Friday, October 23, 2009

Execs Quit to Avoid Pay Limits

In yesterday's post I wrote that the Obama's administration limits on executive compensation would have minimal impact in part because the affected executives would quit and work elsewhere.

Today's Washington post reports the following:

Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart. ...

Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.

At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.

At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.

The way to limit executive compensation is to let failing companies fail.

14 comments:

Terry said...

Here is a thought, the White House is regulating the pay of those who received bailouts instead of going through bankruptcy to stop the excesses of the top executives. Why don't we use the same standards with Congress? Limit their pay to half their salaries and at the end of the year if the National debt is reduced by 5% then let them have the other half of their pay for actual production!

David (aka "Dave") said...

I agree with your take that likely the best route is to let companies fail...however, this approach does not address the "to big to fail" hazard that lax government oversight of mergers and acquisitions has led to.

Ultimately, these firms need to compete on an international level, but there must be some way to close off the investment banks from the retail sector, either as separate entities or through legislation, so that no one firm can bring credit markets to their knees.

In addition, I do believe that rather than limiting executive compensation in such an arbitrary way, the better road would be to tie executive / trader pay to long term performance. In conjunction, perhaps giving shareholders a BINDING vote in executive compensation packages might also help reign in some of the excessive behavior and risk-taking that has been so dominant as of late.

Investors, large and small, lost large amounts of their portfolios in this mess, and yet that risk was not applied equally up and down the chain on wall street.

I firmly believe that people need to be rewarded for the risks they take and the decisions they make; but I don't believe that they should be exempted from the downside. If things go south as a result of the risks taken and the decisions made, then, in the words of Donald Trump and the Soup Nazi:

"You're Fired" and "No 'Chute For You".

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