Salary - has been effectively capped at $1 million for years now. The salary cap led to the explosion in stock option plans that are the root of massive amounts of executive pay.
Obama is capping Salary, and it appears making all other payments come in the form of restricted stock that can not vest until the loan is paid off.
The articles I have read keep on confusing salary, bonus, cash compensation, etc.
The easiest thing to do will be to give everyone a $500k salary, and start making monthly restricted stock grants. Once the loan is paid off, everyone will get their tens of millions in compensation through stock.
Then it’s a bad idea to attempt this kind of political grandstanding over this issue IMHO. If we HAVE to bail these folks out because they are so key to our economy that if they fail we are all doomed then attempting to set these kinds of limits for the sole reason of scoring political points or throwing bones to the base is counter productive. You could set a $1 limit on executive salaries and it would change nothing in the long run. The contention of many in this thread is that these executives are worthless or worse, that there are hordes of cheaper band better executives out there just waiting to be GIVEN the chance, etc etc. Well, that ain’t gona happen with this initiative and the only thing it will achieve is to make some folks feel smug that they have stuck it to The Man…while causing other consequences we can’t really predict.
I guess we’ll see since it looks to me as if this is going to go through.
I have to admit that I’m not really following you. Stipulating for a moment that the bailout as a whole was necessary, then it might make sense to have this cap if you think it doesn’t decrease the quality of the CEOs. The reason for thinking it would decrease their quality is a belief that the previous wage was at the market-driven optimal level. I’m just suggesting that we be skeptical of the market acumen of failed boards.
Buffet who has dealt with these geniuses for years, says corporate chiefs are the heads of fraternities who know how to backslap and play golf. People pleasers who get there by social skills ,not financial talent.
We all knew the point of the bailout was to free up lending. The banks took the money with that understanding ,knowing full well the financial trouble we were in, and did not free up lending. They were as always, willing to risk the economy to do their own selfish thing. It showed irresponsibility . It also showed they did not believe what they told us. that we had to free up lending to save the economy.
I’m posting from a mobile device while doing 3 other things, so no surprise there. Even at the best of times my arguments can be a bit hard to follow.
My point is that this pay cap isn’t going to REALLY do much except score political points and make some people feel good. All that will happen is that CEO’s who would fall under this cap will be compensated in other ways…probably through stock or maybe through other perks not addressed by the cap. The fact that the companies will be bailed out will do nothing to curb this supposed excess of CEO salaries in the future, since despite failing their companies will be bailed out at tax payer expense.
While I’m sure that some of these CEO’s and their boards ARE a bunch of bozos (and probably highly overpaid as well), I seriously doubt that the majority of them are. Most of them just got caught on the cliff when the footing went away. It’s easy to look back with hindsight and see what many of these companies SHOULD have done…but then it’s easy to do that for each and every economic downturn through the entire history of the country. When the government sets up the environment it’s hard to blame business people or corporations for taking advantage of that environment if there is a lot of money to be made…and it’s hard to predict exactly when the bubble will burst or what other things might be effected that weren’t taken into account.
The cap makes it personal. Part of the problem is that a CEO or other exec took big risks because in the short term it would drive up profitability and reward them. If in the long term there was a problem, they still had their money. I’m not saying this is the only answer - reasonable regulation is more important, but this should help. Stock, as was mentioned, is being addressed, at least in the short term. That rule should at least encourage the CEOs to get the companies solvent again.
They are bozos for being out on the cliff. Of course no one could time the end of the bubble, but they over-leveraged themselves, so they were guaranteed to be in trouble whenever it happened - and if they didn’t think the bubble would end, they were as financially illiterate as a subprime borrower.
A commentator on Marketplace said that this rule might keep some banks from taking bailout money. If a CEO makes a decision like that based on his compensation, he deserves to get canned without severance. I know Paulson was pushing money on the banks, but maybe this will help some of them to just say no.
When the tech bubble burst, a number of CEOs voluntarily cut their salaries to $1, as mentioned. The accepted responsibility, and were willing to gamble that the stock they would get would be worth something some day. If the bank CEOs had an ounce of sense they would have immediately cut their own pay. Judging from some articles in the Times, a lot of people in these companies still don’t get it. They are whining about their bonuses being cut, and complaining about the hardship, and never considering that their actions imposed hardships on lots of people who are getting laid off through no fault of their own.
A great CEO would come to work in the expectation of a future reward. A crappy CEO, who isn’t confident that he can actually turn the company around, will want the money up front. You pay them after they’ve done the job, not in expectation that they do it. I trust you don’t fully pay home contractors up front and hope for the best, right.
Hmmm. That may add another wrinkle to the grilled worm. What about CEO’s who refuse aid they need, in order to keep their bonuses? Not necessarily malicious, but judgment impaired by self-interest?
Well…an alternative explanation might just be that they didn’t really need that money after all and were just playing along in order to get their share of the government tit.
Two things are special. One is stocks. The other is CEOs. Don’t you get it yet? They were given enormous salaries to attract the best and brightest… and we still got screwed. Just imagine how horrible it will be when we can’t separate the wheat from the chaff! :rolleyes:
If the CEO can’t make a convincing case that they can solve the company’s problems without Federal aid and the board of directors doesn’t oust them, then the company deserves to die. You want the guy running the company to be more concerned about growing the business, than lining his own pockets. If he’s unwilling to do what needs to be done to save the company, than he should be fired.
If he cooks the books, to make it look like the company is more solvent than it really is, just so he can avoid taking Federal bailout funds, then he should be jailed. (Ideally, he should be taken out and shot, but we’re too primitive a society to support such actions, I’m afraid.)
I was speaking of America’s extreme and rather insular political environment, not your personal political views; thus the phrase “the right wing hothouse of America”. America is so far to the right that nearly all modern political ideas look “leftist”.
Perhaps they are just all really far to the left and the US is really in the center. Personally I think that it’s kind of a waste of time to compare where different countries wind up on the political right/left spectrum as there really isn’t a universal yardstick for comparison.
I don’t understand why people who are opposed to bailouts don’t see this $500,000 cap as a huge impediment to companies applying for bailouts as a good thing. If it decreases the number of bailouts sought, isn’t that a good thing? If it doesn’t decrease the number sought, then it has saved shareholders money wasted by compensation committees and not earned by execs who have run their companies into the ground. It’s a win-win, except for extremely wealthy executives of failing companies.
Let’s see… in the US, a poor single mom with one kid gets up to $448.00 per month in welfare, if she meets eligibility requirements and (usually) if she also does “welfare-to-work” activities i.e. working between 10-30 hours a week for the welfare benefit. So… these assholes who are getting major amounts of corporate welfare, only can earn $41,666.00 per month, and we’re supposed to feel bad? If it didn’t suck so bad, it’d be funny. :rolleyes:
The point I’m making isn’t about the CEOs. I’m talking about the second string. I’m talking about team all the way down the chain.
Let’s say you’re a very good financial manager. You hope to make it to CEO one day. The company you’re with isn’t working out for you, so you decide to look elsewhere.
You can go to company A, where the sky is the limit for your future pay. Or you can go to the company under the bailout plan, where the CEO is stuck at 500K. That means people below him are probably making less, and there’s little opportunity for you to make the big payday. Which company are you going to apply to?
Look, I don’t know how this will shake out, but I do know that when governments start whacking an economy around with a big stick, unintended consequences abound.
This is akin to saying, “You know, bees are very annoying. They bite, they scare children, and anyway, all they seem to do is buzz around my flowers all day. Let’s eradicate the bees. Think of how much better the outdoors will be without them! What could go wrong?”
A modern economy is a lot more like an ecosystem than it is a machine. It doesn’t behave deterministically. There are far too many variables and hidden feedback mechanisms and random events to be able to predict the effects of top-down commands. That’s why government action leads to unintended consequences and usually winds up being counter-productive.
Personally I think that it’s kind of a waste of time to compare where different countries wind up on the political right/left spectrum as there really isn’t a universal yardstick for comparison.