Obama orders pay cut for execs at rescued firms

[alfred russel]

The average pay at a Big Four firm is in the 600-700k range. Obviously not for all firms, most of which are going to be mom and pop shops. 

So the "Big Four" is now the average firm?  I think not. The average pay for the Big Four partners is in the $200,000 - 3,000,000 range (it is right there in the link I provided).  Even if you say that the average including only companies your size should be considered, you know it isn't going to be 33-50% more than the Big Four average, which is what you are paying.

$150k for a CFO for a global public company--even one as small as ours--is silly.

So you say, but mere assertion isn't an argument.  $1 million is silly as well (to make my own assertion).

I should have specified he came from a big four firm. Almost all global public companies use big four firms (I don't know of any that don't, though you could probably find a few)--and as such they are the source of accounting talent in similar companies in corporate america. The big four partner average pay is in the $600-$700k range, with about 25% of them over $1 million. Hiring someone into an executive role may also require a premium: a lot of that $1 million in compensation for our CFO is in stock options and other performance based awards that may not materialize (or he may hit jackpot and they could materialize in an amount much greater than $1 million--$1 million is the fair value of his expected earned comp for the year). He also doesn't have very much job security if things don't go well.

It is the same issue with a general counsel's office. Top corporate law firms such as those that Malthus works at (worked at) are going to pay a lot more than the big four accounting firms. For a company such as ours, we can't afford to hire a partner or a partner track person from such a firm, but a larger company would certainly want to. Top consulting firm partners such as McKinsey are going to have compensation similar to a corporate law firm.

[alfred russel]

My company is a small public company in the insurance industry with just over $1 billion in annual revenues. The publicly available compensation data (companies are required to disclose the CEO, CFO, and top 3 other execs):

CEO: $2 million
CFO: $1 million
Three others: All over $1 million, one is twice as much as the CEO.

I work for a huge company with close to 100 billion euro in revenue (well, before the crisis ) and in 2007, the six board members were paid more than 30 million euros, with the CEO getting about 10 million euro. I wonder if their value-added even comes close. In 2008 which was already a really bad year for the company, they still got 16 million between them.
I have a hard time believing that their value added comes close to that. And I think that their jobs are so prestigious that you would get really good people who would do it for less.

I don't understand why board members would get much money, but think about it from this perspective (for the CEO, not the board members): when you are talking about $100 billion, $10 million is insignificant. I keep reading about how bad management decisions wrecked companies like AIG--if bad management decisions can have such a big effect, why skimp when it comes to retaining the guy you think is best?

[Admiral Yi]

I work for a huge company with close to 100 billion euro in revenue (well, before the crisis ) and in 2007, the six board members were paid more than 30 million euros, with the CEO getting about 10 million euro. I wonder if their value-added even comes close. In 2008 which was already a really bad year for the company, they still got 16 million between them.
I have a hard time believing that their value added comes close to that. And I think that their jobs are so prestigious that you would get really good people who would do it for less.

I'm surprised.  I thought Germany was supposed to have a relatively flat pay structure.

Do those board members hold executive positions too, or do they just show up for the donuts?

[Eddie Teach]

Grumbler also supports a 100% inheritance tax.

I think he just hates rich people.

[Zanza]

I don't understand why board members would get much money,

That was probably bad terminology: in German companies you have two boards. One is the management of the company (CEO, CFO etc.) and I referred to that. The other is the supervisory board which is probably closer to the board of directors in an American corporation. Those guys don't earn nearly as much (five or six digits I guess - they usually have another "real" job).

but think about it from this perspective (for the CEO, not the board members): when you are talking about $100 billion, $10 million is insignificant. I keep reading about how bad management decisions wrecked companies like AIG--if bad management decisions can have such a big effect, why skimp when it comes to retaining the guy you think is best?

Yes, that's of course one way to look at it. I guess if the management influence is really that big, you would be right. However, I wonder if the influence that the top management has is really that big. And if it is, I think something is wrong with the corporate culture. A 100 billion organisation should not rely just on the decision-making of a handful of individuals.

An aspect that is quite important at least in Germany (where equality is considered a more important value than in America I guess) is that $10 million could be considered excessive by the other 250,000 employees who are told that their salaries won't grow or are even reduced in the name of competitiveness. That creates a serious culture problem in your company which can wreck it just as well.

As the first big German company, BMW has now announced that they will link their top management salary to the salary of their blue collar workers. I think that makes sense.

[The Minsky Moment]

A would expect cash compensation of a CFO to be lower than that of a comparable Big Four partner and that of a GC to be lower than a comparable Biglaw partner, because the corporate officer is more likely to get stock incentives, more perks and greater severance benefits.

[Zanza]

I'm surprised.  I thought Germany was supposed to have a relatively flat pay structure.

As far as I can tell, that changed a lot in the last two decades. A figure I found says that the top executive (CEO, CFO etc.) salaries of the 30 biggest listed companies grew about 650% in that time. From about 480,000 euro on average in 1987 to 3,33 million in 2007. It shrunk a bit in 2008, but still.

That happens to be a quite a bit more than the general income growth in Germany in those two decades.

The best paid German executive in the last two years was Wendelin Wiedeking of Porsche who got something like 70 million euro or so. Before overleveraging his "hedgefund with attached car production" so much that it had to be "bailed out" by its erstwhile prey Volkswagen.

[DGuller]

I wouldn't consider those factors an attack on GS, it would seem to be a solid case for a ringing endorsement, as the company has provided strong returns for shareholders. Outsized returns for shareholders + higher compensation for employees and executives = a win - win.

Yeah, but not every company can get a whole army of its people into government or quasi-government institutions, and then have them manipulate the rules of the game in their favor.  Those who can are, of course, a big win for all of it their stakeholders.

[DGuller]

Though I suppose questions could be raised about how much of a "gamble" it was for GS to hold all that "risky" debt, vice how much the government interference that would save them from utter ruin was a "sure thing."

As much of a gamble as it was for Captain Renault to play in Rick's casino.

[Admiral Yi]

As much of a gamble as it was for Captain Renault to play in Rick's casino.

Let me guess, all the members of Congress who voted for TARP were Goldman alumni as well?

[DGuller]

As much of a gamble as it was for Captain Renault to play in Rick's casino.

Let me guess, all the members of Congress who voted for TARP were Goldman alumni as well?

Just because there was TARP doesn't mean that Goldman had to make out like a bandit.  The devil is in the details, and there were a lot of Goldman alums that were working out the details.  For example, Goldman didn't have to receive 100 cents on the dollar from the money they had in AIG.

[alfred russel]

A would expect cash compensation of a CFO to be lower than that of a comparable Big Four partner and that of a GC to be lower than a comparable Biglaw partner, because the corporate officer is more likely to get stock incentives, more perks and greater severance benefits.

For the CFO being discussed with comp of $1 mill, the cash comp is $400k.

[alfred russel]

Just because there was TARP doesn't mean that Goldman had to make out like a bandit.  The devil is in the details, and there were a lot of Goldman alums that were working out the details.  For example, Goldman didn't have to receive 100 cents on the dollar from the money they had in AIG.

True, but at the time the government was of the opinion that an AIG default presented a systematic risk. Without GS going along with reduced payments, AIG couldn't avoid defaulting without a full payoff, and apparently GS refused to negotiate.

[Zanza]

Didn't some other (foreign) banks also get a lot of money from the AIG bailout? I seem to remember Deutsche Bank and UBS or so getting huge sums of American taxpayer money.

[The Minsky Moment]

Just because there was TARP doesn't mean that Goldman had to make out like a bandit.  The devil is in the details, and there were a lot of Goldman alums that were working out the details.  For example, Goldman didn't have to receive 100 cents on the dollar from the money they had in AIG.

The Euro banks did.  Barclays alone got paid off over 8 billion on AIG exposure.  I don't see how Goldman's treatment was unfair in that context.  They had fully hedged their exposure.