Obama’s big bailout pay cuts
Is it a good idea to slash executive pay at the seven companies that got the most government aid?
Citigroup Inc. is one of seven companies at which executive salaries may soon be restricted.
(Reuters/Corbis/Robert Galbraith)
The Obama administration is cutting executive pay at the seven most-bailed-out companies, says Felix Salmon in Reuters, and it clearly means business. Pay czar Kenneth Feinberg is ordering 90 percent reductions in salary, and a 50 percent cut in total compensation, for the 25 best-paid people at each firm. “Feeling outraged?” Don’t. “These guys are effectively civil servants now, and they deserve to be paid as such.”
“There is no way this will work as advertised,” says Alex Tabarrok in Marginal Revolution. If Kenneth Feinberg “actually follows through” on this, the executives at the affected firms—Citigroup, Bank of America, AIG, GM, Chrysler, and the financing arms of the two automakers—will jump ship for higher-paying jobs elsewhere. What will Obama do when “chaos” ensues? “Order people back to work?”
"Going after outrageous executive pay may be a fool’s errand,” says David Callaway in MarketWatch, “but it’s the right thing to do.” The “audacity” of the pay cuts sends a message to Wall Street: Team Obama isn’t “as toothless as the press might make them seem” when it comes to financial reform. And that’s good news. Banking should serve “everybody, not just the elite,” and this is our best shot in 70 years to set things right.
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22 Comments
Posted by Howard, Thursday, October 22, 2009, 9:49 am I worked on Wall Street for years, management's assumption was that government is too dim, underfunded and consumed with petty bickering on meaningless distractions like abortion, gay marriage, flag burning to do anything about it. The salaries and bonuses these men earn are an outrage and its high time the government cut them off.
Posted by John O, Thursday, October 22, 2009, 10:07 am The shortcomings/distractions of our government have nothing to do with whether or not corporate salaries are ethical. Howard why, exactly, is a high salary an outrage? Can you do the job? Do you have the qualifications? If so, please apply. Accept responsibility for thousands of employees and billions of dollars and do so for the same amount you would make at McDonalds. Jealousy paves the way for a very slippery slope to eliminating capitalism.
Posted by Steve H., Thursday, October 22, 2009, 10:30 am John O....You really believe that by the time they are finished cutting the salaries/bonuses of these top execs. that they will be making the pay of a McDonalds employee? They don't deserve that much.These top execs. need to take responsibility for what they have done to our economy and how the they have been rewarded for putting 15 million Americans in the unemployment lines.These greedy SOB deserve nothing. They each have enough stockpiled that their families won't have to work for generations to come.They should all b held accountable
Posted by Howard, Thursday, October 22, 2009, 10:32 am John O, an extremely high salary is an outrage at a bank that a few short months ago had to be bailed out by US taxpayers. If you take another look at just how exceedingly high these salaries are, you too will be outraged. Unless, John O, you are one of those getting such an extortionately high salary.
Posted by John O, Thursday, October 22, 2009, 10:38 am Alas, I am not one of those getting the high salary. Let me pose a single question... Assume new talent was brought in at 300K per year to fix the current shambles. Should that person get a pay cut?
Posted by John O, Thursday, October 22, 2009, 10:39 am Oh, I can't resist one last comment. The banks did not HAVE to be bailed out. As a country we chose to do so. In my day, if a company did poorly, they went out of business... :P
Posted by Howard, Thursday, October 22, 2009, 12:15 pm Check the article in this week's Economist.com 'Compensation Claim'. 'Watching an industry committing political suicide is ugly. That is what investment banks are doing by paying bumper bonuses a year after they were saved by state intervention. Goldman Sachs is set to award staff a near record 20 billion this year. Firms making losses for shareholders, such as Citigroup and Bank of America, are still paying hefty bonuses.'
Posted by Howard, Thursday, October 22, 2009, 12:16 pm Continuing from the Economist, 'Normally that would be a problem for shareholders alone. But Merrill and many others got bailed out. The new bonuses make a mockery of banks claim that higher equity buffers are too expensive to contemplate. Some governments still own stakes in banks, so decisions on pay are directly theirs. Worst of all, bonuses are being paid in part from subsidies: this is not a free market, but a perversion of it.'
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