Administration seeks ways to tame corporate pay

[WoodysGirl]

By Jim Kuhnhenn, Associated Press Writer – 34 mins ago

WASHINGTON – Talking tough but stepping gently, the Obama administration rejected direct intervention in corporate pay decisions Wednesday even as officials argued that excessive compensation in the private sector contributed to the nation's financial crisis.

Instead, the administration plans to seek legislation that would try to tame compensation at publicly traded companies through shareholder pressure and less management influence on pay decisions.

At the same time, the administration drew a sharp line between the overall corporate world and those institutions that have tapped the government's $700 billion Troubled Asset Relief Program.

The administration issued new regulations Wednesday that set pay limits on companies that receive TARP assistance, with the toughest restrictions aimed at seven recipients of "exceptional assistance." Those firms are Citigroup Inc., Bank of America corp, General Motors Corp, Chrysler, American International Group Inc., GMAC LLC and Chrysler Financial.

The regulations limit top executives of companies that receive TARP funds to bonuses of no more than one-third of their annual salaries.

But in a significant expansion of authority, the regulations call for a special compensation overseer who will burrow into the pay practices of some of the country's biggest enterprises.

The administration named Kenneth Feinberg, a lawyer who oversaw payments to families of victims of the Sept. 11, 2001, terrorist attacks, as a "special master" with power to reject pay plans he deems excessive at the seven companies with the biggest injections of public money. Feinberg also would have authority to review compensation for the top 100 salaried employees at those firms.

The tempered broader approach to executive pay wasn't immediately embraced on Capitol Hill, where a leading Democrat said he wants to go farther.

In a lengthy statement released after the White House announcement, House Financial Services Committee Chairman Rep. Barney Frank said he wants legislation that would instruct the Securities Exchange Commission to ban company boards from rewarding excessive risk taking.

"It is not the government's business to discourage risk taking," said Frank, D-Mass. "But neither should we allow systems which have existed up until now whereby decision-makers are handsomely rewarded if they take big risks that pay off, but suffer no penalty whatsoever if those risks result in losses to the company."

With one set of policies for taxpayer-assisted firms and a more hands-off approach to the rest of the corporate sector, Obama is straddling what has been an explosive issue with the public and in Congress. Executive pay burst as an issue earlier this year amid disclosures that AIG, the insurance conglomerate, had paid bonuses of $165 million even as it accepted billions from the government.

AIG is among the companies whose pay schemes the government will now oversee. But outside in the broader private sector, the administration chose to use public pressure and the potential for embarrassment, rather than direct pay restrictions.

"We do not believe it's appropriate for the government to set caps in compensation," Treasury Secretary Timothy Geithner said. "We're not going to prescribe detailed prescriptive rules for compensation. All those things would be ineffective, could be counterproductive in some ways."

Geithner said the administration will ask Congress to give shareholders a nonbinding voice on executive pay and to require corporate compensation committees to be independent from company management. That second provision would give the SEC authority to strengthen the independence of panels that set executive pay.

"We'd like to see better transparency and accountability, frankly," of executive pay practices, Geithner said.

Geithner said the administration's legislative proposals would reinforce administration compensation guidelines that encourage corporate boards to adopt pay packages that reward long-term performance rather than short-term gains and to better manage the relationship between risk and incentive. Those guidelines, or principles, are not enforceable but are meant as a message to corporate boards and to shareholders.

With that policy, the administration appeared to be heeding the concerns of the financial sector.

"There is recognition that if you accept government money, you should be subject to restrictions," said Scott Talbott, the senior lobbyist for the Financial Services Roundtable, an industry group. "Our concern is the government should not set specific dollar amounts and should stick to principles and guidelines, which I believe they will."

So-called shareholder "say on pay" legislation cleared the House in April 2007 by a 2-to-1 margin but went nowhere in the Senate. It was opposed by the Bush White House and most Republicans.

Investor advocates, union pension funds and shareholder groups have pushed for the legislation. Critics, such as the Center on Executive Compensation, argue that "say on pay" would trivialize corporate governance and would give shareholders a voice even though they are not privy to information before the board of directors.

As a senator in 2007, President Barack Obama introduced a bill to require companies to allow nonbinding shareholder votes on executive compensation packages, though his proposal wouldn't have limited CEO pay.

During the presidential campaign, Hillary Rodham Clinton also proposed a measure to give shareholders a nonbinding vote on executives' pay packages. In addition, her bill would have required top executives who collect large performance-based pay packages to return the money if financial irregularities are discovered and companies are forced to restate their earnings. It also would have capped the amount that top executives could earn tax-free through deferred compensation.

___

AP Economics writers Martin Crutsinger and Marcy Gordon, AP Writer Anne Flaherty in Washington and AP Business Writer Sara Lepro in New York contributed to this report.

http://news.yahoo.com/s/ap/20090610/ap_on_bi_ge/us_executive_pay

[Dallas]

WHY????????


I could care less if so and so CEO makes 4m/year. The board of directors feels the man is qualified and thats what they wish to spend in order to get "that guy", by all means let them.

This administration has serious issues and the fact they feel the need to put the blasted nose up everyones ARSE is getting rediculous.

I know you are listening dems.


Your government is a bunch of inexperienced children w/ a nice new shiny toy called "The American Tax Payer." Please excuse a brother if he is tired of getting BENT over these past 100+ days.

[ShiningStar]

I dont know Dallas, I think some Democrats are starting to speak up and say some good things and more importantly asking the right questions. It doesnt matter party, the fact is some are starting to say "whoa, now we are going to far".

There are some moderate Democrats, but i believe they are being over ran and want to try to reign some of this in.

[Maikeru-sama]

Excessive executive pay had very little to do with the Mortgage Meltdown.

Private Corporations should be able to pay their executives as much money as they want because they generate their own revenue and the Stockholders and Board have the power to limit pay if they really wanted too (Yes I know alot of the members of the Board are CEOs themselves).

This is the United States, you should be able to make as much money as the market can tolerate. Uncle Sam has no business sticking its nose in it.

What I dislike is a Private Corporation paying executives millions of dollars, that leadership running the company into the ground and then asking the Government to bail them out.

But seriously, even if Corporations were force to curb executive pay, do you really think that money would find its way into the pockets of the everyday employees :laugh2: ?

[Dallas]

I dont know Dallas, I think some Democrats are starting to speak up and say some good things and more importantly asking the right questions. It doesnt matter party, the fact is some are starting to say "whoa, now we are going to far".

There are some moderate Democrats, but i believe they are being over ran and want to try to reign some of this in.


Then they need to speak louder. We have yet to even tackle the Democrats wet dream of free health insurance.

How much money has this administration spent so far? How much more will they ask Congress for to pass the massive overhaul of our health care system?

Then there is the green effect and that blasted Tax and Trade.

Where does it STOP?

[ShiningStar]

Then they need to speak louder. We have yet to even tackle the Democrats wet dream of free health insurance.

How much money has this administration spent so far? How much more will they ask Congress for to pass the massive overhaul of our health care system?

Then there is the green effect and that blasted Tax and Trade.

Where does it STOP?


Goes back to my old saying, if you scream loud enough, you are right. They cant scream louder, because as every american will tell you, Money walks, and when you have an adminstration handing out the lifeblood of the country, people will listen.

Doesnt make you correct in the matter, but it gets people on your side. Watch a crowd sometime when money is on the line, you learn about people. Same thing, all the other corporations watched the banks and the auto industry. If it went great, they would seek a bailout, if not, than they will hope for the best.

You see Newspapers collapsing and selling off pieces. They might come up and ask for a handout, and why shouldnt they, Team Obama is handing it out like candy. If someone goes to protest, they are going to get scewed. Perfect example, go see about the student lawyer who sued Sanford to take the stilumus money for his state, now SC is going to be on the hook lik ethe other states.

Money involved is like alcohol, a lot less thinking.

[MetalHead]

Excessive executive pay had very little to do with the Mortgage Meltdown.

Private Corporations should be able to pay their executives as much money as they want because they generate their own revenue and the Stockholders and Board have the power to limit pay if they really wanted too (Yes I know alot of the members of the Board are CEOs themselves).

This is the United States, you should be able to make as much money as the market can tolerate. Uncle Sam has no business sticking its nose in it.

What I dislike is a Private Corporation paying executives millions of dollars, that leadership running the company into the ground and then asking the Government to bail them out.

But seriously, even if Corporations were force to curb executive pay, do you really think that money would find its way into the pockets of the everyday employees :laugh2: ?

Ding,ding,ding....another winner!
You Sir are right on the money.

[WarC]

Watch a crowd sometime when money is on the line, you learn about people. ...Money involved is like alcohol, a lot less thinking.

Exactly why there should be limits on executive pay and bonuses. We all know human nature, why do we expect that people will moderate themselves where it pertains to pay and analysis of self worth? Everyone thinks they deserve more for what they do.

Congress wouldn't touch the minimum wage for over ten years, but they'd sure as vote themselves a pay raise each year...

A country ought to be judged by how it treats its most disadvantaged citizens.

[WarC]

Excessive executive pay had very little to do with the Mortgage Meltdown.


The mortgage meltdown was not just the result of predatory lending, it is a symptom of an accumulative problem going back decades in this country...The income gap, a stagnant middle class, and a growing underclass living below the poverty line.

This economy is overwhelmingly powered by consumer spending. The middle and under classes represent a large majority of consumers. The current recession and the mortgage crisis are to me reflections of our unhealthy attitude toward the economically disadvantaged and refusal to address the minimum wage among other things...The predatory lending just exasperated things.

The economy will fix itself, of course, and its doing that by shedding jobs at unprecedented rates... Yet there are more millionaires than ever before.

I believe the payscale should reflect an acknowledgement that the consumer drives our economy...It should be a "carry all" philosophy where executive pay is a certain percentage of the lowest base pay at the company (say, purely for example, 5000% of the base salary job offered).

I believe such a system would be fair to all. No one gets taken advantage of, everyone benefits.

[trickblue]

He should be more concerned with congressmen that go into office with a net worth of $150k and leave Washington worth millions...

Herein lies the BIG problem with this country...

I have a problem with this...

Term limits can't come too soon, but why would congress end their cash cow by voting this in?

They love to cite the Constitution here... but ignore it in other aspects...

[Maikeru-sama]

WarC, I disagree.

Excesssvie executive pay had very little to do with the Mortgage Meltdown.

1) Public officials created a very lax and dangerous environment by allowing lenders to get into "creative" financing and even demanding lenders such as FNMA and FMAC set aside a percentage of their funds to give to those who really couldn't qualify for a loan.

2) The greedy American Public who constantly watch MTV Cribs, Who Wants to be a Millionaire and Flip This HOuse and wanted to live a crib like celebreties, take out equity loans to have things like millionaires and flip properties like the guys on TV.

If you eliminate options 1 and 2 above, maybe even just one of the two, you don't have a Mortgage Meltdown.

It had nothing to do with somebody being hired at a corporation and accepting the highest offer he could get.

Again, executive pay is set by the Board of Directors who are in turn elected by shareholders. Of which, I am told a huge percentage of the Middle Class are shareholders, so they need to step up and start voting with their dollars.

[theogt]

I could care less if so and so CEO makes 4m/year. The board of directors feels the man is qualified and thats what they wish to spend in order to get "that guy", by all means let them.You do realize that the board of directors is elected by the shareholders and that the "say on pay" legislation simply gives more power to shareholders, no?

I can't see how anyone can level a "free market" argument against this, since it only gives the owners of the business more control over the business.

Shareholder activists have been pushing for "say on pay" legislation for years, well before the recent crisis. It was just a matter of time before it happened.

[Bach]

Remember the quaint idea that the states were supposed to decide corporate governance, and the federal securities laws were supposed to be just about disclosure? Obviously this is a significant decision about the allocation of power between shareholders and managers that's being made by the U.S. Congress. Wasn't that supposed to be a matter for state law?

Efficient compensation must be crafted on an individual-by-individual and firm-specific basis to provide the right incentives and attract the best people. It's like designing a product. Can anybody seriously believe that shareholders en masse can make a meaningful, intelligent, up-or-down decision on executive compensation?

Everybody who thinks this is about meaningful reform of executive compensation raise your hand. (Hey – how did that guy with the clown suit get in here?)

Not that this was unexpected. As I said a few months ago about the SEC's compensation disclosure rule that underpins this new initiative:

Unions already have secured an extensive executive compensation disclosure rule to whip up populist resentment about executive pay. The next step is to create a mechanism to bring that resentment to bear in corporate elections. It should be obvious to anybody who cares to look past the rhetoric that the unions are seeking bargaining leverage on behalf of their members, and to ensure their own survival. They are not seeking to represent the interests of investors generally. Their ideal is the sclerotic European firm, with its labor representatives on the board.

Let's think about some other likely specific effects of the proposal beside shoring up the flagging power of labor unions:

Providing a potential basis for litigating the outcomes of board elections.
More benchmarking of compensation.
Increasing firms' incentives to manipulate compensation. Backdating was an early version of this technology, which will likely evolve into more sophisticated techniques.
Spurring further brain drain of talent from publicly held firms. This, of course, increases the net costs of public ownership and the wealth and power of private equity (where managers' pay dwarfs that in public firms).
Even if one agrees with the concept of "say on pay," this law isn't necessary. Many companies already are voting on, and some have adopted, similar shareholder proposals. But the unions won't win all of these votes, so the idea seems to be to get Congress to force the idea down the throats of firms whose shareholders have rejected the union initiatives.

Now it's on to the Senate, with Barack Obama using this gimmick to demonstrate his astuteness on business issues.

http://busmovie.typepad.com/ideoblog/2007/04/say_on_pay.html

[theogt]

Remember the quaint idea that the states were supposed to decide corporate governance, and the federal securities laws were supposed to be just about disclosure? Obviously this is a significant decision about the allocation of power between shareholders and managers that's being made by the U.S. Congress. Wasn't that supposed to be a matter for state law?

Efficient compensation must be crafted on an individual-by-individual and firm-specific basis to provide the right incentives and attract the best people. It's like designing a product. Can anybody seriously believe that shareholders en masse can make a meaningful, intelligent, up-or-down decision on executive compensation?

Everybody who thinks this is about meaningful reform of executive compensation raise your hand. (Hey – how did that guy with the clown suit get in here?)

Not that this was unexpected. As I said a few months ago about the SEC's compensation disclosure rule that underpins this new initiative:

Unions already have secured an extensive executive compensation disclosure rule to whip up populist resentment about executive pay. The next step is to create a mechanism to bring that resentment to bear in corporate elections. It should be obvious to anybody who cares to look past the rhetoric that the unions are seeking bargaining leverage on behalf of their members, and to ensure their own survival. They are not seeking to represent the interests of investors generally. Their ideal is the sclerotic European firm, with its labor representatives on the board.

Let's think about some other likely specific effects of the proposal beside shoring up the flagging power of labor unions:

Providing a potential basis for litigating the outcomes of board elections.
More benchmarking of compensation.
Increasing firms' incentives to manipulate compensation. Backdating was an early version of this technology, which will likely evolve into more sophisticated techniques.
Spurring further brain drain of talent from publicly held firms. This, of course, increases the net costs of public ownership and the wealth and power of private equity (where managers' pay dwarfs that in public firms).
Even if one agrees with the concept of "say on pay," this law isn't necessary. Many companies already are voting on, and some have adopted, similar shareholder proposals. But the unions won't win all of these votes, so the idea seems to be to get Congress to force the idea down the throats of firms whose shareholders have rejected the union initiatives.

Now it's on to the Senate, with Barack Obama using this gimmick to demonstrate his astuteness on business issues.

http://busmovie.typepad.com/ideoblog/2007/04/say_on_pay.htmlI was about to commend you on a fantastic, well thought out, intelligent post that is surprisingly educated on the issues.

Then I got to the bottom and realized you were just quoting Larry Ribstein. I used to read his blog daily. Not that I don't read him in particularly anymore -- I just don't read blogs at all.

He's right. The "say on pay" legislation will be meaningless -- it will have almost no effect whatsoever, which is largely why I'm surprised it hasn't been passed already.

[Bach]

I wasn't trying to pass that off as my own, hence the link at the bottom.

And, since it's supposedly "meaningless", then why does it need to be passed? Why get the Federal Gov't more involved in something they don't need to be involved in?

[theogt]

I wasn't trying to pass that off as my own, hence the link at the bottom.

And, since it's supposedly "meaningless", then why does it need to be passed? Why get the Federal Gov't more involved in something they don't need to be involved in?I know you weren't passing it off as your own. I just didn't see the link til the end, obviously.

There's an entire industry dedicated to shareholder activism. They constantly hound about all sorts of meaningless BS. It's just part of life.

[Bach]

I know you weren't passing it off as your own. I just didn't see the link til the end, obviously.

There's an entire industry dedicated to shareholder activism. They constantly hound about all sorts of meaningless BS. It's just part of life.

It's just that with this administration, they seem to want to control and get involved in everything, and this is just one more area where there is no reason for it, regardless of how meaningless it may be. It'd just give them one more inroads into interfering with private business.

[theogt]

It's just that with this administration, they seem to want to control and get involved in everything, and this is just one more area where there is no reason for it, regardless of how meaningless it may be. It'd just give them one more inroads into interfering with private business.Well, like I said, this has been bubbling up for a long time and isn't really a Dem or Repub thing. It's just a shareholder activist thing.

I'm actually glad they've backed away a good bit and weren't pressured by all this populist anti-"Wall Street Fat Cat" bull **** that was sweeping the nation.

It's actually a nice little political cop out for the administration. They can please the people that are calling for Wall Street's heads, without actually doing much.