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Pay czar to slash pay at bailed-out firms
Pay czar Kenneth Feinberg speaks at a media conference in Washington, D.C.
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TEXT OF INTERVIEW
Bill Radke: America's Pay Czar Ken Feinberg will meet the press in a few hours in Washington, unveiling his plans to cut compensation packages at some of the firms that have received the most taxpayer money. Up to 90 percent pay cuts for some top executives. Marketplace's Jeremy Hobson joins us live from New York. Good morning Jeremy.
Jeremy Hobson: Hi Bill.
Radke: Ninety percent sounds drastic. Are these Wall Street bankers going to be driving their own used cars around?
Hobson: It's possible, but probably not because some of the cuts to their cash salary, Bill, will be able to be made up in stock. They'll be able to cash out their stock after a couple of years. And that's to encourage longer-term thinking at these institutions, so they don't make decisions in search of a quick buck. So not necessarily driving used cars, but some of them may be out on the market for a new job -- with a company that will pay them what they wants. I spoke with Danny Sarch of the executive search firm Leitner Sarch Consulting.
Danny Sarch: Already I've gotten calls from literally dozens of executives at the financial firms, because these people don't like the uncertainty about how they get paid or want to work for a firm that essentially is government run.
I talked to another person who follows executive compensation, Bill. And he said that while there are good intentions from the administration, all this government involvement may end up neutering the boards of these companies.
Radke: And again, Jeremy, we're not talking about all the companies that have gotten taxpayers' money. Remind us which firms these pay cuts will apply to?
Hobson: Right. We're talking about the banks that got the most bailout money -- that's Citigroup and Bank of America. Also GM and Chrysler, the car companies. Their financing operations -- GMAC and Chrysler Financial. And the biggest bailout recipient of all, AIG. And some people who work there will have their total compensation capped at $200,000.
Radke: Tough. Marketplace's Jeremy Hobson in New York City. Thanks a lot Jeremy.
Hobson: Thank you.
Taxation is the only effective way to correct the abuses of excessive compensation.
For reasons that are beyond understanding, our society values certain human functions more than others as measured by compensation.
Consider the relative roles of say, General Stanley McChrystal and Lloyd Blankfein, the CEO of Goldman Sachs. From a societal point-of-view, who has the greater responsibility and who should be the more highly valued?
Think about the soldier in Afghanistan, the inner city police officer or the fire fighter. Why should their life-on-the-line risk be valued so significantly less than the financial risk assumed by a Wall Street banker or hedge fund manager? Do scientists or school teachers offer little value to our nation in comparison to so-called actors, music artists or witless entertainment celebrities?
Is the ability to hit a baseball, dunk a basketball or sink a long putt to be held in such awe? Is athletic skill or physical attractiveness of such importance that they demand levels of compensation far above the worth of other members of society?
A proper role for government is to rectify society’s appetite for extreme valuation distortions. Capitalism and the profit-motive are all well and good, but all too often our economic system gets out-of-control and needs a “guiding hand†to avoid extreme excesses (i.e., greed) and social upheaval. The “guiding hand†is a proper role of government and tax policy—unlike insidious regulation--can be its most effective tool.
Save the regulation tactics to combat golden parachutes, stock option tricks and other abuses that corporate America has a habit of creating.
