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skeeterses
http://www.msnbc.msn.com/id/33439647/ns/bu...ss-us_business/
A news article is questioning whether federal limits on Executive pay would cause talented people at the top to flee for companies paying more lucrative salaries and benefits.

Except that the companies in question are the very ones that received billions of dollars worth of rescue money from the taxpayers. You know, respected brand names like GM and AIG. So when a journalist talks about a "brain drain" from those very companies, I'd like to know what kind of brain they have in mind. Certainly not the minds of successful entrepenuers. If a corporation has received rescue money from the taxpayers, its most likely because the people at the top made bad decisions. And if the Corporation has the guts to fire incompetent executives and bring in new talent, they should wait for solid results before giving the new executives lavish pay and bonuses (i.e. the company pays back the taxpayers and is in the black 5 years down the road).

So the question is,
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?
2. Would such a limit cause effective Corporate leaders to leave the companies?
Google
Maybe Maybe Not
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?
Of course.


2. Would such a limit cause effective Corporate leaders to leave the companies?[/quote]
As you note, if they're receiving federal bailouts, how and why are we designating them "effective" leaders?

The limit (according to the article) is a cash salary of $500,000. I'm betting you can find some pretty talented people to work for $500,000 per year.
cicero
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Yes, and the federal government needs to do more. I would have never bailed some of the companies out in the first place.

2. Would such a limit cause effective Corporate leaders to leave the companies?

I would like to put some of these "corporate leaders" in prison. As to the question, any company that has been bailed out with tax payer money can’t be that effective but I could see some of them leaving. They will just have to deal with it though.
Hobbes
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

It's not the Federal Government per se that I think needs to be discussed. Does a czar, who is essentially just some guy the President assigns to a position, with no oversight or approval, have the right to tell companies what to do? I had to laugh out loud when I heard him speak today, saying he doesn't want to lord over these companies. Really? Then why is that exactly what you are doing, then? They have boards, etc that determine executive compensation. You are overriding them. At least be honest about what you are doing, not to mention the fact that you're pretty much just throwing contract law right out the window in the process. I'm really curious what would happen if any of the companies in question just said bugger off--they didn't sign any documents granted the government this authority, and I don't see where else they're going to claim it comes from. Had they written it into their loan contract, they'd have some legal ground to stand on, but I don't think they did. They just have "I'm some guy the President picked off the streets, and I'm going to tell you how to run your business".

Also, exactly where does the government get off telling anyone anything about how to manage their business? Since the government loaned them the money (without these caveats, btw), that gives them the right? Really? So China can call us anytime and state exactly what the President can make, and what he can and cannot do? No? Why not? Aren't they bailing the government out with loans by buying our bonds? What's the difference? The hypocrisy here is just completely off the charts.

2. Would such a limit cause effective Corporate leaders to leave the companies?

Ya think?! Let's take a look at GM and AIG in particular. They are NEVER going to repay the government, especially AIG. GM needs to figure out how to just become profitable...does anyone here really see them putting away an extra $50+ billion to repay their loans? Not bloody likely. Even moreso for AIG. We loaned them more than 100 times the value of the company. We're not going to get it back. So, these companies are looking at being under this executive pay restriction FOREVER. So, if you're a competent CEO, are you going to look at staying at GM, or going somewhere else making 20-30 times as much. The Czar (or is it Tsar? its so hard to be sure) really needs a course in basic economics before making such edicts. The stock of both GM and AIG is so diluted it will never be worth anything...both companies essentially just printed out a bunch of new shares. So, even if either returns to profitability, the stock is going to go anywhere, since every $1 in profit them make is divided up so much more. So, it will take about 100 times the profits they used to make to cause the normal rise in stock price. We as taxpayers should really take a hard look at this. Its bad enough that they got all our money to start with...are we now going to follow this up by almost ensuring that none of these companies are managed by anyone competent, just to ensure that we have the maximum taxpayer loss possible?
CruisingRam
Hobbes- why do you think over 500k per year compesation would get any better of a CEO than we have been having? Not one of the GM presidents since the 60s was worth 20k dollars a year, much less millions. Grossly out of touch and grossly incompetent is the norm with ALL the bailout companies, or rather, most of them.

And the compensation committees are completely corrupt, so there is 0 market forces determining what compensation should be anyway!
skeeterses
QUOTE
Also, exactly where does the government get off telling anyone anything about how to manage their business? Since the government loaned them the money (without these caveats, btw), that gives them the right? Really? So China can call us anytime and state exactly what the President can make, and what he can and cannot do? No? Why not? Aren't they bailing the government out with loans by buying our bonds? What's the difference? The hypocrisy here is just completely off the charts.

If China started talking about the waste in our Government spending, it might do us Americans some good to listen since they have been the ones loaning our Government the money. And if we don't want them telling our Government what to do, all our Government would have to do is live within its means and not accept loans from foreign countries. You can kind of see where I'm going with this. If a regular person like you or me runs a business and borrows money from a bank, some people more powerful than us are going to have a strong say in how that money gets spent.
Ted
So the question is,
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Yes they do. Theses badly run companies gave up their independence through bad management and now are clients of the State. The government that saved theses fools can do anything they want to them.


2. Would such a limit cause effective Corporate leaders to leave the companies?

Well that is a concern and the result may be that these companies face the fate that awaited them a year ago –oblivion.
Hobbes
QUOTE(CruisingRam @ Oct 22 2009, 09:05 PM) *
Hobbes- why do you think over 500k per year compesation would get any better of a CEO than we have been having? Not one of the GM presidents since the 60s was worth 20k dollars a year, much less millions. Grossly out of touch and grossly incompetent is the norm with ALL the bailout companies, or rather, most of them.

And the compensation committees are completely corrupt, so there is 0 market forces determining what compensation should be anyway!


Why do you think paying them 90% less will make them better? Would you do a better job for 90% less than what you're making currently? Further, why would you want the government arbitrarily revoking contracts, and not just the government, but actually just some guy off the street with no predefined duties, no approval process, and no oversight whatsoever?

QUOTE(skeeterses)
You can kind of see where I'm going with this. If a regular person like you or me runs a business and borrows money from a bank, some people more powerful than us are going to have a strong say in how that money gets spent.


The difference is that the bank would predefine what those conditions were. The government (again, not the gov't really, just some guy off the street) is doing so after the fact, making up the rules as they go along...and simultaneously ripping up the existing rules while they do it. Here's a question people should be asking: If compensation was so important, why didn't the government include it in their original loan contracts? Are they just too incompetent to think things through that far? If so, should they really be in the business of telling anyone else what to do?
Raptavio
QUOTE(Hobbes @ Oct 22 2009, 08:41 PM) *
It's not the Federal Government per se that I think needs to be discussed. Does a czar, who is essentially just some guy the President assigns to a position, with no oversight or approval, have the right to tell companies what to do?


Oh, come on Hobbes, don't believe the FOX "News" hype. Everything the Administration does can be revisited and given oversight by Congress or the Courts if they see a need to do so. Let's not buy into this "czar" crap (remember the term is just a media shorthand - his title is "Special Master for Compensation", and many "czars" are in fact subject to Congressional approval). Feinberg reports to Treasury Secretary Geithner, and Geithner is accountable for anything that happens in his department, including by any of his appointees.
CruisingRam
QUOTE(Hobbes @ Oct 22 2009, 07:42 PM) *
QUOTE(CruisingRam @ Oct 22 2009, 09:05 PM) *
Hobbes- why do you think over 500k per year compesation would get any better of a CEO than we have been having? Not one of the GM presidents since the 60s was worth 20k dollars a year, much less millions. Grossly out of touch and grossly incompetent is the norm with ALL the bailout companies, or rather, most of them.

And the compensation committees are completely corrupt, so there is 0 market forces determining what compensation should be anyway!


Why do you think paying them 90% less will make them better? Would you do a better job for 90% less than what you're making currently? Further, why would you want the government arbitrarily revoking contracts, and not just the government, but actually just some guy off the street with no predefined duties, no approval process, and no oversight whatsoever?



Actually, I am saying, thre are plenty of qualified folks that could do it better for 500k dollars. 500k dollars is still alot of money. Maybe the spoiled brats in AIG and GM can find some new party to crash and screw up. Again- you do agree that the compensation proccess for these companies have no basis in the free market as well> and, what about the rest of the world- why are US companies that are so badly managed paying thier managers so much more than thier global counterparts?

You would think the highest paid CEO in the world would be Toyota's CEO, correct? It wasn't too long ago he apologized for making a couple million in salary-

CEO compensation is actually a symptom of what is wrong in American finance, and government intervention may be needed to stop the (what should be) criminal behaviors of these guys
Google
AuthorMusician
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Sure. It would not be an issue had these corporations actually been, you know, competently led.

2. Would such a limit cause effective Corporate leaders to leave the companies?

I suppose, but will anyone miss them? These people need lessons in humility. They are not that important. What the heck were they doing that was so effective? Crushing the world economy? Creating impossible schemes? What?

I say good riddance. Put out the help wanted ads and see who shows up. Hire the competent ones. For the former corporate leaders, I'm sure there are openings in the mail room somewhere. They must have some kind of practical skills. I mean, what does a CEO actually do for a living? Did the CEO just pop magically on the scene, or was there a career path? Well, as many of us have had to do, it's time to go back down that path and find out if you're still any good at anything. It's very cleansing for the soul.

I have a really good black bean recipe. That might help out. I hear that libraries let you use their computers for free. Then, if you work real hard, do a good job and keep your nose clean, you might be able to buy your own! Ain't capitalism wonderful.
lederuvdapac
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Absolutely, its right here in the handy dandy Constitu- oh wait. I can't find that anywhere. My copy of the Constitution must be flawed. That is the only thing that explains the government imbuing an unelected with the power to manage the pay of corporate executives.

2. Would such a limit cause effective Corporate leaders to leave the companies?

Of course it would. And now to respond to those clever few who like to say "good riddance" and "they led the company into bankruptcy." Well guess what? This is all true to some extent, the companies should have failed. But they didn't. They were bailed out by their friends in Washington. Now, Washington is intentionally sabotaging (for political reasons) the very things they saved for political reasons. Its madness. The people who have talent will go to other firms where their pay won't be managed by a pay czar. Executives who suck, will stay with the company but will have little incentive to do better. Their well-being will not be improved by the improvement of the company. In fact, their well-being will be improved by the government handing out another bailout! If these executives leave, who in the world is going to replace them? Why would anyone with any talent whatsoever want to work at a firm that is 1) arbitrarily controlled by the government 2) has their pay determined by some "czar" with no chances of improving their own well-being? It is laughable - it is destined for incredible failure.

Half of me is kind of glad by this development, because it will ensure the government sponsored entities will fail. The other half is enraged because I know this is just going to lead to more bailouts and probably outright nationalization.
skeeterses
QUOTE(lederuvdapac @ Oct 23 2009, 10:37 PM) *
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Absolutely, its right here in the handy dandy Constitu- oh wait. I can't find that anywhere. My copy of the Constitution must be flawed. That is the only thing that explains the government imbuing an unelected with the power to manage the pay of corporate executives.

2. Would such a limit cause effective Corporate leaders to leave the companies?

Of course it would. And now to respond to those clever few who like to say "good riddance" and "they led the company into bankruptcy." Well guess what? This is all true to some extent, the companies should have failed. But they didn't. They were bailed out by their friends in Washington. Now, Washington is intentionally sabotaging (for political reasons) the very things they saved for political reasons. Its madness. The people who have talent will go to other firms where their pay won't be managed by a pay czar. Executives who suck, will stay with the company but will have little incentive to do better. Their well-being will not be improved by the improvement of the company. In fact, their well-being will be improved by the government handing out another bailout! If these executives leave, who in the world is going to replace them? Why would anyone with any talent whatsoever want to work at a firm that is 1) arbitrarily controlled by the government 2) has their pay determined by some "czar" with no chances of improving their own well-being? It is laughable - it is destined for incredible failure.

Half of me is kind of glad by this development, because it will ensure the government sponsored entities will fail. The other half is enraged because I know this is just going to lead to more bailouts and probably outright nationalization.

I don't think the Constitution authorized the bailouts in the first place either. The fact that the Government approved the bailouts in spite of taxpayer opposition from the very start raises questions about the legitimacy of the Government itself. Contract law is a good thing but when the Government signs contracts and the taxpayers are not represented in the deal, people start questioning the legitimacy of those "contracts" and the Politicians and Corporate CEOs themselves run the risk of facing the peoples' wrath.

Now for that additional question "Who is going to replace them?" In earlier threads, you predicted that GM and Chrysler were going to go down, even with the bailouts. And I think you are right on that one. If some ineffective CEOs left, could we possibly find more incompetent people to replace them with (excluding the politicians)?
Paladin Elspeth
Is it an absolute, written-in-stone fact that we can find only the best and brightest in the highest-paid echelons of corporations/industries? If so, where did these Wunderkinds start out? Corporate heads making fabulous amounts of money tend to forget the problems of the "little people". Perhaps it would be good for industries to have leaders who remember what it is like to not be making top dollar. Corporate entities that benefited from government bailouts should pay the money back and not spend it enriching themselves with obscenely high bonuses or raises.

Seems to me more a matter of pragmatism than Constitutionality to expect some kind of circumspect behavior from these companies that evidently couldn't bail themselves out from the problems they created for themselves. In lieu of that circumspect behavior, penalties such as cutting back bonuses might send a message that this is other peoples' money they have been speculating with and losing, and that they are to be held accountable.
Julian
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?

Constitutionally, I have to take the unusual position (for me) and agree with lederuvdapac that it's not terribly Constitutional for the bailouts to have been carried out at all. And that, since the bailouts did not take the form of nationalisations (where the Government takes a controlling stake in the stocks of the business, at a minimum), they have little more say in pay levels than a bank who lends a lot of money to a business. They might well stipulate before the loan is made that it has to be spent on what the applicants say it will be spent on, and they might put penalties in place in the event that this intended purpose of the loan is not the actual one used. But all this assumes that the Government's bailouts were loans in any meaningful sense.

Personally, I wish the Brit government had done a bit more nationalisation (not being bound by a Constitution, and being the type of socialism that a Labour party should do anyway) because at least that way you know you'll get at least some of the money back - through retained profits or later re-privatisation.

That way, as the majority shareholder, you DO get to say what can and can't happen to boardroom pay.

And if you aren't the majority shareholder, it IS within the commonly-interpreted boundaries of Constitutional law that the government could TAX the incomes of executives rewarding themselves for failure (the root of this argument) to such a point that it becomes moot.

But, this could produce the kind of 'executive flight' that, we're told, is bound to happen if the government makes any moves to cap salaries or raise top rates of taxation.

2. Would such a limit cause effective Corporate leaders to leave the companies?

However it is generated (through laws placing salary caps, altering the tax structure to punish bonuses or link them more closely to longer term business performance than is currently fashionable, or just taxing rich people more), we're told that it will cause 'executive flight' to more 'entrepreneur-friendly jurisdications. While the word hasn't been bandied about in this thread, opponents of any intervention to limit boardroom rewards (in the USA or UK) often talk of disincentives to entrepreneurship.

On this point, very few senior business leaders are themselves 'entrepreneurs'. Steve Jobs is, at Apple. Bill Gates and a few others at Microsoft were there from the beginning. There's a few others, here and there. But none of those businesses received a bailout, or needed one. They're well-managed. GM, on the other hand, is almost a century old. Many of the big banks and other financial services industry recipients were of similar vintage, if not older. To have been the people who steered them from start-ups to business giants, you'd have to have so many birthday candles that you'd be an annual fire-risk (not to mention most likely deaf, infirm and in need of round-the-clock nursing care). We're not talking about entrepreneurs, here, but

But, in reply to the debate question - 'Will it? Really?' Why are high wage jobs so easy to keep by moving abroad, while people in low wage jobs get canned and replaced by cheaper foreign labour? Aren't there any up-and-coming Indian business wizards (who'd all speak perfect English) coming to the USA to run GM for half a million dollars a year, which is more than they'd likely earn in a decade or more back home? Isn't there an ambitious division head within the company, or a CEO at a smaller competitor, both of whom would likely take on the challenge for less money than the current incumbents, but with more passion and flair than them? There is a distinct problem in the upper echelons of business that new blood intake is little more than a trickle; the same faces stay around at the top for decades at a time, and even if they do move on, it's usually into bigger roles, or consultative ones, perpetuating the current culture. If - and it's a big if - the current culture is a healthy one, that's a good thing, but what's good one year may not be good the next.

IMO, stockholders need to get a great deal more activist and start binning poor performers a bit more often. I've no special beef about rewarding good performers (everybody likes that); indeed, I think it a weakness of modern business that non-consolidated bonuses usually only go down as far as the upper levels of senior management; the grunts are usually managed with a lot more stick ("work hard or we'll fire you and get someone else") than carrot ("work hard and we'll pay you a slice of the extra money you made us"). All wrong - where's the CARROT? Yet, at the top, it works the other way; big bosses get carrots just for showing up, they get even bigger ones for doing well (quite rightly), but they often get their contractual minimum carrot for doing badly. All wrong. Where's the STICK? People at the top and people at the bottom are all people, with the same basic fears and motivations, so the idea that good behaviour is rewarded and bad behaviour is punished needs to be reflected at both ends of the management chain. This is commonplace in some of the best-performing businesses - the ones that never need bailouts form anybody. Unfortunately, they're in a minority

Ok, /rant off. wacko.gif

The more pertinent question, by far (in the current global economy), to ask proponents of the idea of an 'executive brain drain' arising if the US government puts caps of any descriptionon boardroom pay, is "Where the hell are you going to go?". We're not talking about whole companies up-rooting overseas, after all, but an executive brain drain where the brightest and best US corporate stars get new jobs with foreign companies overseas.

Where are they going to go? Which major economies - ones likely to be able to afford the wage packets and quality of life that putative US government action will supposedly put off limits domestically - are not also in recession? Japan, Germany and France. And that's it. The one place in the world that's used by fatcats in boardrooms outside America to justify their demands for ever higher rewards, or else they'll take away their toys, IS America.

Oh, and even if it were possible to get bigger wedges of cash and stock options outside the USA (possibly Japan, I'm not very familiar with it's business culture), which – of Japan, France and Germany – has both a less punitive tax and reward regime than that tentatively proposed for US bail-out recipients, and conducts its domestic business primarily in English to suit mostly monoglot Americans? Er, none.

French people generally hate the idea of not speaking French inside their own country - they expect foreigners to speak French (just as Anglophone countries expect visitors to speak English, especially if they want to sell to them rather than buy from them). Germans are perhaps less antithetical to the idea, but no better at speaking English than the French are (both are rather better at speaking English than Americans, or Brits, are at speaking French/German), and they have a national culture informed by rather more socialism than most cut-and-thrust American capitalists would be very comfortable with. (Not to mention having left laws separating retail and investment banking, insurance, etc. in place rather more than the Anglophone world). Japan is probably a bit more similar in boardroom cultural and governmental economic policy to the US, but is even more culturually and liguistically alien.

The only really sizeable jobs market for spurned US executives in recent decades has been the UK, and we're still in the economic mire with you, only with rather more popular hostility to the rewards-for-failure domestically. So American bailout refugees looking to move over here and be welcomed with open arms and bigger packages than they'd get if they stayed put are going to be disappointed. (Though I daresay our burgeoning PFI industry has been rich pickings for people who know how to chisel profits from failing to deliver, I can't see that bonanza carrying on much longer.)

Oh well. Sorry boys, assuming the Supreme Court isn't going to overturn the bailouts (and let's face it, it isn't), you're just going to have to suck it up. Poor diddums.
lederuvdapac
QUOTE(Julian)
The more pertinent question, by far (in the current global economy), to ask proponents of the idea of an 'executive brain drain' arising if the US government puts caps of any descriptionon boardroom pay, is "Where the hell are you going to go?". We're not talking about whole companies up-rooting overseas, after all, but an executive brain drain where the brightest and best US corporate stars get new jobs with foreign companies overseas.


I think you misunderstood the question Julian. The question posited doesn't mean "brain drain" in the sense that it is used for countries who crack down on academics, who proceed to flee the country -or- imposing harsher immigration standards for work permits. The question means if the executives of GM, AIG, or BoA leave those industries to take up jobs in other sectors. Perhaps energy, or retail, or import/export. There was no implication of migration overseas, just migration to other industries or even other companies not affected by the government control.
Mrs. Pigpen
QUOTE(lederuvdapac @ Oct 23 2009, 02:30 PM) *
I think you misunderstood the question Julian. The question posited doesn't mean "brain drain" in the sense that it is used for countries who crack down on academics, who proceed to flee the country -or- imposing harsher immigration standards for work permits. The question means if the executives of GM, AIG, or BoA leave those industries to take up jobs in other sectors. Perhaps energy, or retail, or import/export. There was no implication of migration overseas, just migration to other industries or even other companies not affected by the government control.


And these 'other industries' would hire those displaced executives, and pay them a much better compensation package, because they did such a stellar job running the companies that required government bailouts? huh.gif
lederuvdapac
QUOTE(Mrs. Pigpen)
And these 'other industries' would hire those displaced executives, and pay them a much better compensation package, because they did such a stellar job running the companies that required government bailouts?


There is a huge misconception that you are perpetrating here. Not all of the executives who work at these companies did a bad job. In fact, not all of these executives even worked with risky investments such as derivative trading or securitized mortgages. Its like the story of Mr. Andrew J. Hall who made Citigroup hundreds of millions in oil trading. Citigroup had to drop this guy and his talent because it was politically impossible to pay the man his contracted bonus of $100 million. Now this guy did a good job and he was not able to be compensated for his work so he left. This is just the most famous example.

As I said in my first post - the people who have talent will leave, like Mr. Hall. The people who are unable to get a job elsewhere (because of a lack of talent) are then stuck at these bailed out firms. And nobody with any talent will be able to replace these people because there is no way they will submit themselves to the political absurdities of Washington as well as the limited ability to make money.
scubatim
QUOTE(Mrs. Pigpen @ Oct 23 2009, 01:39 PM) *
QUOTE(lederuvdapac @ Oct 23 2009, 02:30 PM) *
I think you misunderstood the question Julian. The question posited doesn't mean "brain drain" in the sense that it is used for countries who crack down on academics, who proceed to flee the country -or- imposing harsher immigration standards for work permits. The question means if the executives of GM, AIG, or BoA leave those industries to take up jobs in other sectors. Perhaps energy, or retail, or import/export. There was no implication of migration overseas, just migration to other industries or even other companies not affected by the government control.


And these 'other industries' would hire those displaced executives, and pay them a much better compensation package, because they did such a stellar job running the companies that required government bailouts? huh.gif

That's the funny thing. Take Robert Nardelli for example. Under Nardelli's tenure, the Home Depot stock went stagnant while Lowe's stock doubled; yet he still had a $200+ million compensation package and a $210 million golden parachute when he was finally ousted. So, one would think that if he was so bad, he would have a hard time finding a job, right? Wrong! GM picked him up and put him to work. Now that company has been taken over by the government after filing bankruptcy. Just one example, I am sure many others exist.
skeeterses
Leder, don't you think that it might be more fair for the "effective leaders" to prove themselves first before they get their bonuses?

Sure, among the bailed out firms, some executives are better than others. But if a company wants to give huge compensation to the effective executives, there should be some metric to measure the effectiveness. One metric I propose is this: Having the company pay back the bailout money with interest, and then keeping the company profitable for 5 years afterwards. And if someone like Andrew Hall can pull off this feat, then he can get his $100 million dollars. But let's not put the cart before the horse. Given that these people at the top already have money in the bank, its not urgent to pay them up front. Let's wait for them to deliver on their promises before paying them a lot.

Hobbes
QUOTE(Raptavio @ Oct 22 2009, 11:01 PM) *
QUOTE(Hobbes @ Oct 22 2009, 08:41 PM) *
It's not the Federal Government per se that I think needs to be discussed. Does a czar, who is essentially just some guy the President assigns to a position, with no oversight or approval, have the right to tell companies what to do?


Oh, come on Hobbes, don't believe the FOX "News" hype. Everything the Administration does can be revisited and given oversight by Congress or the Courts if they see a need to do so. Let's not buy into this "czar" crap (remember the term is just a media shorthand - his title is "Special Master for Compensation", and many "czars" are in fact subject to Congressional approval). Feinberg reports to Treasury Secretary Geithner, and Geithner is accountable for anything that happens in his department, including by any of his appointees.


But that's not how they're playing it, is it? They're saying he's making the decisions, not that he's reporting to others and they're making the decisions. Therefore, its not 'crap'--we have people doing essentially cabinet level jobs with no cabinet level oversight. Not unique to Obama, although he has definitely extended their scale and scope far more than anyone else.

This is also ignoring the basic fact that Geithner has no authority to do what they're doing, either. If limiting compensation was important, shouldn't they have written that into their loan contracts? Further, 'they' (since only Feinberg is saying anything, yet he has no authority, we have to use 'they') haven't addressed exactly why they want to ensure that only the least competent managers are there overseeing these companies, and how restructuring their contracts makes to include more stock compensation makes sense normally, but is completely out of place given the massive amounts of new stock several of these companies issued (most notably AIG and GM) to cover the loan, making the stock essentially worthless.

How did Fox News even entire into this conversation, anyway? ???

QUOTE(skeeterses)
Sure, among the bailed out firms, some executives are better than others. But if a company wants to give huge compensation to the effective executives, there should be some metric to measure the effectiveness. One metric I propose is this: Having the company pay back the bailout money with interest, and then keeping the company profitable for 5 years afterwards. And if someone like Andrew Hall can pull off this feat, then he can get his $100 million dollars. But let's not put the cart before the horse. Given that these people at the top already have money in the bank, its not urgent to pay them up front. Let's wait for them to deliver on their promises before paying them a lot.


Skeeterses, normally that would be a good idea, but for several of these firms, it is never going to happen. Where on earth do you think AIG is going to get $140 billion from? Or GM getting $70 billion. GM especially had trouble making a profit at all. This money is never going to be repaid. Ever. Which creates yet another dilemma for the proposals being set forth--they're never going to go away, either. GM and AIG will ALWAYS have executive pay restrictions...which means they'll ALWAYS have trouble getting capable execs to run them.

lederuvdapac
QUOTE(skeeterses)
Sure, among the bailed out firms, some executives are better than others. But if a company wants to give huge compensation to the effective executives, there should be some metric to measure the effectiveness. One metric I propose is this: Having the company pay back the bailout money with interest, and then keeping the company profitable for 5 years afterwards. And if someone like Andrew Hall can pull off this feat, then he can get his $100 million dollars. But let's not put the cart before the horse. Given that these people at the top already have money in the bank, its not urgent to pay them up front. Let's wait for them to deliver on their promises before paying them a lot.


That is all well and good skeeterses. But If you were Andrew Hall and you had a choice between having to prove yourself to some government bureaucrat and wait for five years to get your bonus -or- you could go to a new company without government control and get your bonus right away - what would you do? Its a no-brainer.
cicero
I get what lederuvdapac and Hobbes are saying. The czar issue is an issue. There is also nothing wrong with questioning the Constitutionality of the federal government regulating pay including bonuses.

Now, in the case of regulating bonuses of the companies that received taxpayer bailout money, under the current circumstances, I see nothing wrong with it. In fact, it is questionable if the bailouts themselves were Constitutional but something had to be done. Granted, I think they should have done things differently but they did it this way. Thus, I have to roll with it, so to speak. However, that does not mean you have to agree with the way things have been handled. Therefore, I would expect people to come up with alternate solutions not just complain (simple generalization, not directed towards anyone).

As for the czars, I think as long as they are approved by Congress and information about them are accessible to the public then I don’t necessarily have any problem with them. However, President Bush had 35 czars and now President Obama has 32 czars (PDF) as of right now. I question the necessity of so many czars, how many of them were/are approved by Congress, the Constitutionality of some of the czars, and if this is a dangerous centralization of power to the presidency. As for the approved Czars by Congress list I am sure there is one but I have not looked yet, just making that clear.

Also, why bring up Fox news? By simply saying that Fox news or any network or program is automatically illegitimate and not prove the argument is wrong is just poor debating. Granted, radical groups like the KKK or something of that nature are automatically illegitimate in their arguments of race and probably other subjects as well. But, does that mean we don’t have to defend are arguments or not go after the “illegitimate” points others make? Even if someone sources Glenn Beck I would rather prove or disprove his argument then simple say, “Sorry, he is bogus” and just leave it at that. So, Rachel Maddow fans, if you source something by her and I say, “Sorry, she has no legitimacy” and left it at that I would expect you to be a little ticked off. Not just by the fact that I put Maddow, Beck, and the KKK in the same paragraph laugh.gif but because Maddow is likely making a good point. Therefore, simply because we think Glenn Beck has no legitimacy or that you think Fox news has no legitimacy does not mean any of us should just blow it off. If it is illegitimate, then prove it and be done with it. My professor told me once, “You argue with a racist not because their argument is legitimate but because you must let others know they are not legitimate.”
AuthorMusician
QUOTE(lederuvdapac @ Oct 23 2009, 03:26 PM) *
QUOTE(skeeterses)
Sure, among the bailed out firms, some executives are better than others. But if a company wants to give huge compensation to the effective executives, there should be some metric to measure the effectiveness. One metric I propose is this: Having the company pay back the bailout money with interest, and then keeping the company profitable for 5 years afterwards. And if someone like Andrew Hall can pull off this feat, then he can get his $100 million dollars. But let's not put the cart before the horse. Given that these people at the top already have money in the bank, its not urgent to pay them up front. Let's wait for them to deliver on their promises before paying them a lot.


That is all well and good skeeterses. But If you were Andrew Hall and you had a choice between having to prove yourself to some government bureaucrat and wait for five years to get your bonus -or- you could go to a new company without government control and get your bonus right away - what would you do? Its a no-brainer.


In a tight job market I might decide to take something rather than foolishly and arrogantly expect the world to give me something for nothing. I very well could end up with nothing. Well, unemployment comp. It's enough to keep a bum in rotgut wine.

Blaming others for your own failings is not a sign of talent. Being pulled down by the actions of another business with which one does business is a sign of ignorance and incompetence. Thinking of self as being too big to fall is just plain old stupid.

And to think, Krugman and others predicted what was going to happen. I read The Great Unraveling years ago. Sure enough, it happened.

Due to talented people? Nope, arrogance ignorance and opulence. The blizzard of money blinded these people.

Is it a sign of a talented horse if you bring it to water and it refuses to drink?

On Constitutional law I'm pretty much a layperson. Bailouts probably come under the general welfare idea. Same with corporate welfare, er, subsidies. Maybe in a global economy it has to do with treaties. There was and still is a lot of international negotiations going on.

I understand your feeling about letting failing corporations fail. I don't necessarily agree with it, but I understand it. Yep, in a perfect world . . . in a simpler world . . . in a world with no history or karma maybe. No crooks and con artists. Where cream actually does float to the top and not that other substance. Where just compensation for a job well done always happens.

*sigh*
BecomingHuman
2. Would such a limit cause effective Corporate leaders to leave the companies?

This is no longer a matter of speculation, but of fact.

The issue of whether such bonuses are warranted is not really the purview of this debate, but I find it interesting that the government wants to drive away talent from businesses it has a substantial stake in.

Edit: I thought I should edit in the fact that most of the bailed out firms have had leadership changes since the crisis. Off the top of my head, Citi, GM, BoA, AIG
Lesly
Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?
Does it matter? Unfortunately for people like Hall, Citigroup management invested in over-leveraged CDOs and the company decided to put up with whatever program the Congress could justify to the public. Congress failed to sell the bailout. That means placating the public by giving it the next best thing to rolling heads: money.

It's fitting that Hall is screwed. Every private person who didn't support deregulation, participate in the banks' downfall through mismanagement or support the bailout is already screwed and there is no relief in sight, with a flood of voluntary foreclosures momentarily clogging a huge supply that won't hit the market until next year. Hall's predicament isn't important because he's "smart enough" to make millions of dollars in profits.

Would such a limit cause effective corporate leaders to leave the companies?

Yes, but if I were an effective leader my company's shares/interests would never be up for public trade to begin with.

When I saw the tittle of this thread the first thing I asked myself was, "What brain?" Nowadays executives make up part of the elite managerial class that acts as owners of a company, spending millions on lobbyists to buy off Congress as insurance against fatal corporate policies, treats shareholders as afterthoughts if they're thought of at all, and makes up compensatory rules as it goes along.

Effective leaders didn't have to run to Congress when the game was up. Contrary to what the Big Four would have us believe (this includes Citigroup) there were viable banks run by diligent bankers who did not drink the deregulation Kool Aid. These bankers are gone or going, gobbled up by losers with enough foresight to spend their shareholders' investments on Congress. The Big Four losing effective leaders, if any still exist, isn't a huge blow. They killed American capitalism, after all.
Ted
QUOTE
lesly
Effective leaders didn't have to run to Congress when the game was up. Contrary to what the Big Four would have us believe (this includes Citigroup) there were viable banks run by diligent bankers who did not drink the deregulation Kool Aid



Good points and it’s the same in the auto industry. Ford took not one dime from the government and is doing fine. Whereas GM took tens of billions to forestall bankruptcy and went there anyway. wacko.gif

Some companies are just too dame stupid to be allowed to survive.

What "brain" is right.
CruisingRam
QUOTE(lederuvdapac @ Oct 23 2009, 11:26 AM) *
QUOTE(skeeterses)
Sure, among the bailed out firms, some executives are better than others. But if a company wants to give huge compensation to the effective executives, there should be some metric to measure the effectiveness. One metric I propose is this: Having the company pay back the bailout money with interest, and then keeping the company profitable for 5 years afterwards. And if someone like Andrew Hall can pull off this feat, then he can get his $100 million dollars. But let's not put the cart before the horse. Given that these people at the top already have money in the bank, its not urgent to pay them up front. Let's wait for them to deliver on their promises before paying them a lot.


That is all well and good skeeterses. But If you were Andrew Hall and you had a choice between having to prove yourself to some government bureaucrat and wait for five years to get your bonus -or- you could go to a new company without government control and get your bonus right away - what would you do? Its a no-brainer.


Leder- if high pay gets the best and brightest, and is the key to retention is also big bonuses, why aren't we atracting the clearly more competent and better managers from overseas- what is stopping them from working here, and taking over the jobs of the clearly inferior but much higher paid American counterparts? Where is the free market failing us, or is our system of compensation out of whack?

The problem is Leder, there is no real free market checks and balances in the US corporate "big finance" sectors, or the really huge corps.

I would tend to agree, if the compensation commitee did thier jobs and paid folks what they were really worth, rather than a "scratch my back and I scratch yours" collusion that goes on now.

I would agree that this is NOT the best way to go about it, but I don't think that this "brain drain" is really going to happen either.

Really, we should see if we can head hunt that CEO from Toyota, see if he wants a 20000% raise to run GM whistling.gif
lederuvdapac
QUOTE(CR)
Leder- if high pay gets the best and brightest, and is the key to retention is also big bonuses, why aren't we atracting the clearly more competent and better managers from overseas- what is stopping them from working here, and taking over the jobs of the clearly inferior but much higher paid American counterparts? Where is the free market failing us, or is our system of compensation out of whack?


...because our draconian immigration system hinders the ability of skilled workers from working in this country. An utter non sequitar CR.

QUOTE(CR)
The problem is Leder, there is no real free market checks and balances in the US corporate "big finance" sectors, or the really huge corps.


Oh no? How about bankruptcy? rolleyes.gif

QUOTE(CR)
I would agree that this is NOT the best way to go about it, but I don't think that this "brain drain" is really going to happen either.


Except for the fact that it has already happened. And this is before the announced pay czar tyrannical mandates.
AuthorMusician
QUOTE(BecomingHuman @ Oct 23 2009, 05:48 PM) *
2. Would such a limit cause effective Corporate leaders to leave the companies?

This is no longer a matter of speculation, but of fact.

The issue of whether such bonuses are warranted is not really the purview of this debate, but I find it interesting that the government wants to drive away talent from businesses it has a substantial stake in.

Edit: I thought I should edit in the fact that most of the bailed out firms have had leadership changes since the crisis. Off the top of my head, Citi, GM, BoA, AIG


The article linked to actually explains that many so-called top employees had already left before the announcement of pay cuts.

There's an implication here that the employees who remained aren't exactly in demand, otherwise they would have already left.

Meanwhile, the job market is still very tight. Could be that there are competent people out there who can actually outperform the former stars and would love 10% of the falling stars' salaries.
Maybe Maybe Not
QUOTE(AuthorMusician @ Oct 24 2009, 11:08 AM) *
Could be that there are competent people out there who can actually outperform the former stars and would love 10% of the falling stars' salaries.
10% of $100,000,000? No WAY I'm gonna work for peanuts like that!
CruisingRam
QUOTE(lederuvdapac @ Oct 24 2009, 07:00 AM) *
QUOTE(CR)
Leder- if high pay gets the best and brightest, and is the key to retention is also big bonuses, why aren't we atracting the clearly more competent and better managers from overseas- what is stopping them from working here, and taking over the jobs of the clearly inferior but much higher paid American counterparts? Where is the free market failing us, or is our system of compensation out of whack?


...because our draconian immigration system hinders the ability of skilled workers from working in this country. An utter non sequitar CR.

QUOTE(CR)
The problem is Leder, there is no real free market checks and balances in the US corporate "big finance" sectors, or the really huge corps.


Oh no? How about bankruptcy? rolleyes.gif

QUOTE(CR)
I would agree that this is NOT the best way to go about it, but I don't think that this "brain drain" is really going to happen either.


Except for the fact that it has already happened. And this is before the announced pay czar tyrannical mandates.


Bankruptcy doesn't sanction top executives at all- in fact, they often use this as an excuse to raise thier salaries again

you didn't address the disparity of pay of foriegn execs that clearly out perform American execs

you haven't address those that left as actual "brains" that couldn't be replaced by a much cheaper and much more competent foreign or domestic employee

The #1 field in America ripe for outsourcing is the corporate boardroom.

you haven't addressed the total lack of market forces that go in to executive pay - remember, they get to write thier own salaries, no different than congress.

You haven't addressed how hard it is for stock holders to deal with this situation. Stock holders don't get to directly determine CEO pay- which is probably where the reform is most needed, we need to do away with comp committees as we know them in the US, and stop allowing them to write thier own tickets.

Quite frankly Leder, we have very, very few CEOs in this country that are good at running companies in the "big league" level of corporate management- that is why corporations are in such big trouble in this country- what we have, is CEOs that are very, very good at networking each other.

Draconian immigration laws for talented CEOs? You have to be kidding- you only have to show a net worth of 1 million dollars to get into the US and get a green card and be a citizen within 5 years. rolleyes.gif

Again, I think this is the wrong way to go about it- we need something more radical, personally, I would like to do away with the system we have completely, and end the "top dog" type CEO structure we have, and outsource all management of publicly owned companies, by law. No such thing as entrenched management anymore, and make it very, very easy for stockholders to fire management teams and replace them, and make it illegal for them to receive any compensation once fired.
skeeterses
QUOTE(lederuvdapac @ Oct 24 2009, 04:26 AM) *
That is all well and good skeeterses. But If you were Andrew Hall and you had a choice between having to prove yourself to some government bureaucrat and wait for five years to get your bonus -or- you could go to a new company without government control and get your bonus right away - what would you do? Its a no-brainer.

It's kind of odd that when these companies got their bailouts, how very little red tape they went through. It's quite remarkable how effective the Government can be when you have friends in the White House and on Capitol Hill. But now the Executives of those very same companies are surprised that there's strings attached. It's probably the same feeling people get when they win the lottery and find that the taxman gets to keep half the money. Some of the 'troubled' companies had the foresight to decline the bailout money because of the politics involved in taking unearned money from taxpayers. Unearned riches can be quite difficult to hold on to.

You should know from your study of Economics how tough things are for the small business owners when they apply for loans from the Federal Government or compete for Federal contracts. Do those people have to prove themselves to some 'government-bureacrat?' You can sure bet the farm they have to, even though they may not like it. And for good reason too. When regular people write bogus checks on taxpayer dime and get caught, they have to go to a real prison.
BecomingHuman
QUOTE(AM)
The article linked to actually explains that many so-called top employees had already left before the announcement of pay cuts.

The question at hand is whether employees will quit due to compensation changes. The fact that they did so before those changes were officially announced only emphasizes their eagerness to leave due to cuts.

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.

"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
QUOTE(CR)
Bankruptcy doesn't sanction top executives at all- in fact, they often use this as an excuse to raise thier salaries again

The biggest form of CEO compensation is stock and stock options. When bankruptcy occurs, equity holders nine times out of ten get zeroed out.
QUOTE(CR)
why aren't we atracting the clearly more competent and better managers from overseas- what is stopping them from working here

Lederuvdapac is right immigration laws have prevented companies from fulfilling their skilled worker needs.

But what really makes your criticism funny is that, as a condition of being bailed-out, financial firms have extra legal restrictions from hiring foreign workers:

With another 589,000 jobs lost in January and unemployment at 7.6% and rising, the U.S. Senate has agreed to legislation requiring that banks getting federal bailout money replace laid off workers with American workers only, rather than with foreign H-1B visa workers, for the next two years.
Bailout american workers first
Lesly
QUOTE(BecomingHuman @ Oct 24 2009, 02:47 PM) *
The biggest form of CEO compensation is stock and stock options. When bankruptcy occurs, equity holders nine times out of ten get zeroed out.
It doesn't matter. On top of lobbying Congress to calculate pension benefits for employees one way and executives another way, bankruptcy may not affect CEOs if they're too big too fail or have been diligent about their political contributions.

QUOTE(Mother Jones)
The government does not guarantee these executive benefits; in theory, if a company ends up in bankruptcy, creditors can take the money. But as Diana B. Henriques and I showed in a 1996 series for the New York Times, in practice executives get nearly every cent (and some even double their money) when their companies fail. The reason? Executives of bankrupt companies threaten to walk unless they get their pension money in full, but promise to stay and help rehabilitate the firm if their money is guaranteed.
lederuvdapac
QUOTE(CR)
Bankruptcy doesn't sanction top executives at all- in fact, they often use this as an excuse to raise thier salaries again


Except for their loss of job and their stock options tanking?

QUOTE(CR)
you didn't address the disparity of pay of foriegn execs that clearly out perform American execs


I didn't address it because it is utter nonsense. By what measure are you coming up with this "clearly out perform American execs" stuff? Your opinion?

QUOTE(CR)
you haven't address those that left as actual "brains" that couldn't be replaced by a much cheaper and much more competent foreign or domestic employee


Why would anyone with talent want to be subjected to the government fiat of a bankrupt company and have their pay mandated by Washington instead of by the shareholders?

QUOTE(CR)
you haven't addressed the total lack of market forces that go in to executive pay - remember, they get to write thier own salaries, no different than congress.


rolleyes.gif Which is approved by shareholders who actually pay their salaries.

QUOTE(CR)
You haven't addressed how hard it is for stock holders to deal with this situation. Stock holders don't get to directly determine CEO pay- which is probably where the reform is most needed, we need to do away with comp committees as we know them in the US, and stop allowing them to write thier own tickets.


Stockholders are taking a risk by buying into a company, what exactly should their role be otherwise?

QUOTE(CR)
Quite frankly Leder, we have very, very few CEOs in this country that are good at running companies in the "big league" level of corporate management- that is why corporations are in such big trouble in this country- what we have, is CEOs that are very, very good at networking each other.


The famous CR unsubstantiated opinion i see.

QUOTE(CR)
Draconian immigration laws for talented CEOs? You have to be kidding- you only have to show a net worth of 1 million dollars to get into the US and get a green card and be a citizen within 5 years. rolleyes.gif


Wow, only 5 years CR? And only a net worth of $1 million. You're right CR, it is a wonder that these foreign executives aren't pouring in to the country. I am sure we'll see the stampede in 2014.

QUOTE(Sketterses)
When regular people write bogus checks on taxpayer dime and get caught, they have to go to a real prison.


But when politicians and Fed bankers do it, they should be handed more power?

QUOTE(Lesly)
It doesn't matter. On top of lobbying Congress to calculate pension benefits for employees one way and executives another way, bankruptcy may not affect CEOs if they're too big too fail or have been diligent about their political contributions.


Its funny how we read this sentence and then take umbrage with the lobbyists and Wall Street instead of the politicians who accept the bribes and shell out the taxpayer money. People fail to see the cause/effect relationship. They blame the bankers and the lobbyists and the money. They don't sit there and realize that banks lobby because politicians promise to dip their greedy hands into the public trough. The more Washington controls, the more they promise to help, the larger the incentive there is for private enterprise to lobby. Did Google lobby before the government started taking about net neutrality? No. Would a farmer lobby Congress if they were just left alone and there were no subsidies to be had? Of course not. People want to have two contradictory outcomes. The more the government intervenes, the more lobbying that private enterprise will be forced to engage in. Once economic freedom is abolished, the only kind of power that matters is political power.
BecomingHuman
Lesly,

Pensions are liabilities on banks balance sheet. When a company becomes bankrupt, the assets of the company are split amongst the creditors, so it makes sense that a CEO would get something for his pension.

But the fact remains that CEO's stand to lose millions in the event of a bankruptcy because of their personal investments in the companies they run and thus have a financial incentive to prevent that from happening. CR seems to think bankruptcy is a blip in the compensation radar.
skeeterses
QUOTE(lederuvdapac @ Oct 25 2009, 04:23 AM) *
QUOTE(Sketterses)
When regular people write bogus checks on taxpayer dime and get caught, they have to go to a real prison.


But when politicians and Fed bankers do it, they should be handed more power?

Don't think that I'm trying to give those sleazy politicians a free pass here. They are just as despicable as the "Successful Leaders" who are running these bailed out companies. The bailouts were given without the consent of the people. And the people of this country protested in the streets and relentlessly called their "representatives" to oppose these bailouts.
If the politicians refuse to listen and the November elections do no good, there's a problem.

The bailouts should be regarded as wholesale theft from the hardworking taxpayers of this country. Let's throw the thieves in jail and arrest the the beneficiaries for possession of stolen property. Ignorance would be a pretty feeble excuse since the Executives knew beforehand what the taxpayers thought of these bailouts.
CruisingRam
Because, in practice, it is BH. Leder seems to have a very story book idea of the way stocks are bought and sold even. As it stands now, CEOs are protected by multiple layers against a stockholder revolt- you have stock in a mutual fund, for instance, you really have no way of directly voting against a CEO of AIG, for instance. hell, you may not even know at the time you HAVE AIG stock. You can blame the consumer somewhat for this- but it is industry officials that have lobbied for and won protections against the stockholder.

How many CEOs of bankrupt companies went broke with the company there BH- even when they went to jail for fraud? Michael Milken, the junk bond king, spent five years in jail, and came out a billionare. Ken Lay died a very, very rich man.

In theory, yes, the CEO should lose his/her shirt, but in practice, they don't.

Leder, I hold the politicians that accept all this lobbying and such from the financial industry that helped make our economy so weak as about 20% as culpable as those that ran the companies. But the onslaught of lobbying, campaign contributions etc makes it very difficult to elect a politician that is both educated in high finance enough to say "no" when the industries "experts" tells them what is going on, and to winnow the chafe from the wheat, and to stay in office.

You like to criticize Greenspan for his roll in our economic collapse, but there is little daylight between Greenspan and JPChase morgan- his old employer, so that corporate culture bleeds right into the government regulators that allowed this to happen. The government doesn't control the industry- the industry controls the government.

Not unsubstantiated Leder- clearly, there are lots and lots of lower paid CEOs in this world- Toyota comes to mind, that out perform American CEOs in every way. The CEO of Toyota has a net worth quite a bit more than 1 million. Why won't he come to work for Gm at 20000% higher salary?

Are you saying that the failed big companies in the US are managed better than those foreign companies? GM is being run better than Toyota? rolleyes.gif

If only 1 million a year is attracting super-talented execs in other countries, why can't it attract them here Leder?

And you STILL haven't addressed the dysfunctional way CEOs get their compensation in the first place Leder.
Lesly
QUOTE(lederuvdapac @ Oct 24 2009, 03:23 PM) *
Its funny how we read this sentence and then take umbrage with the lobbyists and Wall Street instead of the politicians who accept the bribes and shell out the taxpayer money.
Who is this we?

We thinks the urbandictionary.com's definition of politician is spot on. We thinks treating corporations like persons and letting them donate to Congress is a terrible idea, and then we are told we're violating "someone's" free speech right. We think it's impossible to be pro-business and not tinker with the economy, and then we get labeled a commie.

QUOTE(BecomingHuman @ Oct 24 2009, 03:27 PM) *
Pensions are liabilities on banks balance sheet. When a company becomes bankrupt, the assets of the company are split amongst the creditors, so it makes sense that a CEO would get something for his pension.
This is the case in Chapter 7 bankruptcy. My understanding is 7s are rare in corporate and personal filings. Well, anyone can apply for 7, but trustees are stingy. There are properties trustees can't touch under 7 and generally speaking they don't like forgiving debt. Otherwise the company can reorganize under Chapter 11. A CEO can stick around for 11, eventually "retire" and walk away with benefits in tact, including, it seems, stock options.

QUOTE(BecomingHuman @ Oct 24 2009, 03:27 PM) *
But the fact remains that CEO's stand to lose millions in the event of a bankruptcy because of their personal investments in the companies they run and thus have a financial incentive to prevent that from happening.
The incentive isn't as strong as it should be when a CEO has the option of staying through Chapter 11, then cash out as if his or her company never had to file for bankruptcy and shed payroll to meet debt obligations.
CruisingRam
QUOTE(BecomingHuman @ Oct 24 2009, 11:27 AM) *
Lesly,

Pensions are liabilities on banks balance sheet. When a company becomes bankrupt, the assets of the company are split amongst the creditors, so it makes sense that a CEO would get something for his pension.

But the fact remains that CEO's stand to lose millions in the event of a bankruptcy because of their personal investments in the companies they run and thus have a financial incentive to prevent that from happening. CR seems to think bankruptcy is a blip in the compensation radar.


It would be a good reform for a law to be made that when a company goes bankrupt that the board of directors pensions, compensations and such be 0'd out and they receive nothing, zip, nada.



Here is the bottom line- there are NO market forces regarding CEO compensations.

They determine thier own salaries, it is very, very rare that they don't get what they say they are worth.

WE are assuming that they are worth what they are paid on false premises in the first place- CEOs are paid what the CEO claims is what they are worth- NOT market forces. It is very, very similar to congressional pay, except that there is MORE accountability when there is a congressional pay raise. Congress determines what a congressman is worth, and there is no outside force that mitigates this determination. Same with CEO pay, except you don't risk losing your job when a CEO for paying yourself too much. And there is little public outcry and the public would have no say anyway. mad.gif
metropolitical
1. Does the Federal Government have the right to limit the executive pay at companies that receive federal bailout money?
Yes, it is a conditional requirement. Since acceptance of the money is not required, acceptance of its conditions is therefore not required. It is a choice.
2. Would such a limit cause effective Corporate leaders to leave the companies?
It would cause many to leave, but whether those that would leave are intrinsically the most effective is debatable. People in the financial world often define themselves by greed, so it should not be surprising if the greediest might leave with a pay cut. If success is defined by whether such financial leaders can create a financial bubble and how long they can milk it to keep the money coming in longer, then the current corporate leaders were successful. If excessive risk-taking and circumvention of regulation leads to greater short-term profitability, then such people are the most effective. If the banking world can only evaluate itself on the basis of how much it can get away with, then that will always be the norm for evaluating effectiveness. As it is for a criminal, the ends justifies the means ... and they were successful at achieving their ends, until of course, they were caught by the collapse.

But should that type of leadership be the standard going forward?
AuthorMusician
QUOTE(BecomingHuman @ Oct 24 2009, 02:47 PM) *
QUOTE(AM)
The article linked to actually explains that many so-called top employees had already left before the announcement of pay cuts.


The question at hand is whether employees will quit due to compensation changes. The fact that they did so before those changes were officially announced only emphasizes their eagerness to leave due to cuts.

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.

"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."


Still begs the question, how come others kept on? Not enough jobs to go around in this highly competitive situation?

Looks that way to me.

Comes down to how much one trusts the perceptions of an executive from one of the bailed out firms. I don't, not at all.

In any case, your point is that rumors of pay cuts might cause a brain drain. Yep, if we are actually talking about brains and not good old boys, self-glorified accountants who contributed to the problem. Well, actually caused the problem, if not directly then passively for . . .

not thinking things through.

It causes me pause to think that some of these people got jobs elsewhere. We have not seen the end of this yet if they are doing the same things.
BecomingHuman
QUOTE(lesly)
This is the case in Chapter 7 bankruptcy... Otherwise the company can reorganize under Chapter 11. A CEO can stick around for 11, eventually "retire" and walk away with benefits in tact, including, it seems, stock options.

QUOTE(lesly)
when a CEO has the option of staying through Chapter 11, then cash out as if his or her company never had to file for bankruptcy and shed payroll to meet debt obligations.

When a company is insolvent, it has more liabilities than assets to pay to those liabilities. Shareholders have a claim to all assets that are not already claimed by liability holders. Thus, when a company formally declares bankruptcy, and it doesn't have enough assets to pay off its liabilities (insolvent), the stock in the company, and call options on that stock, become worthless. This is true whether its a chapter 7 or 11.

In a chapter 7 liquidation, the assets of the company are all sold off and a presiding judge determines which liability holders get what.

In a chapter 11, the various liability holders decide to give the company another shot. The old company still has the problem of having more liabilities than assets, however. The solution is to force the old debtholders to give up their old claims, and in exchange have them recieve stock in the 'new' company.

GM's union, for instance, was a liability holder. Old GM owed them pensions and health care benefits, but the unions eventually accepted stock in exchange:
Bondholders will now be asked to take stock in G.M. in exchange for more than two-thirds of the money they are owed. The union appears to have little choice but to accept G.M. stock for at least 50 percent of the cost of financing retiree health care.
NYT

Incidentially, this is also how the US government even recieved a stake in GM in the first place. They orginally gave GM 'emergency loans,' and when the company went bankrupt, those liabilities were changed into equity.

Sooooo to get back to the issue at hand. A CEO that has a pension in an insolvent, bankrupt company, has a claim just like any other pension or bondholder. That CEO will give up his old pension, and in exchange recieves equity (or options) in the new company.

But all the stock and options in the old company are worthless. As I mentioned before, because CEO's get paid mostly in stock, it presents quit the financial incentive to avoid bankruptcy.
QUOTE(AM)
Still begs the question, how come others kept on? Not enough jobs to go around in this highly competitive situation?

Looks that way to me.

Either that or no one offered them a job.
QUOTE(CR)
Here is the bottom line- there are NO market forces regarding CEO compensations.

Whether CEO's get paid too much or not is a surprisingly complicated question.

But I think you are overestimating a CEO's ability to jimmy the system. If not because shareholders can vote out an offending CEO, then because investors don't like a CEO that swindles the companies they invest in, and when investors sell their shares, the stock price, and thus the CEO's salary, goes down.
skeeterses
BH, the issue that the other posters have is that many CEOs get paid handsomely regardless of whether the company is doing well or is in bankruptcy. The reason that this issue of Executive compensation seems to keep coming up is that the Federal Government has effectively insulated politically connected companies from failure through things like bailouts. It's not reasonable for the Government to keep protecting these companies from failure and then expect the Free Market to set a reasonable salary for the people at those companies.

Why could an Executive from a failed firm possibly expect to get a higher salary elsewhere? "Well, I have friends in Washington DC and if you want their help, you can pay my salary..." People with political connections seem to be worth a lot of money in this country.
Lesly
QUOTE(BecomingHuman @ Oct 25 2009, 06:01 AM) *
Incidentially, this is also how the US government even recieved a stake in GM in the first place. They orginally gave GM 'emergency loans,' and when the company went bankrupt, those liabilities were changed into equity.
You mean taxpayers have a stake in GM. And since GM had to file for bankruptcy anyway, the value of those stocks could be down. We'll eat the loss twice over in the stock market if GM doesn't reinvent itself after reorganizing under Chapter 11.

QUOTE(BecomingHuman @ Oct 25 2009, 06:01 AM) *
Sooooo to get back to the issue at hand. A CEO that has a pension in an insolvent, bankrupt company, has a claim just like any other pension or bondholder. That CEO will give up his old pension, and in exchange recieves equity (or options) in the new company.
He doesn't have to step down and give up anything for the good of the company, BH. He can, however, step down and take everything he's "earned" because keeping the company out of bankruptcy was beyond his "considerable" skills. At the time the Treasury gave GM cheap billion-dollar loans, Obama asked the CEO, Wagoner, to step down. What your New York Times article doesn't say is Wagoner is expected to receive $23 million in pension money if he lives long enough and "$366,602 in unvested stock awards and $534,627 in deferred compensation" based on a December 31 company report.

I'm almost positive that if another GM CEO will leaves after Chapter 11, they'll leave with all their benefits again.

If you have data refuting my impression -- that CEOs more often than note leave bankrupt companies with most, if not all of their benefits -- I'll buy it. But I don't think I describe an elite managerial class insulated from its own failures:

QUOTE(SiliconBeat)
Aruba Networks, which last November layed off 46 employees to reduce costs and "streamline operations", last week granted its chief executive, Dominic Orr, a 33 percent raise in salary from $300,000 to $400,000, according to a filing it made with the SEC today.

Chief Financial Officer Steffan Tomlinson got his current salary, which was $280,000 according to today's filing, boosted 16 percent to $325,000. [...]

Aruba's vice president for engineering, Sriram Ramachandran, and Chief Technology Officer Keerti Melkote scored 24 percent increases in base pay from $225,000 to $280,000. [...]

Aruba has yet to post a profitable quarter since becoming a public company in March 2007. Sales growth in its most recent quarter slowed to 8 percent compared to a 23 percent gain in the comparable quarter last year.
Mrs. Pigpen
QUOTE(Lesly @ Oct 25 2009, 10:50 AM) *
I'm almost positive that if another GM CEO will leaves after Chapter 11, they'll leave with all their benefits again.

If you have data refuting my impression -- that CEOs more often than note leave bankrupt companies with most, if not all of their benefits -- I'll buy it. But I don't think I describe an elite managerial class insulated from its own failures:


Oh, there's plenty where that came from. From safeskin to nortel to global crossing.
QUOTE
Global Crossing's rapid rise and fall attracted tremendous attention and it was quickly revealed that the company, particularly its executives, lavishly spent money on "themselves and their digs." Four of Global Crossing's CEOs received at least $23 million in personal loans from the company, some of which were forgiven entirely even when bankruptcy was becoming a greater possibility. These same CEOs also received over $13.5 million in after-tax signing bonuses along with lucrative stock options. Between 1998 and 2001, Winnick sold approximately $420 million in Global Crossing stock. Other executives with the company sold an additional $900 million, totaling $1.3 billion, an amount equal to the Enron inside sales for the same period.[14]
**snip**
Additionally, Global Crossing operated five corporate jets, including a Boeing 737, a Challenger, a Gulfstream, an Astra and a seven-seater, when, according to one former executive, it needed two jets maximum. Employees reported reckless spending in other areas as well, including the purchase of new accounting software costing $150 million when accounting department staff indicated the current software did not need updating. It was later discovered the software was never even installed.

Gary Winnick's spending was criticized and he was condemned by many employees, many of whom had losses beyond their jobs when the company filed bankruptcy. Even as the company's financial situation went from questionable to grim, work continued on Winnick's Bel Air mansion, valued at $92 million and considered the most expensive home purchased in Los Angeles (and by some reports, American) history. Winnick purchased the 30,000-square-foot (2,800 m2) mansion on 9 acres (36,000 m2), known as Casa Encantada, in September 2000 from David Murdock. Winnick paid $66 million of the purchase price in cash. After the acquisition, much of the house was renovated, new mechanical and electrical systems were completely updated and a service wing was converted into a studio for his wife Karen Winnick. The estate includes tennis courts, a swimming pool, pool house, and priceless views of Los Angeles. Prior to Murdock, the original house had been owned by Conrad Hilton, founder of Hilton Hotels. Winnick stated publicly and accurately that the 64-year old estate was being "updated and freshened."


I've owned enough stock shares in companies that went bankrupt to know CEOs rarely if ever "get theirs". The absolute worst ever was Dick Brown, CEO of EDS. EDS didnt' officially go bankrupt, but he ran the company into the ground, liquidating assets to cover losses, laying off workers and cooking the balance sheets to make it look like the company was making a profit so the stock wasn't effected until he could sell and 'retire' with a 50+ million dollar compensation package (and he was actually fired! that's market forces in action for you). And of course, nearly everything was outsourced overseas (helped with the short-sighted profit margin) by that time.
Lesly
QUOTE(Mrs. Pigpen @ Oct 25 2009, 12:15 PM) *
Oh, there's plenty where that came from.
Thanks Mrs. P -- and ouch my grammar! Really, I should not post before having coffee.
BecomingHuman
QUOTE(Lesly)
You mean taxpayers have a stake in GM. And since GM had to file for bankruptcy anyway, the value of those stocks could be down. We'll eat the loss twice over in the stock market if GM doesn't reinvent itself after reorganizing under Chapter 11.

Taxpayers received stock as a result of the bankruptcy. Your right that if nu GM does poorly, taxpayers will eat the losses. But this was precisely my point: it makes no so sense for the the government, representing the taxpayers, to chase away talent in companies they have heavy investments in.
QUOTE(Lesly)
What your New York Times article doesn't say is Wagoner is expected to receive $23 million in pension money if he lives long enough and "$366,602 in unvested stock awards and $534,627 in deferred compensation" based on a December 31 company report.

QUOTE(SK)
BH, the issue that the other posters have is that many CEOs get paid handsomely regardless of whether the company is doing well or is in bankruptcy

Check the date of your article, its in March. GM filed for bankruptcy in June. Wagoners pension, as a result of the bankruptcy, was cut by more than half of the original 22 million.

In addition: Wagoner earned $14.9 million last year at GM, although $11.9 million of that was in the form of stock and options which are now worthless.
Fox

Compensating CEO's in stock and stock options gives them a financial incentive to avoid bankruptcy. Wagoner is far worse off after the bankruptcy than he was before it
Lesly
QUOTE(BecomingHuman @ Oct 25 2009, 08:34 PM) *
But this was precisely my point: it makes no so sense for the the government, representing the taxpayers, to chase away talent in companies they have heavy investments in.
If GM had talent it wouldn't need to file for 11. It's not like they needed a crystal ball to predict the 90s gas prices were untenable. In any case, I'm glad he walked away with half of what he was expected to get.

As for chasing away talent, had the fed chosen to not intercede we might not be discussing the needs to adjust anyone's benefits. Banks decided to act like hedge funds and modest profits were no longer respectable. They should have faced the market's discipline instead and spared us having to listen to glibertarians whining about our government's expanding powers on their behalf.
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