Obama orders pay cut for execs at rescued firms

[Eddie Teach]

Why not limit pay for defense contractors,

Good question.

[Martinus]

Aren't pretty much all the people still working there people who didn't really have much to do with the whole...fucking up...thing (at least at the higher levels)?  As in...competent people?  I, obviously, don't really know much about this stuff, but what's keeping some other company from coming along and offering them a million bucks a year, them taking the offer, and leaving AIG with the relative scrubs?  Some sort of contracts or something?

I'm not sure there are a bunch of people looking to hire the successful executives of AIG.

AIG's core operations weren't the reason it imploded. There were insurance industry publications in the early part of this year that highlighted the number of departures at key insurance businesses at AIG. Basically when AIG went down a year ago, the executives did split for greener pastures. I posted a partial listing on the old forum  when some people were skeptical that AIG executives would have other job opportunities in such a bad economy.

The question is - would these people in core operations get their bonuses if AIG imploded because of its insurance operations? If the answer is "no" then they shouldn't get their bonuses now.

[alfred russel]

The question is - would these people in core operations get their bonuses if AIG imploded because of its insurance operations? If the answer is "no" then they shouldn't get their bonuses now.

I have no idea what you are trying to say.

[KRonn]

Why not limit pay for defense contractors,

Good question.

I'm also wary of limiting pay, a pay Czar and all, because I feel that some of these politicians want to go further. Why not limit pay for defense contractors, or elsewhere? I'm sure there are many places where this could eventually be extended out to. Not sure I want the govt to be in the pay Czar business.   

[grumbler]

Why not limit pay for defense contractors, or elsewhere?

That would be an excellent idea, had it not already been done.  The contracts specify who can charge to a contract and at what rate.

[Admiral Yi]

I don't see why having talent spread to other sectors of the economy is such a bad thing. I  was always taught to believe that was the essence of capitalism: the resources and talent goes to the most profitable use.

The essence of capitalism is that the *price mechanism* directs resources and talent to the most profitable use.  This is not the price mechanism, it's government fiat.  The counterargument to that is that the executive compensation system is broken, and government fiat more closely reflects the market value of executives than the existing system.  But the counterargument to *that* is that the present pay caps are being driven more by populist rage than by any attempt to ascertain the intrinsic value of said executives.  That can be seen in the article Seedy posted.  The salary of the GM CEO is not being cut because he fucked up; the dude was hand-picked by Obama back only in the spring when Waggoner got thrown to the populist wolves.  What fucked up decisions has GM made since the spring?

Something that might or might not be relevant to this discussion: the average compensation of *all* employees at Goldman is 700K.

[KRonn]

Why not limit pay for defense contractors, or elsewhere?

That would be an excellent idea, had it not already been done.  The contracts specify who can charge to a contract and at what rate.

I'm sure there are cost controls there and other regulations, good. But does the government control what pay can be for contractor employees or executives? Which ever the case, I'm probably not so concerned with that on defense contracts. But if it causes contractors to lose good people then it could be an issue.

My over all concern is how, or will, this pay limit idea can be pushed out in other ways once it gets started. Right now it's for corps that were bailed out, which I would have been for before, but I've become more cynical to such efforts. Partly due to what seemed the Kangaroo court, the populism, of some Congressional hearings on  company failings.

I'm just trying to look at this in a bigger picture, beyond the idea of anger with the corps that were bailed out, and going after their bonuses, and the ramifications of expanding pay limiting ideas and attitudes elsewhere.

[Berkut]

Normally, I would be rather against the government telling companies what they can pay anyone, but fuck 'em, they decided to crawl into bed with the Feds to save their ass, well, what did they expect was going to happen? Of course the government is going to then start telling them what to do, who they can fire, what cars to make, blah, blah, blah.

[garbon]

Normally, I would be rather against the government telling companies what they can pay anyone, but fuck 'em, they decided to crawl into bed with the Feds to save their ass, well, what did they expect was going to happen? Of course the government is going to then start telling them what to do, who they can fire, what cars to make, blah, blah, blah.

I wish would would just kill them off now, rather than waiting.

[grumbler]

The essence of capitalism is that the *price mechanism* directs resources and talent to the most profitable use.  This is not the price mechanism, it's government fiat.  The counterargument to that is that the executive compensation system is broken, and government fiat more closely reflects the market value of executives than the existing system.  But the counterargument to *that* is that the present pay caps are being driven more by populist rage than by any attempt to ascertain the intrinsic value of said executives.  That can be seen in the article Seedy posted.  The salary of the GM CEO is not being cut because he fucked up; the dude was hand-picked by Obama back only in the spring when Waggoner got thrown to the populist wolves.  What fucked up decisions has GM made since the spring?

Something that migght be relevant to this discussion:  these compensation decisions are not being made by government fiat (for they do not affect all industries, even of a given type) but by direction of the overwhelmingly major shareholder in these companies.

The market has spoken, and the value of the jobs that these executives do in these positions is zero; they should not exist.  I, like many others, find it galling that our tax dollars were not just wasted buying companies of dubious value and distorting the market, but also in paying people to spend the time to decide what the executives of those companies should be paid.  However, that horse has left the barn, and so all we have left is making sure that the maximum amount of "profit" from these companies is returned to the unwilling shareholders (the tax paying public) rather than to executives who are involved in this voluntarily.

[viper37]

No, every other firm would have the possibility of matching the pay that might be offered to one of their executives by another firm.

Let's see...
Were would these companies be today without the government's financial help?
They would be bankrupt, or their assets bought by another firm.

In case #1, these excutives who never receive their bonus, or any increase in pay.
In case #2, these excutives who never receive their bonus, or any increase in pay.

When things go well, regardless of the division, nearly everyone gets better wages.
When things go bad, regardless of the division, nearly everyone gets a pay cut.

Imho, it should be made clear in advance that any compay receiving bailout money at any point in time will have to face strict regulations by the government concerning their daily operations including but not limited to the wages of higher executives, and it will remain like this for a period of 5 years after they finish paying back the money they owe.

So the companies have a clear chance: they either go bankrupt, or they take the government money with the rules that come with it.

In a really free market, there would have been no bailout.  So they really aren't losing anything.  They made a choice, they live with it.  Simple.

[viper37]

AIG should have been allowed to go bust to begin with.  It may have been more painful in the short term, but less over the long haul.

I'm not entirely sure about that.

[alfred russel]

No, every other firm would have the possibility of matching the pay that might be offered to one of their executives by another firm.

Let's see...
Were would these companies be today without the government's financial help?
They would be bankrupt, or their assets bought by another firm.

In case #1, these excutives who never receive their bonus, or any increase in pay.
In case #2, these excutives who never receive their bonus, or any increase in pay.

When things go well, regardless of the division, nearly everyone gets better wages.
When things go bad, regardless of the division, nearly everyone gets a pay cut.

Imho, it should be made clear in advance that any compay receiving bailout money at any point in time will have to face strict regulations by the government concerning their daily operations including but not limited to the wages of higher executives, and it will remain like this for a period of 5 years after they finish paying back the money they owe.

So the companies have a clear chance: they either go bankrupt, or they take the government money with the rules that come with it.

In a really free market, there would have been no bailout.  So they really aren't losing anything.  They made a choice, they live with it.  Simple.

I disagree with that.

If I'm an executive in charge of a profitable division of AIG, and AIG goes bust in a spectacular manner without government intervention, there are two reasons I can expect to still get paid: 1) I'm an employee, and going to have priority over a lot of groups in a bankruptcy proceeding, and 2) My division probably has more value to creditors through a sale rather than a liquidation. If so, it is in the interest of creditors to keep paying key employees like me to maintain the value of the division.

Also, what you are saying may be a reason to void compensation agreements at the time of a bailout, but not when my pay is due. If I've done work after the bailout, the government is simply stiffing me for services I've provided. (this goes back to the AIG situation in March).

Ultimately--this is fairly academic. I don't think anyone still at these companies didn't know what the gig was months ago, and those who could found new places to work.

[grumbler]

Something that might or might not be relevant to this discussion: the average compensation of *all* employees at Goldman is 700K.

Yes, Goldman-Sax, as the secondary recipient of something like a trillion dollars of US bailout money (in the form of repaid loads from the bailed-out companies) is enjoying record profits.  It gambled heavily that the US government would not let these institutions fail, and struck the jackpot.

[Martinus]

The question is - would these people in core operations get their bonuses if AIG imploded because of its insurance operations? If the answer is "no" then they shouldn't get their bonuses now.

I have no idea what you are trying to say.

Well I am saying that whether they should get bonuses or not should not be solely the question of whether they are responsible for the mess, but whether they would have got the bonuses absent of the bail out.

If the entire group would go bust and pay no bonuses if the government didn't bail it out with the tax payer money, then I don't see why people in the company should get a bonus paid out of the same tax payer money effectively, even if they themselves are not at blame.

I mean, many companies and firms (even those not going bust or getting tax payer money) have suspended bonus pay outs to all employees for the difficult times. It seems only fair that a company that exists only because the tax payers footed the bill did the same.