Executive Pay Cuts? Hold the Standing Ovation

The Obama administration's move this week to slash the pay of top executives at 'too big to fail' firms under TARP should be applauded. And that ovation should last for about one second. The pay cuts are certainly just and good, given the current state of things, but ultimately it's the psychologically palliative equivalent of swearing when you stub your toe.

Again, the administration may be buying time with a symbolic and cosmetic tactic that ignores the forest for a few trees -- and whether they're redwoods or saplings is irrelevant. Predictably, administration spokespeople are saying that the cuts were the "independent" decision of Kenneth Feinberg, and that the president had no direct role. Never mind the fact that Feinberg was appointed to Treasury by Obama as pay overseer last summer for this exact purpose.

Yes, the new rules are a significant step forward. But it's micro policy reform when we need macro, such as what Bernanke is now finally alluding to. Allowing the current media hullabaloo and any populist elation to belie the intense challenge facing real efforts to comprehensively reform our broken systems themselves would render these small gains moot.

While the firms in question -- Citigroup, AIG, Bank of America, Chrysler and GM -- are finally getting their due smack-down, Goldman Sachs, JP Morgan and Morgan Stanley are reporting record profits -- which surely will lead to record bonuses down the road -- all while continuing to hoard money with too few loans to Main Street to show for it.

And while the much-reviled (deserved or not) Bank of America CEO, Ken Lewis, has been pushed out of his job by the White House, Citigroup -- another bailout firm -- is inexplicably hiking credit card rates to vertiginous heights, just in time for an already economically dismal holiday season.

Look at the big economic picture: As has been the case for months now, it's characterized by an obscene trend of simultaneous climbs in both the Dow and unemployment.

Restricting pay at already or nearly sunk firms will do little to change this. Or to close the chasm of wealth disparity in this country that's been widening year by year. It will do nothing for the fact that the median family income has remained stagnant for the better part of a decade. Or for the fact that just under 50 million people remain without health insurance, while many who do have it can still go bankrupt from one serious ailment.

And in the nation's capitol, to think that restricting bailout firm pay will be felt as any kind of blow to the swarms of dedicated industry lobbyists laboring everyday (with some even funded by taxpayer money)to quash financial consumer protection and financial industry regulation reform legislation risks renaming oneself 'Pollyanna'.

Entrenched, institutionalized special interests are always at a natural advantage in the fight for real, comprehensive reform -- whether it's health care, finance, climate change, or anything else. Only when the barons of Capitol Hill and the White House (which itself is stacked with Goldman alumni) feel equal pressure from 'the rest of us' will the incentive to implement real change have any chance of surpassing the incentive to raise campaign funds and please political donors.

For a litmus test of where the government-Wall Street relationship will end up, one need only look to health care. The end product of health care reform -- whether it helps millions of Americans or solely insurance companies -- will be the first indicator for everything else to come.

So yes, a quick round of applause for Kenneth Feinberg for performing the job with which he was tasked. But hold off on the standing ovation for now; the Obama era does not need a "Mission Accomplished" moment.

 

Follow Stuart Whatley on Twitter: www.twitter.com/stuwhat84

Comments

[masher]

Its the 400 and Ceasar Obama is throwing out bread and circuses. Yes, he is just buying time.
Throwing a few CEOs into the lions pit makes people feel good but really does nothing to reform the broken system that rewards failure and hurts workers.

[bighat]

Someone explain to me why the senior management is not fired. Instead we speak of cutting their multi million dollar bonuses and salaries.

These people ran their companies into the ground.

Even today, the U.S. should hold an auction and sell off these companies piece by piece. And hope we get enough money to cover their debt.

Who would even consider hiring someone who has Destroyed Fortune 100 company as CEO.

These CEOs and their senior management should just be put out to pasture. They have plenty of money to live on.

Course if we did what was right we would make them do community service. Not in the poor neighborhoods with us hoping they will gain empathy

But, let work in and around the wealthiest neighborhods and business districts among their friends. Let them be the ones holding traffic signs saying "SLOW DOWN" construction. Let these guys be the ones not playing on the golf course but picking up trash on the golf course. Clean up after animals in the park.

But nothing that gives them authority of any kind. Not even a mall cop.

[masher]

Well, because these are Tim Geithner's friends. And Obama picked Geithner to run the treasury.
That's why. You can thank Obama. He won't let these guys and gals fail but he sure as heck will let average working Americans suffer the results.

[iridium53]

Just another scam from Obama.

Give the appearance of movement, not substance. Spin, spin, spin.

As Ben Franklin wrote, “Never confuse motion with action.”

Thomas Jefferson: “Of liberty I would say that, in the whole plenitude of its extent, it is unobstructed action according to our will. But rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law,' because law is often but the tyrant's will, and always so when it violates the right of an individual.

[LightGreen]

Note to bailed out bankers:
When you lay down with dogs, you get up with fleas.

[BurtonOerney]

I swear, I can't think of anything Obama could do right now that wouldn't result in people crying, 'where's the change?' He's brought universal healthcare closer to passage than any president this country has ever had. He's passed a credit card holder's bill of rights. He passed legislation to add gender/sexual identity to the list of hate crimes this week (did HP cover that?) Foreclosure relief is on track to get 4 million mortgages set at 1/3 of a mortgage holder's income. The idea that pushing your government to do something when you don't know what has already happened or even what you really want is a good thing is just idiotic. But on the upside, it's easy.

[jefke]

If you look closely at every supposed change that you enumerate, you will see that the change is only cosmetic. And what about transperency and torture. It's COMPLETELY legitimate to question the actions of the WH considering what was promised during the campaign. If he had said, "I'll be running a middle course triangulation administration" then it would be a different story.

[Oldwave]

Did you just completely miss the point of this article?
The whole problem is "change" without change. Healthcare looks to be on track to be a totally cosmetic bill, that if anything will serve as a gift to the insurance industry, not actually reform our broken system. Same with the credit "bill of rights". Something they could point to and say "look, we did this!" without actually accomplishing anything meaningful. Now we are getting financial reform. Without any real reform.

[masher]

He could immediately end all federal interference in the US labor markets. This would please conservatives because it reduces the size of government and it reduces regulations. And it would please working class folks because wages would rise and unemployment would drop.

Our own government has reported on all the fraud in these work visa programs as well. And there is bipartisan support for reform. But ending the programs would be best.

So then ask yourself why Obama isn't even talking about ending H-1B during this terrible recession?
Seriously, think about it. The only group that supports H-1B are multinational corporations and Wall Street.

The pattern with Obama is clear. He only cares about what Wall Street wants. He couldn't care less about getting the federal government off the backs of working people.

[Thedmo]

How is this a pay cut? Their compensation is converted to stock, on which they will be taxed not as income but as capital gains. As their companies are now "Too Big To Fail," the stock is somewhat insured against tanking...basically the execs all got a time-released raise of epic proportions. Feh.

[masher]

Well you are thinking and you are not supposed to. Obama wants you to feel good about this. Put on the Obama love goggles and just drink the Kool-aid.

[JackNasty]

We need to restore the Eisenhower era income tax bracket of 90% on earnings over $1,000,000 per year.

[Thedmo]

I second the motion.

[FistOSalmon]

I've never once heard the rise of ceo pay linked to the dropping of marginal tax rates on tv, in print or online. It seems like something you wouldn't have to look up (which I did). The arguments against it seem to be......you shouldn't raise taxes. Even though this simple solution the congress can enact relatively quickly solves this and a number or problems we have with debt and government financing.

[Clobbersaurus]

Well you're right about the "Mission Accomplished" banner, but it remains to be seen whether this is ALL they will do if it is just the BEGINNING. Alas, it is too little, too late to get the guys we really wanted. But nevertheless it inspires CONFIDENCE. That magic word means everything not only to consumers, but also to the individual investor who has largely sat on the sidelines and watched the Dow claw its way towards 10,000. If you want to judge this decision, judge it upon what comes after it: more of Feinstein cutting pay, or nothing.

Also, is this writer the same Stu Whatley I knew from Wake Forest?

[Oakland]

Yes, the new rules are a significant step forward. But it's micro policy reform when we need macro, such as what Bernanke is now finally alluding to.


They think they can fool us with smoke and mirrors. The autos got peanuts compared to what Bernanke is handing out.

[BocaMom]

I agree! Look at GE's executive and all the banking executive's bonuses. Unfortunately, they give a lot of money to the President and Congress. So I think this all show by the President and no go! Just like bringing our troops back. Fixing the economy. Equal rights for gays. I wish the President and Congress would deliver what they promised! Starting with the economy and getting Americans back to work.

[middleoftheroad]

GE took TARP money...how much did Jeff Immelt or Zucker get paid last year???? Where is GE stock???? They should have their pay cut 90%!!!! Or do you not want to bite the MSNBC hand that feeds you?

[steveeyes]

Who cares about the greedy cutthroats who use our money to gamble with and pay off politicians to tilt the market in their favor. If you believe that we have a FREE market than I have a bridge to nowhere to sale you. Lobbyists get laws passed that favors their market advantage, not America's market. The only time you hear them screaming about a free market is when a law is passed that they do not like or a law passed to protect the little guy from the vultures who live off the backs of hard working tax payers. Let them sink. They are not worth the sweat, blood and tears middle class Americans endure so they can buy their brand of the so called FREE market by buying politicians to pass laws that favor the rich and wall street.

[HonestySeeker]

I'm a little unclear on how the 90% figure was arrived at. Certainly the guzzling greed needs to stop. But as noted within the article, the investment banks remain egregious in their compensation and bonuses. At the same time, the market is clearing a 10,000 dow while unemployment continues to climb. Why all the Wall Street optimism? I'm starting to get nervous again. The fundamental changes to trade policy, corporate tax levels, lobbying influence, outsourcing and loss of manufacturing have not occurred. What is better now? The paper BS of derivatives and credit default swaps continue unabated. Small business and individuals still can't get credit? Why is K Street so giddy?

[research]

The cuts only reduce the total compensation by 50%.

So the Banksters still get Billions when their bets are going well,

And stick us with the bill when their bets inevitably go bad.