Getting theirs: Backlash on Wall Street bonuses
Citigroup execs canceled an order for a French-made Dassault Falcon 7X only after it was shouted in their tin ears that taxpayers were irate at being stuck with the tab.
Every day in the lobby of the Charles F. Knight Executive Education & Conference Center at Washington University’s Olin Business School are buffet tables laden with hot coffee and tea, cold juices, fresh fruit and candy, little tidbits for hard-working students, teachers and staff to nosh on.
There are Oriental rugs on the floors, lounge areas and reading nooks. Upstairs is a 66-room hotel for traveling executives, complete with complimentary beverage service, concierge service and conference rooms wired with high-speed Internet service, copy and fax machines and laser printers.
Thus, even at the larval stage of an executive’s career, he or she is being prepared for the good life. Later on, if the young executive is good at his work (and sometimes, even if he isn’t) there will be other perks: limousines, private jets, executive chefs, $35,000 commodes and — best of all — year-end bonuses.
That is, unless Claire McCaskill messes up everything.
On Friday, the Missouri Democrat took the floor in the U.S. Senate to introduce a bill that would limit executive compensation in firms receiving federal financial bailouts from earning any more than $400,000 — what the president makes.
“Now once they’re off the public dole, once the taxpayers aren’t footing the bill, then it’s not as much our business what they get paid,” Ms. McCaskill said. “But right now they’re on the hook to us. And they owe us something other than a fancy waste basket and $50 million jet.”
This is, as we say in Missouri, “Claire being Claire.” She gets mad, says something outrageous and later, after she calms down, works for reasonable accommodation with the people she has blasted. But for the time being, she is a populist heroine, having touched a nerve that’s raw and getting rawer.
Over the past three decades, a bizarre sense of entitlement has governed executive compensation. As long ago as 1991, in the book “In Search of Excess,” the executive-pay consultant Graef S. Crystal identified the problem:
“Huge and surging pay for good performance and huge and surging pay for bad performance, too. After all, if you are going to pay people highly in good times, because they deserve it, and if you are going to pay people highly in bad times, because you need to keep them with the company, just when is it that you are ever going to cut their pay?”
Answer: You’re not. So corporate boards, made up of friendly executives, continued handing out huge salaries, bonuses and stock options. With stock prices going ever upward, people got the idea they were “worth” $100 million a year simply because other people were “worth” $100 million a year. And up.
The notion that executives were special became so entrenched that today, many executives can’t understand why anyone would challenge it. This explains the why so many of them have a tin ear about public outrage.
There will be some form of cap on executive compensation in the forthcoming economic stimulus bill. That’s important, but the larger issue is the long-term trend in executive compensation, and that will require a shareholder revolt. Not all public companies — and surely not many on Wall Street — tie compensation to performance.
The Wall Street Journal reports that America’s five biggest securities firms last year had a combined loss of $25.3 billion, yet paid bonuses of $26 billion. If everyone had made it on salary alone, they would have finished $700 million in the black.
A fairer system could include increasing base salaries and tying all deferred payments — stock options, bonuses and the like — to the creation of measurable, real value. Federal regulations should be crafted to limit boards from concocting bogus reasons to award incentives that aren’t earned.
It would nice if we could legislate some humility, too, but of that we have small hope.
Nobody was complaining when those bonuses were generating ALL that income tax money were they? I believe NYC alone has lost over a billion in tax revenue from the disappearance of Wall Street bonuses.
http://www.nypost.com/seven/01282009/news/regionalnews/new_york_takes_1b_tax_revenue_hit_152412.htm
I heard yesterday on CNBC some banks were passing on TARP money or govt assistance if it was going to come with strings. I don’t blame them. Once the govt gets control they don’t let go.
We’ll get thru this people. The class system has been in place since the beginning of time. The current crisis won’t change that no matter how much global warming is being generated in Washington. You forget, most members of Congress are rich as well. We’ll include Obama in that list of the rich as well, $4.2 million if I remember right. How bout we start with them if there’s gonna be any pay caps shall we? Lead by example, they’re getting taxpayer money too. These are the people YOU elect to be your voice. It seems they take care of themselves first. You are being played the fool by reelecting them, and they know it.
http://www.rollcall.com/features/Guide-to-Congress_2008/guide/28506-1.html?type=printer_friendly
While I’m no were near to being rich I don’t want someone taking away the incentive of working to become rich. Sorry, just sensitive that way. I’m sure others do want the govt wiping their behinds, telling them what they can and can’t do and generally running their lives, I don’t. The government can do two things well, collect taxes and field a military. That’s it.
As a former CEO of a public company (who never made the kind of dough described here), I can tell you there are a lot of reasons to pay a CEO well. A good one can make the shareholders a lot of money. A bad one can bankrupt them. There is also the risk. The CEO is held responsible for the actions of the, in some cases, tens of thousands of employees, most of whom he hasn’t even met. In the post-Enron criminalization of business, prosectors took the position that “just because you didn’t know doesn’t matter.” So, would I take one of those jobs for $400k knowing there was a good chance I could go to jail for something I didn’t do….no way. That being said, I think it is necessary to separate CEO’s of real companies from Wall Street. These people made money that was so astronomical and they made it selling what we now know was basically smoke. When I sold my company, I am sure the investment banker made more money in a couple of months than I made after killing myself for over 20 years. I was happy with what I got, but it still didn’t taste good. You must also wonder what makes an outfielder signed today worth $25 million for less than a year’s work? I just bought three tickets to the Billy Joel concert and they were almost $600. Worth it, probably not. A smart guy said once, “people are worth what the market is willing to pay them.”The market is out of whack. Markets can and should also correct themselves and I believe that is happening now. Salaries are set by boards of directors and as much as the Post likes to think boards are always comprised of golfing buddies, they are usually not. Mostly, they are large shareholders, venture capitalists and more recently, incompetent tokens selected for their ability to represent certain demographic groups. Some of these people become “professional directors” serving on several boards. They come to see this as their main source of income. These people are willing to trade a little extra pay to executives for a few more options, higher committee pay or a few more rides on the company jet. It is said that Citi jet that caused such a stir was meant to ferry their new Chairman, an Obama pal back and forth from France where he now lives. Perhaps the first limits that should be imposed should be on directors. Once they know there aren’t any more emolluments for them, they will get real about exeuctive pay. And movies and baseball should also do the same.
Can’t disagree with anything here, but are you or Claire ever going to address the tax cheats and lobbyists in the new Obamation? Daschle was paid $85,000 a month plus a car and driver by someone wanting influence in this administration. Apparently the guy wanted to be Commerce Secretary.
You just can’t make this stuff up.
Also, our new Commerce Secy to be (hope he paid all his taxes), also voted to abolish the Commerce Dept. while in the Senate. Again, you just can’t make this stuff up.
I am glad you finally mentioned corporate boards. The Boards of Directors of Citigroup and Bank of America plus others should all be fired and have to pay back their compensation for malpractice and incompetence. Stockholders - vote these people out!
BTW - I can guarantee that all the new MBA grades this year would take these jobs for a lot less and probably do just as well or perhaps a better job than these greedy numbskulls.
I didn’t see where you mentioned that Claire called Walls
Steeters “idiots.”
Here are Kevin Horrigan’s own words to me for calling Al Gore a name:
“we’re not going to let your post stand because we try to avoid
low-brow name calling. Try taking “morons” out if you want to try your
post again.”
Apparently he has no problem with “low-brow name calling” when Claire does it on the Senate floor, however.
“The notion that executives were special became so entrenched that today, many executives can’t understand why anyone would challenge it. This explains the why so many of them have a tin ear about public outrage.”
I like that paragraph. Just replace “executives” with “journalists” and it applies to th Post-Dispatch as well.
A Centrist - I, for one, appreciate the fact you call the P-D on the carpet for their one-sided reporting and editorials. Of course they refuse to listen, but at least you call them out on it. Thank you.
P.S. Can you provide a link for the editorial criticizing the pork-filled economic stimulus package that doesn’t actually do any “stimulating” or the one criticizing President Obama for appointing a lobbyist when he promised he wouldn’t or the one about President Obama supporting a tax cheat for H&HS secretary? I have apparently missed them.
Clipper - I’m sure the Post would have written those three stories you mention, but alas, more pressing items pushed them aside. After all, we needed the two posts about Robin Carnahan’s senate campaign, the urgent story on McCaskill demanding that federal job applicants pay their income taxes, and of course the piece about Charlie Dooley’s “stimulus tax cut” that would provide county residents an additional 25 cents a week in spending money. And don’t forget that crucial story about Mayor Slay campaigning in a Yukon hybrid.
So you see, they really did not have time to deal with those things you mentioned. Personally, I wish somebody at the Post would take a few minutes to pen an apology to their readers for their disgraceful endorsement of Blagojevich’s reelection bid, in which they acknowledge his ethical problems but express hope that he’ll clean up his act after he is reelected. Their faithful readers really deserve it. But apparently, they are too busy for that too.
Nick, we’ll see that apology when we see their apology for backing Obama. Obama is proving him to be the man we (who voted for McCain) thought he would be: an empty suit and full of words…and nothing else.
I have mixed emotions about bonuses, high pay, big trips etc. While I don’t want my money going to these same folks that couldn’t run their own companies, my money would be going to many other people in the process. The big trips (Wells Fargo just backed out of theirs) mean that hotel workers, casino operators, rental car companies, etc., make money. If the jet was made in America, I wouldn’t have as much as an issue with it. The high bonuses mean realtors, luxury car makers (hopefully American), housekeepers, chefs, artists, interior designers, clothiers, etc. all benefit. It’s a vicious circle, isn’t it?
Money IS good. I hope I can make plenty of it.
Logic,
Capping exec pay, a joke BTW, is just the start. Soon, pay around $250K will be capped, or taxed heavily. Nothing says incentive killer like price floors, ceilings and pay caps.
Everything you quote is correct. Everyone prospers when those with the money spend it.
When Wells Fargo cancelled their million dollar event in
Las Vegas, they claimed they were not spending any stimulus
money on it. Of course not; they were spending THEIR money,
and were then going to move stimulus money into that account
to replace what was spent.
A guilty conscience covered by sly bookkeeping.