Wednesday, February 4, 2009

Executive Pay Guidelines

New Executive Pay restrictions

Can anyone think of some potential unintended consequences of this legislation? Is this a good thing or bad?
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3 comments:

  1. Anonymous2/6/09, 5:13 PM

    I believe in the very near future we will see a massive exodus from the financial market. Theses “senior executives” have lived a life style that calls for well over a 500,000 dollar salary per year, and they believe they derive the bonuses for the sleepless nights they put into their jobs.
    Many of the executives will either begin private consulting firms, where they will charge exuberantly high rates to consult the businesses they were once working for, or they will start up their own private business.
    One of the largest problems I see with this Diaspora of financial leaders is: the major companies who held the expertise of these executives with have their heads cut off. The executives they depended on will run, and less experienced workers will have to take their places. This lack of senior advisors could lead to massive mistakes, in which lay-offs, and downsizing will be one of the main effects…the exact opposite of what this legislation set out to counteract.

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  2. Osman2/9/09, 7:43 PM

    While the idea of this legislation is noble—to control excessive greed on Wall Street—the reality is that this is more of a public relations legislative act than sound government regulation. Obama set these guidelines in large response to the news item that broke that Wall Street received $20 billion in bonuses. In a press conference that day he called the action shameful and sought to pass legislation regarding these acts. When CEOs of major failing companies—such as Ford or AIG—announced they will only take a one dollar salary for this year, they were not doing it to ensure the continued health of their company but rather as a marketing to show the shareholders and general public that your CEO cares. Most knew that these executives would obviously not only receive this money, but also be rewarded lucrative stock options should the company succeed, subject only to a 15% capital gains tax rather than a 35% income tax for the top bracket. Wall Street will find ways around executive pay caps. Compensation consultants and lawyers—who are paid a lot of money—will outsmart Washington bureaucrats. I see loopholes in this plan, interpreting this as an eleventh grade student. I am sure lawyers can find substantially more. For one, “exceptional financial recovery assistance” is a vague term, and is not specified anywhere else in the document. Additionally, while senior executive salaries are capped, there are no limits on mid-level Wall Street executives such as brokers and traders who frequently pocket more than $500,000 in a given year. Nonetheless, these executive pay guidelines can be restrictive; banks that need the federal aid for not only their recovery but for the economy’s recovery may avoid taking the needed assistance. For once, I will take a generally right-wing view on the topic. I believe that this legislation is a little nonsensical. Wall Street needs to attract talent in these dire times. This is obviously not the best time for excessive bonuses, raises, or golden parachutes, but let the companies decide that—I still trust their judgment. If the company succeeds, then it is able to pay the government back and all parties involved will benefit. Sound recovery is based on sound policy—which I believe this is not.

    P.S. I am typing this prior to Obama’s primetime news conference tonight. Let’s see if he clarifies or addresses any of these points raised.

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  3. Tedd Parker2/10/09, 3:39 PM

    Osman, you raise some good points. I read an op/ed piece in the WSJ yesterday that questions the constitutionality of salary caps. Essentially arguing that the government can not provide "conditional" relief. I will try and find the article and post it.

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