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HomeWall Street Compensation Reform in Name Only
Posted by Larry Doyle on October 6th, 2009 9:27 AM |
Say what you want about movie producer Michael Moore, but he is no fool in tapping into the American spirit. Moore takes on Wall Street in highlighting the enormous bank bailouts emanating from this economic crisis. While there are many factors that drove our banking industry and our economy to its knees, ultimately the Wall Street compensation system allowed those taking risk to ’swing for the fences’ while playing ‘heads we win, tails you lose.’ Washington is going to fix this, right? Having appointed a pay czar in Ken Feinberg, the Obama administration is going to address the crux of this critical issue and reform it, right? I mean, The Wall Street Journal this very morning profiles how Pay Czar Targets Salary Cuts:
The Obama administration’s pay czar is planning to clamp down on compensation at firms receiving large sums of government aid by cutting annual cash salaries for many of the top employees under his authority, according to people familiar with the matter.
Instead of awarding large cash salaries, Kenneth Feinberg is planning to shift a chunk of an employee’s annual salary into stock that cannot be accessed for several years, these people said. Such a move, the most intrusive yet into corporate compensation, would mark the government’s first effort to curb the take-home pay of everyone from auto executives to financial traders.
Folks, with all due respect to Ken Feinberg, these efforts to implement reform in Wall Street compensation practices are largely a joke. Why? While the subtitle of the WSJ’s article includes the term ‘compensation,’ Feinberg’s focus is limited to the term in the title, that being ’salary.’ (more…)
Sarkozy Ups the Ante on Banker Compensation
Posted by Larry Doyle on August 26th, 2009 9:26 AM |
French President Nicolas Sarkozy
How is it that the country that is supposed to be the bastion of capitalism and free enterprise is taking serious direction on the topic of banker compensation from none other than French President Nicolas Sarkozy? The fact that Sarkozy is elevating the banker compensation topic prior to the G-20 meeting in Pittsburgh in September is a clear indication that the powers that be in Washington and on Wall Street have failed miserably on this topic.
There is NO doubt those on Wall Street would like to return to ‘business as usual’ as quickly as possible. Little do the Wall Street wizards appreciate that the ‘usual business’ brought our country to its knees. Let’s address the ultimate motivator, that is, compensation.
Wall Street’s initial response to potential increased oversight of the compensation process has been to increase salaries as an overall percentage of compensation. From a productivity standpoint, I view this maneuver as counterproductive. Increased salaries will increase fixed costs and actually serve as a disincentive. The fact is compensation needs to be viewed in its entirety, both salary and bonus. The entire process should not be gamed by firms to appease regulators.
Bloomberg highlights French President Sarkozy’s approach toward banker compensation in writing, Sarkozy Threat to Shun Banks on Pay Draws U.S. Alarm:
Aug. 26 (Bloomberg) — French President Nicolas Sarkozy’s plan to shun bankers who don’t accept pay limits was met with alarm by analysts and investors in the U.S., where Citigroup Inc. and six other bailed-out companies are being grilled by the government on how they compensate top-paid executives.
I am definitely not for strict government control of private enterprise compensation; however, if the boards of these private enterprises are not performing to protect the industry, the franchises, and the shareholders, then those boards need to be exposed. From my standpoint, the boards are a large part of the problem. Why? The boards are in the pocket of the senior executives. The senior executives have shown themselves to be excessively greedy and disinterested in protecting the industry and, in turn, our country.
Moving right along, I have always maintained that Wall Street banks must be obligated to fully align compensation with returns generated and risks remaining on the books. What do I mean? (more…)
