You've probably heard over and over how big banks have to throw tons of money at executives to keep them from going to the competition. Well, the government's compensation guru says the reality is different.
Kenneth Feinberg is expected to release his findings today as he announces the 2010 pay packages for the top executives at GM, AIG and other companies still under the government's watch. A preview from the New York Times:
Of the 104 senior executives whose pay was set by the federal pay regulator in the last two years, 88 executives, or nearly 85 percent, are still with the companies even though their pay was drastically cut back, according to people briefed on the government data.
The relative stability, at least within the executive suite, suggests that a soft job market, corporate loyalty and personal pride helped deter the feared management exodus at the companies hardest hit by the pay rules.
Feinberg is also sending a letter to all 419 companies that received money from TARP. Although he can't enforce pay limits at banks like Goldman Sachs, he is asking for the bonus numbers from late 2008, right after TARP saved these financial firms. From ABC News:
While Feinberg has no power to set pay at these 419 companies, he could expose companies for paying out lavish sums of money as the firms took taxpayer aid in the wake of the financial meltdown. The "name and shame" strategy could ultimately result in firms returning bonuses or salaries.
Wall Street has already changed some of its pay structures -- for example, giving more compensation in the form of stock. But a recent Harvard study suggests that executives with lots of stock just cash out before the ship sinks:
The conventional wisdom is that Wall Street executives who are paid in stock lose out when their firm's suffer. But as the Harvard study points out, the top executives at Bear and Lehman were able to collect more money during the good years than they lost when their firms ran into trouble.
And as much as Feinberg might think a strict pay policy will make a difference, it's all in the execution of such a strategy. The recent report on the Lehman Brothers collapse said Lehman had all kinds of policies that theoretically tied compensation to long-term performance.
They just weren't enforced.