ah yes….what better way to make sure the best people dont come and save these companies. That is, unless, obama doesnt want them to be saved. That makes it a lot easier for him to say "too big to fail," and scoop them up under the govt wing. Thanks for obama dems.

Although I think their plan to slash executive compensation is ridiculous from a business perspective, I actually don't have a problem with them being able to do such stupid things with companies that accepted a bailout.

It's pretty simple, don't want the government eating at your table? Don't invite it in the house. Or as Rocky Balboa says, "You wanna dance, you gotta pay the band. You wanna borrow, you gotta pay the man." (something like that, anyhow)

Thanks again to the Bush administration for starting this entire destructive and blatantly unconstitutional machine in motion. "Too big to fail" may well be the worst thing to ooze out of DC in a long, long time.

Posted by roglewis

2009-10-21 21:09:53

Dont invite them in your house? Um, it wasnt that simple. Obama and company forced their way through the door. And sorry, but bush only offered a bailout….he didnt take them over. That was 100% obama, as is everything going on right now.

Well, we've seen how all this will likely play out with Citigroup. They've sold off their Phibro commodity trading unit becuase they didn't want the political fallout of paying Andrew Hall $100 million. Meanwhile, Phibro was one of the few units of Citi actually making money.

From a compensation design perspective, this is a disaster for a number of reasons. Since the proposal is to limit the pay of top executives only, there will still be mid-level managers, top salespeople and highly paid skilled tradespeople who will all end up earning more than the "C"-suite executives because they're not part of the carve-out. Being in the "C"-suite will quickly be viewed as a curse rather than an opportunity. Good luck recruiting people to take on the highest level of responsibility for less than their subordinates are making, and do this over the long-haul, not just a short-term crisis.

Additionally, limiting total compensation to top executives to $200k total compensation will make it nearly impossible to tie pay and performance together for these employees because the base salary portion of their total compensation won't leave much room for a bonus. For example, if you wanted to provide a 20% bonus opportunity to your CEO, her/his base salary would have to be less than $166,666.66 (insert your own comment about the Mark of the Beast here) in order to accommodate a 20% bonus and still keep total compensation under the $200k cap. Firstly, 20% reward for outstanding performance isn't much for someone at that level of responsibility. Secondly, only being able to put a limited amount of pay at risk means that the difference between outstanding performance and the next level down is going to be minimal. Bonus systems work best when there is a geometric increase in rewards for each additional unit of productivity. But with such a limited amount at risk, you can't do this.

Where exactly are you going to find a competent CEO for a company like GM who's going to work long-term for a base of less than $167k?. You might find a competent leader willing to do the 'dollar a year' thing over the short-haul, but not over the long-term. And all the while other people in these organisations who are not top executives will still have opportunities to affect their pay through hard work and productivity and ultimately make more money than the CEO. Do I smell a motivation crisis coming?

Yesterday, I read an article about how poorly managed GM was when the government overseers stepped in. Firstly, this is absolutely no surprise to anyone who's been around the auto sector for a while. I knew the Big Three were being poorly managed just from eavesdropping on my father's cocktail and garden parties back in the 1950's and 60's. Secondly, if they think it was poorly managed then, just wait until this salary capping business takes hold. You'll see epic incompetence which will lead to the eventual sale of GM to a foreign owner (it'll have to be a foreign owner – the Sherman Anti-Trust Act guarantees that Ford can't buy GM out). Of course, once GM has been sold to a legitimate buyer, it'll no longer be part of the bailout and salaries can return to normal, so they might become strong and profitable again under foreign ownership.

ACORN and other Community Organizers take government money. I am sure that we will soon hear that the heads of these organizations are also taking a 90% pay cut.

And now the news says that the pay czar acted alone and free of any presidential approval or disapproval……um yeah, duh. That is why obama has so many czars. So that he doesnt have to do anything except host great WH parties and take his lil' family on jet set shopping trips.

I don't think the gov't needs to be doing pay caps, but I do think there is a problem with executive compensation.

Yes, there is a problem when the bottom people in an organisation are earning $20k/yr. and the top dog in that same organisation is making millions. But rather than to address it through fixed caps, maybe the Feds need to consider making the limit on top executive compensation either a percentage of profit (or excess income over expenses in not-for-profits), or alternately, think of the limit in terms of multiples of the lowest paid person in the organisation, i.e. the top executive can earn 100 times as much as the lowest paid person in the organization earns. Either of those approaches would still allow organizations to attract and retain high-performing executive staff while showing placing some restraints upon total compensation. I prefer the former approach since it ties pay to the profitability of the organisation. The better the organisation does, the better the leaders do. Most Hollywood stars have been working for a combination of base salary, percentage of gate receipts and percentage of DVD sales. I'd like to see more CEO's get offered a similar deal.

As to the arguement…'you'll lose the best people.' Meh.

Remember, this proposal only affects those working in organisations which have received bailout money, which is less than 1% of the companies in the nation. So executives at those "bailed-out" organisations will see greener, more remunerative pastures all around them, yet they'll be asked to work just as hard for a fraction of the money they could be making elsewhere. Given that executives have a far more acquisitive personality than the people around them, I don't think that bodes well for retaining top talent. But talking about retention with top executives is a bit of a deceptive subject in the first place. The average tenure of a CEO in America is only 6.8 years right now. It's a bit longer with the rest of the c-suite execs, but not all that much longer.

You'll notice that what has been proposed is limits on cash compensation for the top execs at "bailed-out" firms, but the caps don't extend to equity-based compensation. The logical path this will lead us down is that top execs at these firms to heavily load an executive's contract with stock or other equity share awards in such a way that the executive can deal those equity assets off fairly quickly and recoup the cash. This is a dangerous path to take and will undoubtedly result in a few more Enron-type problems.