Puttin' On The Pay Cap

First of all, let me say that I'm supportive of President Obama's measures to limit executive pay in companies that accept new bailout money. There are loopholes that I'm sure smart guys will be able to finesse a bit, but for the most part it limits the comp of senior executives working in such firms to $500,000. Now, this may seem like a lot of money to people who do more than push various colors of paper around for a living, but in actuality, for a banker, you might as well be offering a salary of $1 per year. Okay, that may be an exaggeration, but not by much.

So I'm trying to figure out who will be attracted to the job of running the next big bank to suck up some more of the public weal. Who will NOT be taking the job will be anybody who has considered themselves a banker up until now, guys who were trained for it and are now in mid-career, who have built up lives dependent on the kind of money that bankers, up until now, could expect to draw down. It's not only the base salary that's a laughable pittance to such individuals. It's the fact that bonuses will be tied directly to performance, and closely monitored by angry shareholders who have only one criteria for executive success: the stock price.

Do you have any idea how irrational the stock market is? Great, profitable companies languish in the single digits. Idiotic brain farts out in left field are rewarded with huge multiples. Hoards of lemmings skitter back and forth, driven over a variety of cliffs by fear and greed. Would you want your comp based on that? I don't think so. Not when there are so many other things you can do. Like be a consultant.

I figure there are three kinds of people who will be running bailout institutions:

1. Rich guys who have already made their nuts and who will provide either gravitas or branding power to their crumbling edifices, presiding over a cadre of hungry young pups who do all the work. Think Alan Greenspan, Warren Buffett, Donald Trump.

2. Young business school graduates who want to make a name for themselves in both Finance and in the governmental functions that will be overseeing that industry; where these dudes used to gravitate to McKinsey to make their bones, they'll now hop into banking and do a little workout samba on those bongos.

3. Politicians with a background in accounting. Think about it. Five hundred grand is a molehill to a real banker. But it's a mountainous pile to a politician. The top job in the field pays less, doesn't it?

It remains to be seen whether any of these will be qualified to lead the large fiduciary entities that form the foundation upon which our economy rests. On the other hand, how could they do any worse than the bozos who took all that money to screw things up?

Comments

[Brillig]

LET THEM EAT CAKE!

[DiogenesOfAlaska]

Right. Why would a banker desire to have his pay linked to the value of the stock of his institution?

Wouldn't that require him to trust that financial markets make a lot of sense in their judgement? Yes indeed it would.

So he can't possibly be bothered to make such an insane bet when it comes to his salary.

Which of course will do nothing to keep him from spending decades to explain the blessings of globalized capital markets in all their superior intelligence and superhuman power of knowledge transport and information processing.

How about CREATING those markets that DO MAKE sense? By requiring accountability and insisting on the ties of reward to risk-taking?

Just a thought. Could be called capitalism. But it may be out. Not even bankers want it. Maybe they know it wouldn't work out so well... or maybe it just means that banking would be like any engineering. With a solid pay for those who can do it. And not much else besides.

[WorkingClass]

Who will NOT be taking the job will be anybody who has considered themselves a banker up until now,

This is good, right? People who have considered themselves bankers are actually thieves, right?

[Matt TM]

On behalf of TrueMajority, I welcome the return of sanity to Capitol Hill. On Thursday night the Senate passed an amendment proposed by Sen. Claire McCaskill (D-MO) that will cap executive pay for companies receiving Federal bailout money to $400,000. This critical measure gives voice to exhausted and outraged Americans, who have watched from the sidelines, horrified, as the reckless, failed captains of finance and industry take this money and give themselves bonuses. Senator McCaskill perhaps said it best when she described these executives as “idiots” who are “kicking sand in the face of American taxpayers.”
What else can one really say to describe the actions of institutions like Goldman-Sachs and Morgan Stanly, which used these government rescue funds to give out more than $6 billion in executive bonuses each? Hopefully limiting executive pay for bailout fund receivers to “only” as much as the President of the United States earns will remind these individuals that they are obliged to stop using our tax dollars to refurbish their office bathrooms and start trying to pull their companies out of their current freefall.
It’s a dark day in America when we must give up on the ideal of corporate responsibility and instead are forced to settle for corporate restraint.

Matt McKeon
TrueMajority

[NoCents]

Less we FORGET.

For 8 years America had the highest profit in US History. Higher than the top 4 or 5 countries.

Stock Traders got rich contributing 0 to the corporations while pay 0 tax.

So what can you fix if you cannot fix this?

[Fleurdamour]

If a CEO wants to make more money, they can work for a company that doesn't take taxpayer funds.

[FalconerHK]

Precisely. The era of being rewarded for failure is over. Even if you went to Harvard.

[ByronRaum]

The point Mr Bing seems to be missing is that the current leaders are NOT qualified to run the institutions they are in charge of. Think of the criterion used to decide which ones get their pays capped - they have to be in a position where they could not survive without government funds. Or, does Mr Bing expect us to somehow believe that the reason that these people are in trouble is because of a fickle stock market?
There's also another category of people likely to be interested in this job :-
4. People who have managed their own personal finances so that they are not dependent on a lifestyle of $50 million / year, and are yet still competent.
Or, can we expect him to argue that there is no one bright enough to run a bank who makes less than half a million a year?

[RoloTomassi]

"It remains to be seen whether any of these will be qualified to lead the large fiduciary entities that form the foundation upon which our economy rests."

No, scratch that, all I really need is this much:

"...the large fiduciary entities that form the foundation upon which our economy rests."

Ahem, Stanley...that's not quite right, and I have to say, I consider it something of a Freudian slip--but the loathesome financial industry sits upon--and sucks the life's blood out of--the real economy.

But of course that little detail--simple truth to the delusional minds running the financial industry--may be what brings this patently absurd house of cards down for good.

[tops]

Stanley Bing regarding limits on executive pay--
"Now, this may seem like a lot of money to people..., but in actuality, for a banker, you might as well be offering a salary of $1 per year. Okay, that may be an exaggeration, but not by much....Do you have any idea how irrational the stock market is....Would you want your comp based on that?"

He sums up the whole problem, that executive pay has become so large when compared to the average workers. Executive pay is simply unimaginable to the average person. So basically he's admitting that bank/Wallstreet executives have been receiving astronomical sums of money on a system that is at it's heart "irrational."

He worries about the type of people that will be attracted to run banking institutions if we cap executive pay.---"It remains to be seen whether any of these(people) will be qualified to lead the large fiduciary entities that form the foundation upon which our economy rests."

I have a question if the system is "irrational" does it matter who runs it? How can you manage something that is irrational?

Stanley------Rather than fretting over the types of people that will be attracted to running wallstreet /banks with pay caps instituted, a more sensible question would be how do we develop a rational banking and investment industry. This is the real question considering that, as you said, the "foundation upon which our economy rests" on these institutions.

[JScott]

There's the 4th category

Offshored execs from India China (& Japan?) who'll work for far less and have the same expertise.

[Rockerbabe]

I think we need to stop worrying about all the "masters of the universe" and their pay cuts and start worrying about how we are going to get out of this mess that THEY got us into. These guys and they are mostly men, always talk about pay for performance and pay for results; they have not problems getting rid of non-performers and performers for that matter, if it is from the rank and file employees. Let them stew in their own juices. If this current mess is the best they can do, then begone with them!
It is their arogance, greed, disrespect, con-games and ambivalence that caused their downfall.

There are 300+ million people in this country; a whole lot of us have MBA's and have been working without adequate salaries or opportunities, because all the ivy leagers get the best jobs; well it seems these high priced prat boys haven't got a clue. So bring on the pups as you call them; let's give some other people an opportunity to contribute to our economy. Couldn't do any worse than the overpaid, fatboys we have in the VIP suites now.

[Furby]

How utterly true, these old boys aren't even worth a buck a year. Losing them is not something we should fear, it's something we should be striving for. There is absolutely no doubt many very intelligent, creative and qualified young up and comers will be happy to do a better job for less.