Pay czar buzz…
This morning, everyone — and we do mean everyone — is buzzing about the tough rules apparently about to be put in place by Special Master Kenneth Feinberg. In this WSJ story, one person notes that the rules, which have yet to be made public “”were clearly much worse than what had been anticipated.” There’s a good summary of some of the pay czar coverage here at corproatecounsel.net.
Despite the level of whining and chest-thumping, it’s important to keep in mind that Feinberg’s rules will only apply to seven companies that received unusual levels of aid. Those companies are AIG, Bank of America (BAC), Citigroup (C), General Motors, GMAC, Chrysler Group and Chrysler Financial. And while the rules appear to apply to more than just the top five named executives, there’s clearly many more executives who will not see much (if any) impact from whatever Feinberg sets in place. All told, the WSJ estimates that about 600 executives will be impacted, which is hard to work up much of a sustained whine over.
Take Freddie Mac (FRE) which we footnoted last month for handing out a $2 million signing bonus to its new CFO, Ross J. Kari. That’s on top of $1.6 million in “additional annual salary” — one of the most ridiculous terms we’ve heard in over six years of digging into SEC filings. Why isn’t Freddie in Feinberg’s sites? Hasn’t the government handed that company over $51 billion so far, which seems like an unusual level of assistance to us.
We’re not sure when these new rules will be made public — Feinberg is set to give a speech tomorrow at the George Washington School of Law and he’s also set to testify before the House Oversight and Government Reform panel next week. But we can’t wait to dive into them.
UPDATE 12:20 pm: Well, turns out that some people hadn’t weighed in yet. Just a short time ago, we got a press release from the Center on Executive Compensation which essentially lobbies on behalf of HR executives at very large companies. Their take? They like the idea of converting salary to deferred stock. But (and there’s always a but) “there is a serious and potentially overriding concern that because of the significant reductions in overall compensation, combined with the mandatory deferral of allowable elements of the pay package, some companies may have trouble retaining the managerial talent necessary to restore performance and confidence in these troubled companies.” They’re also concerned about the government butting their heads into board decisions and urge whatever is passed not to spread beyond the seven impacted.
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Posted in Tags: AIG, pay czar |
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October 22nd, 2009 at 1:00 pm
Obama supposed to speak soon this afternoon on this issue. @2:15 pm ET
Noticed yesterday how some of the deferred stock offers are to be delayed up to
as much as 5 years. Wonder how that might affect market if it puts dent in the
quick dumps being the rule now. Chances are these C types are gonna dream up
an even better pay dodge. Esp if they expands caps to wider companies.
October 23rd, 2009 at 11:58 am
No one worries about the dam when water is barely leaking, but it portends the underlying trouble of a dam that’s about to burst. Please refer to the WSJ.com about the potential for all banks to have their pay regulated. Pretty soon, it will be greedy insurers. Then greedy oil executives. One day, we’ll all have to report to an unelected official making decisions that have not been passed by a legislative body, forcing a determined salary on us. Sounds wonderful.
October 25th, 2009 at 6:58 pm
Freddie Mac employees, being part of a “government-sponsored enterprise,” where profits are private and losses are socialized, are well-connected to the national level politicians like Barney Frank and Chris Dodd. Thus the rules that apply to mere mortals don’t apply to them.
October 29th, 2009 at 8:24 am
Elmer, I disagree with what you say about the GSE having profits that are private and losses that are socialized. In a large financial meltdown as we have witnessed the past year or so, it wasn’t just the GSE’s that had private profits and socialized losses, the private banks also essentially socialized their losses and their profits are even more private than the GSEs at this point. Even if you think to the past, may have had funding advantages due to its status, but it did come at an expense as well. Notice that during this time when the TARP recipients are beign stubborn and reluctant to spread the funding down to the consumer, the GSEs are now mandated to continue to operate in these markets to play the role of stabilizing the market. Even during the Bush adminstration’s years of “every American in a home,” there were mandates for these GSEs to continue to purchase loans despite the small margins they were earning for the amount of inherent risk.
In response to the article comment about why GSE’s are not in Feinberg’s sites…well the GSEs are in conservatorship and therefore the government can force them to purchase/sell as the government pleases. This is not so much the case for these private banks that have receive TARP especiall given the loose sloppy terms in the contract that were setup in haste by Paulson. So these banks require some additional regulation. Most of these banks have turned to “profit” as they recover the mark down on their assets, but due to the GSE role in stabilizing the market when there is no market, they continue to operate under losses (despite what their earnings from mark to market derivative gains may imply). So how do you get a CFO with the right qualities to join a sinking ship? You better be willing to pay this guy a decent amount especially since he runs the risk of having a lot of fingers pointed at him if the GSEs continue to lose money, which seems likely.
In this era of information technology it is so easy to take what we read or see as the truth without doing the due dilligence on our own and it is even more important to do our own research and confirm the validity of people’s statements in the media particularly on complex matters as this one.