The White House is slashing executive compensation
at the seven companies that most benefited from TARP bailouts: AIG,
Bank of America, Citigroup, General Motors, GMAC, Chrysler Group and
Chrysler Financial. Pay Czar Kenneth Feinberg is set to announce that
top earners' total compensation will, on average, be cut in half, with
the cash portion of salaries cut by 90%. The move, widely seen
as motivated more by bailout politics than by pure economics, makes
mostly symbolic cuts to a small number of high-profile executives. Will
it protect the White House from populist outrage, be seen as an empty
gesture, or actually worsen the situation as some warn? Feinberg could have a Goldilocks problem, with pundits seeing his actions as either too much or too little, but never "just right."
- Cheap Excuse for Oversight Econoblogger Yves Smith scoffs
at the empty gesture. "Does this really mean anything? The press will
noise it up as
significant (and some outlets will no doubt finger wag at this
'interference') but the short answer is no," she writes. "Pay cuts
falls well short of the oversight the government should be
exercising [...] So this is an overdue, token measure
to appease the public over the AIG retention bonuses that were also
extended to clearly non-essential support staff, which is a clear
tipoff that they were also extended to non-essential management."
- Timed to Quash TARP Report Politico's Morning Money suspects the pay-cut story was timed to supersede news of a negative report by TARP watchdog Neil Barofsky. "The leak of the plan to The New York Times' Stephen Labaton yesterday
crushed the news of the extremely unflattering report by the TARP
inspector general, Neil Barofsky. That report, which says the TARP
undermines the credibility of the federal government and has made the
'too big to fail' problem much worse, would have otherwise been the
lead story today."
Emphasis on Non-Cash Pay Dilutes Stocks Harvard Law's Philip Greenspun thinks
the move harms shareholders. "Uncle Scrooge is now saying that a bank
executive and his golfing
buddies on the Board can’t take home $100 million per year in cash
anymore… he has to take $100 million in restricted stock instead.
Sounds like an improvement, except to the shareholders whose interested
in the public company will be diluted," he writes. "This latest attempt
by the Feds to save shareholders seems likely only to defer their ruin."
- Will Cut Execs Go Galt? Econoblogger Alex Tabarrok warns
this could discourage quality management from sticking with the
troubled companies. "There is no way this will work as advertised. If
actually follows through, most of these executives will quit and get
higher paying jobs elsewhere. Executives not directly affected by the
pay cuts will also quitwhen
they see their prospects for future salary gains have been cut. Chaos
will be created at these firms as top people leave in droves. Will the
administration then order people back to work?"
- America's 9.5% Unemployed Rejoice Gawker's John Cook channels populist happiness with the cuts. "This is all very exciting. The prospect of AIG executives getting by on
just four times the nation's median household income is, well...satisfying,"
he writes. "On the other hand, these people always find ways to enrich
themselves, and we have a feeling they'll continue to do so."
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