While some -- I admit, myself included -- hailed President Obama's recent edict that executives at companies receiving federal bailout money will have their compensation capped at $500,000, not everyone thinks the limits are a good idea.
Perhaps you're thinking, surely I jest? But no, Edward R. Rayner, a partner in the employee benefits and executive compensation practice at Katten Muchin Rosenman LLP in New York, says these limits may actually further harm the U.S. financial system.
"While at first glance, this may appear to be an important crackdown on the greed of recent years, the fact that the $500,000 cap only applies to companies accepting U.S. bailout money is a huge issue," Mr. Rayner says. "This opens the door for foreign institutions not subject to these compensation limits to quite easily and relatively cheaply, steal our best financial talent. Once this talent is gone, it will be extremely difficult to get back, and I expect that this will significantly weaken the U.S. financial industry."
Amid the deepest economic recession in decades, with millions jobless, Rayner is opposed to capping the pay of bank execs that are relying on taxpayer dollars to re-stabilize their institutions? What do you think? Do you agree or disagree with Rayner? Comment and let me know.
Friday, February 13, 2009
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29 comments:
I agree that executive compensation should be capped, but I believe all the corporations executives compensation should be capped. That will level the playing field and avoid concerns of talent hopping. There are other ways that these executives earn money via stock, capital gains etc. When is enough really enough?
How much talent does it take to bring an entire industry down?
If not a salary cap, how does Mr. Rayner suggest we hold accountable the execs of companies that are using tax payer money to bail them out? Mr. Rayner's argument might have some legitimacy, but does he have a better answer?
Steal the talent? How talented can these executives be if they are driving their companies to financial ruin? Foreign institutions can steal all they want from this talent pool and watch their companies go down the toilet too.
I bet there is plenty of great talent out there willing to take a paltry half-million per year to run these faltering companies.
This may be just the trigger that is needed to bring down the compensation levels for the most senior executives in the financial industry, which have become ridiculously inflated over the last few decades.
Just because it doesn't apply to all companies, doesn't mean we shouldn't do it. If competitors to the bailout companies want to pay their executives the same old outrageous compensation packages, they will have to answer their shareholders, employees and customers.
These greedy executives ran their companies into bankruptcy, begged for a bailout, then squandered our tax dollars on vacations, bonuses, raises and furniture. If the foreign banks want them, let them have them. There are plenty of qualified people out there who will walk into their jobs for $500,000 per year and do a great job. What was that unemployment rate at last check?
I disagree that there will or may be an exodus of the "best and brightest of our financial geniuses",since few countries pay bonuses at that level.
I'm not so much in favor of capping executive compensation as much as I am in favor of executive compensation consultants/boards giving honest advice. The head of Merril Lynch said last fall they had to pay huge bonuses or executive talent would leave. Really? How many employed financial investment executives are actively job hunting (with hopes of a pay raise) in the middle of the financial meltdown? Too many executive compensation boards do shareholders a disservice by recommending higher than necessary compensation.
I agree that there should be caps on the exec pay when the government is helping in the bail-out situation. If they want more money than they should work for a company that is stable enough not to need assistance from the government. Don't you think that the "HIGH SOCIETY" levels are what's putting this society in economic troubles. Everyone trying to "KEEP UP WITH THE JONES'S"
I do believe that executive compensation has grown beyond where it should be compared to other rank and file employees but I have to wonder what hat the $500,000 mark was pulled out of. In the short time it took to pass this bill was there any thought given to the effect of the cap other than it looked good from a political point of view?
I disagree that executive should be capped anymore than a union autoworker or steelworker's pay should be capped. Let the free market influence such dynamics instead of some socialist belief. If we change one end then everyone including the highly overpaid bankers, lawyers, politicians and union workers should similarly be adjusted. Think, if left alone the marketplace will do it by itself, if we want to compete
I agree with the $500,000 cap on executive pay. These salaries are now essentially being paid by American taxpayers, who in many cases are seeing no direct benefit (i.e. loan, mortgage, or credit relief from banks). Let's not forget...these executives are at companies that have performed so badly, that they are on the verge of bankruptcy. I say that if those executives who helped get not only their companies, but our nation, into this situation, can get a better paying job elsewhere -good riddance. Let's give some new talent a chance. I'm willing to bet we can find very talented new executives willing to work for that half a million dollars a year.
The "foreigners" are in worse shape than we are hence I doubt they could steal ALL of the top "talent". Also, not all foreign institutions ascribe to short term incentive based compensation arrangements like we foolishly have....take Japan for instance...their executive pay is a multiple of the rank and file. That aside, it is my humble opinion that IF a company executive has no "skin in the game" (ie publicly traded stock company &/or is financed with public funds (Chrysler) then there should be caps to protect the shareholders and the public from the type of rampant abuse that played a large part in the current state of affairs we find ourselves in. Don't kid yourself...it is the executives who recruit the boards that govern them. I disagree that all executive compansation should be capped because a private concern not relying on the "dole" should be free to earn as much as they want. I rest my case.
Putting in temporary measures due to the unique economic situation is appropriate. However, once things improve, compensation should go back to market driven forces. Keeping the cap in place will drive talent elsewhere. Capping all executive compensation will most certainly dummy down our executive leadership and hurt us in the long-term.
I agree with the pay cap. If the current executives (that have run these companies into the ground) are the cream of the crop, we're all in big trouble. Surely there are CEO's with integrity still to be found - that understand you must operate with a "profit" before paying such salaries and bonuses.
I agree with the pay caps for those companies being bailed out. I don't think our best talent is running the companies that need a bail out.
Mr. Rayner's concern that the U.S. financial industry will experience a brain drain as a result of a temporary $500k annual salary cap on certain executives of companies which, if not for an influx of taxpayer backed capital would be unemployed due to their institution's bankruptcy, is misplaced at best. Worrying that the architects of our national financial decompostition may flee to some foreign based employer should be the last thing on our minds. Encourage them to hire everyone of them as far as I am concerned. Let them do for the world what they have done to our citizens. It's time for these financial geniuses to find something worthwhile to do besides how to get their hands into others pockets. I'm not sure people were very worried about the job security of the ship designers of the Titanic.
"level the playing field", where are you from? Russia? One of the things that makes America great is that hardwork and achievement is rewarded. Who are you, me, or anyone else to say how much money someone can make or how many houses, cars, etc someone is allowed to have? Class warfare and wealth envy will be the fall of this country. The have-nots will kill the geese that lay the golden eggs.
Because these institutions needed to be bailed out, how much talent can these execs have, anyway? I'm all for them walking a mile in my shoes!!!!
Their talents can't be that great if they got their company is this financial situation, can it??
I also agree that it seems logical to place a cap on the businesses that receive financial aid, but why not make the cap relative to the amount of bail-out received, i.e. a percentage somehow relative to the amount of bail-out received versus company assets. The more money received the lower the salary cap.
Talented financial executivesis the operative word here. If they're so talented how did they get in so much trouble. Plenty of smaller banks who pay their CEO's much less than $500K a year are not only surviving but thriving and don't want or need federal bailout money.
I agree that all corp. execs should be capped, but also wonder why we think that "all the best talent" will not be satisified with a $500,000 salary? Surely not EVERY talented person has been sucked into the idea that more money determines worth... Have they?
Great comments everyone! Thanks for all of your feedback. Glad to see I'm not alone in agreeing with the comp cap.
The individuals that would be subject to the cap are the ones at the companies in such trouble, so I say let them be 'stolen.' I sincerley hope they are NOT our best financial talents!
While an across the board pay cap may not be the ideal solution, I think it is appropriate to hold these executives accountable for the role they played in creating the financial mess we're all in.
As others have commented, were it not for the bail out money, some of these execs would be unemployed.
Some say leave it to market forces - I disagree. The market is over inflated, too artificial and too susceptible to interference by 'big' players. There is too much focus on unrealistic goals and keeping shareholders happy now rather than providing a realistic view of what's going on in the business & creating real shareholder value.
Most business leaders (I'm not excluding others here - most leaders, period), are too focussed on short term gain at the expense of long term growth and stability.
Having said all that - the caps should not be permanent. Once the economy rebounds, once the business is back on track - let's review exec salaries and work on a compensation plan that is realistic. Good for both the exec (incentive to move the organization forward in the right direction) and the organization.
I agree with "T" - who is the government or anyone else to say that someone should make a certain amount of money. This country was built on rewarding the most talented and hardest working individuals. The government is rewarding incompetence. There are extremely talented individuals at these organizations in spite of some of the few incompetent leaders who helped create this mess. There will be an exodus of talent to other firms and it will hurt this country in the long run. Just as the corporate tax rate is driving entire companies out of the country. This is not the solution. It is an over reaction. We need to go back to basics. Perhaps we need another Boston Tea Party and overhaul the entire system. Beginning with the tax system.
It is the responsibility of shareholders and the board of directors to set compensation for executives. A couple of other points -
> If the criteria for salary caps is if you get government money then the government should control pay -- think of all the other industries that get government subsidies or tax breaks. Using this logic the Feds should control compensation for most working people in America.
> Using above point we should cap the pay of Hollywood actors who make millions.
While I agree there should be regulations regarding the use of tax payer's money that is given to these institutions (let’s not forget that this is our money bailing out these poorly ran companies), capping compensation may not be best use of that authority. Part of the problem that got use here is all the exorbitant pay for poor performance. I have no issue with pay for execs that are performing well and earning it. The pay needs be justified and balance out with the compensation available to other employees in the company (who are also performing well).
Caps are a misguided attempt to ensure accountability. They do nothing to ensure pay back since A) many of these executives can leave and get non-exec jobs; B) many of the institutions may still fail; C) there is no tie to specific performance that ill ensure payback is made in a responsible manner.
A better solution would be to tie compensation to specific goals. The goals should be relevant to the institution. Each of the TARP recipients needs to do something different to get back into the black. Some of them will need months, others will need years.
Delaying final payout until money is paid back (either in steps or in full) is a good idea. Limiting pay until that occurs serves to purpose other than to calm our rancor and put balm on our wounds.
The best solution is seldom the easiest solution. The easiest solution is often the one that can be put into a last minute amendment to a government bill. Many of the people who approved this bill, or signed it made much more than $500,000 in recent years. Few of them have anything truly positive to show for it (other than owning nice "stuff".)
We need to be careful not to whiplash from one very bad situation to an opposite and equally bad situation.
Just some of my thoughts on this...
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