none / 0) (#79)
by santarita on Sun Mar 22, 2009 at 04:11:10 PM EST

your experience is different than mine...

I have a question for you, though. Is it possible that the Obama Administration is pursuing the uber-cautious approach, in part, because of concerns of litigation in the event that some banks are nationalized or put into receivership? I noticed that the WAMU holding company has just filed a lawsuit against the FDIC claiming that it paid much less for its assets than they were worth. I think they are asking $14.5 bn. Does the government need to have a basis for valuing those assets other than government fiat because of litigation concerns?


Bad government intervention (none / 0) (#83)
by BackFromOhio on Sun Mar 22, 2009 at 06:52:55 PM EST

doesn't mean that all intervention is bad. Assuming WaMu is correct in alleging that FDIC was in a rush to sell and therefore got less than market would bear otherwise, it would seem that intervention was not handled appropriately. WaMu was huge; better safe than sorry, I say.


: Not really my question ... (none / 0) (#92)
by santarita on Sun Mar 22, 2009 at 07:14:19 PM EST

I'm more curious than anything. Not too much discussion of that lawsuit in the blogs.

Much of the AIG justification (none / 0) (#74)
by Green26 on Sun Mar 22, 2009 at 02:57:05 PM EST

was that some of the AIG employees knew the AIG portfolios and positions very well, knew where the issues were, knew the parties, wouldn't have to take any time getting up to speed and wouldn't be as likely to overlook somethihg.


See, here's the problem (none / 0) (#57)
by gyrfalcon on Sun Mar 22, 2009 at 01:57:36 PM EST

the people at AIGFP aren't bankers, and the ones who were responsible for the "mess" are long gone. They were fired, not to put too fine a point on it.

The person in charge now is a dollar-a-year guy signed on by the government to come out of a very, very, very comfortable retirement to oversee the dismantling of AIG.


fine (none / 0) (#70)
by hookfan on Sun Mar 22, 2009 at 02:42:35 PM EST

change "bankers" to "insurance industry executives and hirees" if it makes any difference. You still have no empirical proof that those who are there, are the best and brightest-- especially if actual results are used to calculate. One could just as well believe with just as much empirical evidence that those who are being retained are the best due to some incorporated "moral lassitude" in their persons that is the major qualification for the "best"-- not because they can perform best. Actually maybe with more evidence since that is how they actually performed.


I don't recall (none / 0) (#90)
by gyrfalcon on Sun Mar 22, 2009 at 07:03:28 PM EST

typing the words "best and the brightest" or their equivalent. Do you have an argument that doesn't rely on strawmen?


: How does "best people possible" (none / 0) (#93)
by hookfan on Sun Mar 22, 2009 at 08:05:13 PM EST

sound to you? You wrote it. sorry if you don't think "brightest" might be best. However it appears you are the one supporting that many who have been there, and participated in the previous activities that led to the mess, are "best".
So again, what empirical evidence do you have that that is so? Those who willingly participated in the debacle, not apparently seeing the outcome, or safeguarding against it, are the best? Really?
Where is the evidence anyone of AIG employees, now considered "best", raised the slightest protest about the risk?
Nor have I found anyone willingly to argue why those with the poor judgment to get into the mess, now miraculously have the good judgment to know how to get out. It isn't only a question of knowledge.

Question - (none / 0) (#86)
by BackFromOhio on Sun Mar 22, 2009 at 06:54:39 PM EST

Do you have a source for departure of AIGFP emplyees and oversight by government employees of dismantling of AIG? Thanks.


: Sure (none / 0) (#89)
by gyrfalcon on Sun Mar 22, 2009 at 07:02:17 PM EST

See Liddy's testimony, plus recent articles in the Times and Wapo. I'm sure you can do Google.

Huh? (none / 0) (#47)
by Big Tent Democrat on Sun Mar 22, 2009 at 01:42:26 PM EST

We are not the owners of a salary capped baseball team.

We are the owners of a concern that we are unwinding. It will nto be agoing concern once that is done.

Your analogy strikes me as bizarre.


OK, pick (none / 0) (#58)
by gyrfalcon on Sun Mar 22, 2009 at 02:00:14 PM EST

another analogy. I think you know what I'm getting at, it's not that obscure an idea.

It makes no sense to handicap yourself by throwing punitive and artificial restrictions on your ability to staff a complex and urgently needed operation.

But I'm actually a lot more concerned about the larger problem of actively discouraging other companies from having anything to do with the government's rescue efforts.


Actually I do not know what you (5.00 / 2) (#62)
by Big Tent Democrat on Sun Mar 22, 2009 at 02:15:07 PM EST

are getting at at all.

We do not need to suppor the AIG brand name. AIG is finished.

We need to negotiate the liquidation of AIG.


: AIG is finished, yes (none / 0) (#82)
by gyrfalcon on Sun Mar 22, 2009 at 06:51:56 PM EST

The question is whether we the taxpayers get to recover anything from its dissolution. Nobody, least of all me, is arguing for some preservation fo the AIG brand name, and I can't imagine where you get that from anything I've said.

AIG already (5.00 / 1) (#67)
by BackFromOhio on Sun Mar 22, 2009 at 02:35:23 PM EST

handicapped. I understand that before the bonus flap occurred, AIG has been having trouble getting customers to take insurance.


: Indeed (none / 0) (#84)
by gyrfalcon on Sun Mar 22, 2009 at 06:53:02 PM EST

So why would we want to make it worse, given that we now own 80 percent of it?

While it's true that AIG is (none / 0) (#75)
by Green26 on Sun Mar 22, 2009 at 03:03:21 PM EST

winding down, and the remaining pieces will eventually be sold, the analogy still makes some sense to me.

Even in wind-up phase, certain employees are still key and are needed. Also, if alot of employees are thinking of leaving (and you think you need them, or some of them), then it's often worthwhile to do something to keep them. That's the reason behind most retention bonuses and retention bonus programs.

Also, note that the exec comp limitations in the stimulus bill and the recently passed tax in the House, would apply to all or virtually all of the TARP companies. The analogy makes sense for most of the other troubled companies, and I see no reason these particular limitations should apply to healthy companies which got TARP funds.


: Thank you (none / 0) (#85)
by gyrfalcon on Sun Mar 22, 2009 at 06:53:45 PM EST

We (meaning me and all other taxpayers) (5.00 / 3) (#30)
by Militarytracy on Sun Mar 22, 2009 at 12:27:30 PM EST

are providing non-recourse loans for the purchases. Did you miss that part?

Among other key questions, what percentage of the purchase price will the government fund? One senior administration official has said as much as 80% of the purchase price could be government money, but the number has not yet been fixed.

But they have held up rolling this plan out AGAIN because people are asking hard questions about who is going to get screwed over this and the American people are done with that being them. And I'm dog tired of arguing with people who just can't accept that the jig is up, and most of everything you thought you knew about our economy and way of life is over.......you just experienced your roaring 20's and it's over now.

Actually the plan was leaked (5.00 / 1) (#36)
by Militarytracy on Sun Mar 22, 2009 at 01:11:12 PM EST

I'm assuming because they were too afraid to just parade it out and they aren't liking what economists are throwing back at them. But that doesn't stop you blogging around arguing for a plan even they are now too afraid to place front and center with confidence.

And do you understand what a nonrecourse (none / 0) (#38)
by Militarytracy on Sun Mar 22, 2009 at 01:15:19 PM EST

loan is when the asset is junk paper?


And do you have any real idea (5.00 / 2) (#39)
by Militarytracy on Sun Mar 22, 2009 at 01:20:15 PM EST

of how much junk paper is really out there sinking banking solvency? Because it isn't regulated and it doesn't need to be disclosed and it isn't being disclosed unless someone is having a "current" junk paper meltdown. Doesn't mean they don't have more waiting in the wings as the economy worsens.


Assets to be purchased (none / 0) (#71)
by Green26 on Sun Mar 22, 2009 at 02:43:06 PM EST

will have issues, but they will be purchased at a significant discount from face value.

Why would these private investors put up billions of dollars of their own money (combined with alot of government money), only to bid too much and lose all of their money?

Sure, the government non-recourse loans and other government investment will encourage investment in the bad assets (that's the purpose of the program), but that doesn't mean that the private investors won't be putting alot of their own money at risk.


: If this goes through it will (none / 0) (#80)
by Militarytracy on Sun Mar 22, 2009 at 04:48:02 PM EST

be interesting finding out if the reserves are met, I'm reading voices out there that I trust saying the reserves won't be met and this stuff is not going to sell. Sounds to me like a few institutions are grasping that reality and having a fit embracing 30 cents on the dollar, if they can even get that.

Ye goddess (5.00 / 1) (#40)
by Cream City on Sun Mar 22, 2009 at 01:22:23 PM EST

what a wiggy wiggler.

It wasn't me who wrote this, it was you:

Obama's solution won't work. But yet your solution is better than the guy you voted for but you still can't say why. OK.

And if that comment of yours wasn't relevant, why did you clutter it here?

I voted for myself :) (5.00 / 1) (#42)
by Militarytracy on Sun Mar 22, 2009 at 01:28:37 PM EST

Wrote it in :)

Obama's plan IS a lending program (5.00 / 1) (#45)
by Militarytracy on Sun Mar 22, 2009 at 01:33:48 PM EST

for investors......ummmmm duh And that is not how the world works.......whooboy is this view of the "real world" part of our current problems in not understanding where we are and what has happened. A shovel, a sandwich, a tractor, a seed, a saw, a bandage and a stitch is how the REAL world works. The rest of this crap is monopoly money castles in the sky and they all fell down.

Borrowing and lending (5.00 / 1) (#48)
by hookfan on Sun Mar 22, 2009 at 01:43:21 PM EST

of course is necessary. But that is just part of the problem so far. Even with all this giveaway to the banksters there has not been much increase in lending. Much ado with little effect. Well, not exactly true. It definitely is affecting the rest of us as in loss of jobs and livelihood.
So, let's assume that Obama's plan doesn't work. What's the criteria you accept for failure? And if it fails then what?

As Galbraith pointed out also (5.00 / 1) (#53)
by Militarytracy on Sun Mar 22, 2009 at 01:52:14 PM EST

in his recent writeup, even if we get the banks back to lending who are they going to lend to in this current economy? Who is risk worthy? And with everyone uncertain of their future who even really wants a new car?


: There are a decent number of worthy borrowers (none / 0) (#72)
by Green26 on Sun Mar 22, 2009 at 02:47:59 PM EST

at this time, waiting for the bank spigots to open more.
Certain areas, like commerical paper for certain large borrowers, have opened up.
On the other hand, good point. There's not reason for the government to encourage the banks to make bad loans--again.

I have a 401k (5.00 / 1) (#52)
by Militarytracy on Sun Mar 22, 2009 at 01:49:16 PM EST

And I'm not noticing any upside at all. My grandfather did very very well investing for his retirement without leaning on 401k plans. My existing 401k is small, we only left a bit in when we realized something was seriously wrong two years ago. I read a book though when 401k's first came out and I can't remember who wrote it but he predicted we would be in this situation because you just don't throw money at investments unless they are investment worthy. To not have corporations earning your investment trust daily is to openly invite being robbed blind. Your high finance bullhonk rips off the little guy every single day, or at least it used to. I don't think the opportunity to do it again is going to arise for say another 80 years.

Stop the bickering (5.00 / 1) (#54)
by Big Tent Democrat on Sun Mar 22, 2009 at 01:54:58 PM EST

Stick to the topics. I deleted a bunch of pissy comments and I will not have it in my threads. Period.

All of you stop it.

: Good grief! No wonder I (5.00 / 1) (#68)
by oldpro on Sun Mar 22, 2009 at 02:36:14 PM EST

couldn't follow the dialogue! Impossible to make sense of the back and forth when all you've got is the back!

Dream on... (4.20 / 5) (#2)
by JoeCHI on Sun Mar 22, 2009 at 09:35:30 AM EST

I wish folks who scoff at the people who are critical of the Obama Administration approach (critics like Krugman, Stiglitz, Roubini, Dean Naker, Brad DeLong and Simon Johnson) to the financial crisis could consider the merits of the critique instead of engaging in knee jerk defenses of anything Obama.

There will be peace in the Middle East, a budget surplus, and cures for both cancer and the common cold before Obots give up their ad hominem attacks on those who question The One.

A 1 for presumption (4.00 / 4) (#31)
by Cream City on Sun Mar 22, 2009 at 12:35:16 PM EST

or perhaps for violating the sacrosanct privacy of the ballot. How do you know how MTracy voted?

Regulating Executive Pay (none / 0) (#3)
by kaleidescope on Sun Mar 22, 2009 at 09:51:02 AM EST

Generally, I agree the government shouldn't mandate how much a company can pay its workers. (We already regulate how little they can pay workers, though.) But I could see regulations that said that any bonuses would have to be in the form of stock options that couldn't vest for a long period.

How executives and traders were compensated was a big piece of how things went wrong, not only at places like AIG, but also at Enron and Dynergy. Executives who received stock options or bonuses based on stock performance had every incentive to damage the company by inflating the stock price short term.

On the other hand, the government could simply say, "any bonus or other compensation above X would require a unanimous vote of the shareholders." Then the private parties -- the executive and the company -- could make whatever arrangement they chose.

Why not regulate? (none / 0) (#4)
by nellre on Sun Mar 22, 2009 at 10:07:20 AM EST

Salaries and perks are decided on by company insiders. Promotions are political. More like... what's good for me rather than what's good for the company. Free market never gets in the picture.

Who, other than a sports or movie star, could possibly be worth millions a year while the people who actually perform the work are taking in a few 10s of thousands? That makes no sense. Salary (and perks) should be justified based upon the potential ROI, reviewed annually. If the person has not been a good investment, they're gone.

Back in the days when the tax rates were high, there were loop holes that allowed the rich to avoid paying much. I'm not for going back to those days.

Compensation for senior officers (none / 0) (#73)
by Green26 on Sun Mar 22, 2009 at 02:53:20 PM EST

of public companies is NOT set by insiders.

Their comp is set by the compensation committee of the board, which is composed of independent directors. The comp committee ususally hires a third party comp consultant.

This does not cover most big producers at these companies, as they are generally not senior officers.


What?! (5.00 / 1) (#81)
by NYShooter on Sun Mar 22, 2009 at 06:01:06 PM EST

Who pays the compensation committee? Is it possible that you believe a CEO would hire a compensation committee he didn't own?

Puleeze!


: Compensation committees (none / 0) (#94)
by Green26 on Sun Mar 22, 2009 at 10:03:57 PM EST

are selected from members of the board of directors. Comp committee members are selected by the board, not the CEO.
Board members are voted on by the shareholders. While management, i.e. the board upon recommendation by the nomination and governance committee, selects the board slate, the shareholders still vote on it. While not easy, other board slates or members can be proposed by shareholders. Again, the nomination and governance committee selects the board slate--not the CEO.
Nomination and governance committees are usually fairly independent and often completely independent.
Companies pay members of the comp committee, usually in the form of cash and stock. The amounts are not set by the CEO. In fact, often the CEO has little or no say in the amount of committee comp. Outside comp consultants provide input to the comp committee in setting director/committee comp.

And I agree that I want nothing (none / 0) (#7)
by Militarytracy on Sun Mar 22, 2009 at 10:27:28 AM EST

to do with regulating any salaries that I'm not having to pay. Why should those running profitable institutions not be rewarded for actually working hard and managing to not commit a huge ripoff that ruined themselves and damaged everyone connected to them?