Obama orders pay cut for execs at rescued firms

[The Minsky Moment]

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

OK that is reasonable but it is also a sample size of 1.

[alfred russel]

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

OK that is reasonable but it is also a sample size of 1.

My point isn't that compensation for all executives is reasonable, it is that the compensation limits for GM and that were discussed for AIG are not. If $1 mill is reasonable for a guy at an insignificant company few have heard of, then what does that say when he is making more than than the pay caps at some of the biggest companies in the world?

[DGuller]

It's understandable that execs at big companies get paid much higher. When your decisions make or lose billions, it makes sense for to be paid more.  It doesn't make as much sense if your decisions mainly lose billions, though.

[alfred russel]

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.

Yes--at the time I thought we should have let AIG sink and bailed out the American banks that needed it directly, so the Europeans could clean up their own mess. That would have also avoided at least part of the current Goldman Sachs backlash. edit--one obvious reason that might not have worked is it would have created uncertainty regarding the insurance businesses of AIG. Not sure how could create confidence regarding those while allowing the holding company to fail.

Especially with their tax controversies and being a european company, I would think that UBS would be more controversial of a bailed out conterparty than GS, but I guess the people selling papers know what they are doing.

[grumbler]

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?

The problem with paying guys $10 million to come aboard (and with hiring Big Four Partners away from Biig Four companies) is that you are getting the Peter-principaled guys who are motivated by money, and as we have seen, these guys suck when it comes to decision-making.

Offering less comp and more job satisfaction will get you better people, and save millions to boot.

You are correct to argue that CEOs don't look at it this way, though.  CEOs are overwhelmingly products of, and therefor slaves to, the bureaucratic mentality.  Rather than thinking, they want to spend money, so that they can justify their crappy personnel decisions by claiming that "they paid top dollar to bring in the best talent."

Note that I don't argue against compensating well for a difficult job well done (e.g. your rainmakers), but when companies are losing money, so should their top execs.

[alfred russel]

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?

The problem with paying guys $10 million to come aboard (and with hiring Big Four Partners away from Biig Four companies) is that you are getting the Peter-principaled guys who are motivated by money, and as we have seen, these guys suck when it comes to decision-making.

Offering less comp and more job satisfaction will get you better people, and save millions to boot.

You are correct to argue that CEOs don't look at it this way, though.  CEOs are overwhelmingly products of, and therefor slaves to, the bureaucratic mentality.  Rather than thinking, they want to spend money, so that they can justify their crappy personnel decisions by claiming that "they paid top dollar to bring in the best talent."

Note that I don't argue against compensating well for a difficult job well done (e.g. your rainmakers), but when companies are losing money, so should their top execs.

People may go to med school to heal the sick, or become teachers to teach, or join the military to defend the county. But for the most part, people get MBAs to make more cash.

[grumbler]

People may go to med school to heal the sick, or become teachers to teach, or join the military to defend the county. But for the most part, people get MBAs to make more cash.

True, but since you don't want those people to run your company anyway, moot.

[The Minsky Moment]

My point isn't that compensation for all executives is reasonable, it is that the compensation limits for GM and that were discussed for AIG are not. If $1 mill is reasonable for a guy at an insignificant company few have heard of, then what does that say when he is making more than than the pay caps at some of the biggest companies in the world?

A billion in revenue is a pretty serious business regardless of whether people have heard of it.  It is not immediately obvious to me why there should be a direct linear relationship between revenue and exec comp.  It is not necessarily the case that a company doing $10B in revenue or even $100B needs a more accomplished CEO than one doing $1B.

A business that is very complex may need a particularly skilled CEO; then again what it may really need is do some asset sales and focus. 

[garbon]

Those with less money feel that way, as do those with more money, and those with exactly-equal money. 

You would think that.

[grumbler]

You would think that.

This is merely what the poor people always say.

[garbon]

This is merely what the poor people always say.

No, not really.

[grumbler]

No, not really.

The poor people always say that, as well. 

[garbon]

The poor people always say that, as well. 

No, not really.

[Neil]

People may go to med school to heal the sick, or become teachers to teach, or join the military to defend the county. But for the most part, people get MBAs to make more cash.

True, but since you don't want those people to run your company anyway, moot.

You would think so, but as it turns out MBAs run a lot of companies.  It seems that somebody thinks that they're worthwhile.

[grumbler]

You would think so, but as it turns out MBAs run a lot of companies.  It seems that somebody thinks that they're worthwhile.

But the MBAs who only got the degree to make more money are not the guys you want running your company.  You want the ones who got their MBAs so they would qualify for the added responsibility and authority.  The guys only out for the cash will fuck up your company for the quick buck, and then bail out with a golden parachute.  They are the guys who got us all into this mess.