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Obama puts salary cap on bailout execs
President Obama speaks regarding executive compensation in Cross Hall at the White House in Washington, D.C.
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KAI RYSSDAL: In a way, the president did the easiest thing first. He went after the guys at the top -- bankers who make all the money, who are going to make less of it now. But our Washington Bureau Chief John Dimsdale reports there is less to the president's new rules than you might imagine.
JOHN DIMSDALE: President Obama says public outrage over bonuses for bankers that get bailouts is undermining the trust needed to resuscitate the economy.
PRESIDENT OBAMA: This is America. We don't disparage wealth. We don't begrudge anybody for achieving success. And we certainly believe that success should be rewarded. But what gets people upset -- and rightfully so -- are execs being rewarded for failure.
But the new pay caps are limited to companies that take exceptional amounts of bailout money. Companies like Citigroup or Bank of America that were on the verge of collapse.
Only the top five executives are covered. And they can still earn unlimited amounts of stock, as long as they don't cash it in until the bailout money is paid back. For some, the president's crackdown is more style than substance.
Still, Marilyn Cohen at Envision Capital Management says the president got Wall Street's attention.
MARILYN COHEN: Within just a few minutes of the president's announcement, there was news that Goldman Sachs would like to pay back its TARP money. Well, guess why? They want to continue to grease their palms just like the old days, and the message is loud and clear, the old days are over.
Executive-pay consultant James Reda says the limits will make banks reconsider taking federal money.
JAMES REDA: In the future, if someone is faced with the idea of falling under the exceptional assistance or going bankrupt, they might consider going bankrupt because they would be treated more fairly. I mean, in bankrupt companies CEOs make more than $500,000 a year, I can tell you that.
Next week the president announces proposals for longer-term limits on corporate salaries, including giving shareholders a nonbinding vote on executive pay.
In Washington, I'm John Dimsdale for Marketplace.
While Reda rightly deserves lambasting for talking about ridiculous compensation levels for failed CEO's in failing companies, there are serious problems with our bankruptcy courts if they allow CEO's to pull down half million dollar salary's while their shareholders and creditors get the shaft.
Goldman used that money to stay alive the last few months and now threaten to give the money back! This is just 'air' since they know that the paylimit talk is not retroactive. Make the rule retroactive and take off the 'exceptional' statement and then I will know that these talks are not just gimmicks - but have teeth. In addition to limits, execs shoud be prosecuted to fullest extent for failing in fiduciary duties - even if it means introducing rules and regulations retroactively. Unusual sitautions demand unusual handling of situation.
Count me among the "outraged" whenever I hear someone like James Reda suggest that executives would sooner let their companies go bankrupt rather than take badly needed aid because of the impact to their personal compensation.
I don't understand why the press isn't asking anyone who makes this childish remark a simple question. "WHAT HAPPENED TO FIDUCIARY DUTY." Everyone simply let's the remark go as if it's a reasonable and justified position. It is anything but. Fiduciary duty to shareholders is one of the first things these executives learned in business school. Someone needs to remind them (and our government) of his duty and I would be grateful if it started with the press.
If the banks that received TARP funds are willing to give it back so suddenly when there is a limit placed on their pay, then they clearly didn't need the money in the first place - now they can fail like most other companies and rely on a bankruptcy court judge to treat them fairly, like Mr. Reda said. If this is the first step toward the zombie banks being allowed to die (pretty or ugly, it doesn't matter), then this symbol from Pres Obama accomplished its goal.
It has been some time since I have been as outraged at an "expert" as I was at James Reda. These folks have sunk their own companies, the larger economy and they need to make more than half a million a year because they have a lifestyle to support!?! My husband has a 30% income cut for the next two months and then we'll see what happens.
I had to tell my daughter that despite her losing weight (now a svelte size 6)I could not afford to buy her new clothing until at least April? I have done my job well and my husband has invented new products that improve emissions - but because of the economic collapse people are not buying cars and new automotive technology has been put on the back burner. To avoid more layoffs these engineers and managers and factory workers are all making 30% less for the 1st quarter. Their major electronic supplier is pushing back delivery of a new product because they are reducing all their folks to a 4 day week (and a 20% pay cut). Yet no one is bailing out their industry.
Back to the Wall Street clueless gangs - These masters of entitlement don't want to be limited to 5 times our family income???? AND they want me to bail them out!!!! Lots of us not being able to keep the lifestyle we had.
I heard that the difference between a recession and depression is that wages are not falling - I have news - lots of us are having significantly falling incomes.
This is a question in response to comments made by JAMES REDA: Would you promote a Navy Captain to Admiral after running his ship aground? I'd wager not.
Then why is it that so many critics are against caps on CEO Salary at firms that receive government "assistance"? They are the proverbial "Captains"... Stewards of their companies...and they abandoned their fiduciary duties in the name of greed...and ran their companies into the ground. Why should they be rewarded at bonus levels seen when "times were good" for erasing BILLIONS upon BILLIONS in investor / shareholder value. Can anyone possibly believe the CEOs at these firms did a GOOD job?
And the issue of the FAIRNESS of it all: I hardly think ANYONE in their right mind can say its fair for CEO's to get paid millions in bonuses for a job performance that would have landed ANY other employee in the unemployment office.
With all of the hawks looking at what the financial industry is doing after thaey have gotten bailout money, has anyone looked at what they are doing with the money. They are trying to buy jets, remodel offices, celebrate individuals success in Vegas. All of these are examples of buying goods or services that are helping others out. Tips for a server in Vegas, a paycheck for an aircraft builder, or money for furniture or services. The exact thing we need people to do, spend money to spur the economy. Get over it and let these companies spend this on goods and services rather than on increased bonuses and salaries.
