Executive pay reforms met with caution
The Obama administration is proposing reforms to executive pay that would give shareholders and boards of directors a vote on pay packages for top CEOs. John Dimsdale reports on why some corporate managers say the plan is impractical.
U.S. Treasury Secretary Timothy Geithner speaks during a meeting with leading executive compensation experts at the Treasury Department in Washington, D.C. (Alex Wong/Getty Images)
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Kai Ryssdal: It's not that the White House and the Treasury Department don't want to regulate executive compensation. They are just going to go about it a little bit differently than they first thought. Today the Obama administration appointed what it's calling a special master to manage the salaries of the top 25 executives at companies that have taken federal bailout money. Our Washington bureau chief John Dimsdale reports.
JOHN DIMSDALE: Wall Street banks complained bitterly that the government shouldn't meddle with pay packages and that caps put them at a competitive disadvantage when attracting and keeping talented executives. Today Secretary Geithner agreed.
TIMOTHY GEITHNER: We do not believe its appropriate for the government to set caps on compensation. We are not going to prescribe detailed prescriptive rules for compensation.
Instead, Geithner endorsed giving stockholders an annual vote on the pay packages of the top five executive officers of all companies, not just banks. The votes would be nonbinding on boards of directors.
But shareholder say on-pay votes don't sit well with many corporate managers. They say a simple salary number is incomplete. The Center on Executive Compensation represents HR executives at big companies. Senior Vice President Tim Bartl says shareholder votes, done right, are impractical for most investors.
TIM BARTL: If you're looking at a large institutional investor or even a mom-and-pop investor that needs to read through 30 to 50 pages of comp disclosures for each company. It's pretty difficult to come up with a meaningful view on pay for each of those firms.
Advocates of salary limits say pay-for-performance incentives at banks encouraged excessive risk taking. But Ira Kay at the management consulting firm Watson Wyatt, says only some incentives encourage bad executive behavior.
IRA KAY: We think companies should protect their core cash and stock incentives. But that they should be very flexible on the shareholder irritants such as perquisites and excessive severance, which some people call pay for failure.
Kay is just completing a large study which concludes it wasn't pay incentives that prompted risky executive behavior. Instead he says managers were using broken business models that hid where the real risks were.
In Washington, I'm John Dimsdale for Marketplace.
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From Ann Arbor, MI, 06/11/2009
Here's a suggestion on how to kill two birds with one stone.
The TARP banks claim the execs and others are "owed" those bonuses even though their work brought their institutions to the brink of ruin.
Okay, pay them--in kind. Specifically, pay them in "toxic" assets held by the institution. At face value. VP Smith is owed a $1M bonus? Fine, here's a bundle of securitized mortgages or bonds with a face present value of $1M.
Further, in the event the institution and Mr. Smith attempt an end run around the rule by Mr. Smith selling the asset back to the institution (even through an intermediary), the rate of exchange becomes the exchange value for ALL the "toxic assets" held by that institution. I.e. a high-ball value, say 95%, means the institution must put ALL its "toxic assets" on its books at no less than 95% of face; a low-ball value, say 25%, and the institution must book AND be willing to sell them at that value. (This doesn't occur if Mr. Smith holds the asset(s).
This can accomplish at least two things: the execs are paid; the assets are disposed of; and the assets may acquire a defined value.
From RIchmond, TX, 06/11/2009
I'm sorry ... these folks are out of control ..... They lack an ethical compass.... if you can go home with a mega buck paycheck while your company is going bankrupt and sleep at night... then..... you really do need a bit of regulation in your life.....
If you want to quit your job because you don't make enough and you think you can make more.... that's fine.... its the capalistic way...
On the otherhand.... as an employee of a company that took TARP money, or any other form of a tax payer funded bailout.... opps... you've become an employee of an entity owned by the American Tax Payer.... the highest paid employee of the Tax payers is... and should be .... The President....
so for the duration of your company using bailout money..... you just need to take a pay cut to be consistent with the current situation...
We've all heard it from our HR departments... We can give our best employees a pay raise... or get one for outselves ... because HR has done a survey and .. well.... the current situation reflects a somewhat more most compensation structure....
Seriously.... are these folks really worth more than 400K a year? How about 200K... What about those of us who somehow manage to have very nice lives on something a bit more modest...
CAP THE SHIT OUT OF THESE UNGREATFUL PIGS....
From Poughkeepsie, NY, 06/11/2009
I agree having the stockholders vote isn't really realistic. Maybe we can have the non-executive employees vote since they have a better view of the company's inner working and they know how effective is the management. A common stockholder might know the company's objectives and current financial snapshot, but they don't really know how well the company is positioned to meet those goals and they would probably just vote on the stock prices which would defeat the purpose. Of course this assumes that the employees will do the right thing, but it would be a step up from the panel of CEO buddies. Also the employees have more at stake like their salary and career.
From CA, 06/10/2009
This circus is masking the real problem. Govt has no business setting copensation limits. Let the companies and their boards deal with them.
The real problem is solving "too big to fail" situation and letting bad companies fail. There should be absolutely no bailout in future of those companies that fail. To accomplish this create regulation that does not allow companies to pose systematic risk. Once that is done, companies that fail should be allowed to fail. Talking about useless compensation limits accomplishes nothing but sooth ignorant puplic.
From Florence, KY, 06/10/2009
Mr. Geithner - what possible impact will a non-binding vote on executive compensation have? Boards of directors have shown they believe that "top" (if I may use the term) executives are worth whatever ridiculous amount of money they can get. What wil be the impact If a board should lose a non-binding vote?
IMHO, boards - who are typically executives in other companies - have an inherent interest in increasing the average compensation of "key executives".
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