Fallout: The Financial Crisis

Where we are with exec compensation

Marketplace Staff Mar 23, 2010
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Fallout: The Financial Crisis

Where we are with exec compensation

Marketplace Staff Mar 23, 2010
HTML EMBED:
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TEXT OF INTERVIEW

Kai Ryssdal: Executives at AIG, General Motors and Chrysler are in for a pay cut. Kenneth Feinberg, the Treasury Department’s pay czar, released his 2010 report on executive compensation today. The top 25 people at companies that got what is referred to as extraordinary assistance from the government are going to be making 15 percent less on average this year than last. There will be restrictions on what can be cash and what has to be stock, as well. But the real news is what happens after pay at the big Wall Street banks is cut. We’ve got Kenneth Feinberg on the line with us now. Mr. Feinberg, good to have you with us.

Kenneth Feinberg: Glad to be here.

Ryssdal: There is obviously the headline number about reductions in pay at some of the big companies taking government assistance. But there was another little nugget in your report today that I wanted to ask you about. The fact that contrary to what we had been led to understand by Wall Streeters themselves, when their pay was cut, not too many of these folks left their places of employment.

FEINBERG: That is correct. That’s the most important statistic I think. Namely that about 85 percent of the individuals who had their pay set are still at their desk working for these very five same companies. This is strong evidence that the pay determinations are not resulting in some sort of brain drain from these companies.

Ryssdal: What do you make of it? Were they just fibbing with us or what?

FEINBERG: No, I think probably key executives at these five companies really did fear the likelihood that the competitive marketplace would attract key officials away from these companies. I was always very dubious, skeptical about this. And it’s been demonstrated.

Ryssdal: Do you think this data then will lead to some rethinking of compensation on Wall Street?

FEINBERG: Oh, I don’t know. I think historically there’s always been a huge gap between Wall Street and Main Street. But it does make a difference in terms of my work. Because I’m required to take into account competitive pay as a way to keep people at their desks, and not leave these five companies. And now the statistics seem to demonstrate that they’re not going anywhere.

Ryssdal: And so you could conceivably order further reductions?

FEINBERG: I could.

Ryssdal: Would you?

FEINBERG: We’ll take another independent look in 2011 for those companies that have not repaid the taxpayer.

Ryssdal: I wanted to ask you about another item in today’s announcement that you’re going to go back to the fall of 2008, before your statutory authority begins, and look at JPMorgan Chase and Goldman Sachs and other folks who took government money, and investigate whether their compensation is contrary to the public interest. First of all, what does that mean? And second of all, what can you do about it if that’s all you have to hold over their heads?

FEINBERG: Well, you’ve raised a few questions. First of all understand that my looking at these 419 companies is required by federal law. This is not something that I made up. The Recovery Act, the TARP statue, requires me to go back to any company that ever received TARP assistance and examine their compensation practices to find out if those compensation practices are “inconsistent with the public interest.” Now what that will mean, I’m not sure. But I suspect I’ll look at how much compensation, was it guaranteed, how much was cash, how much was stock. If it was stock, over how long a period of time, before the stock could be redeemed. Principles like that.

Ryssdal: You were, for want of a better word, the man when it came to financial reform last fall. Everything was all about executive compensation. And I wonder if you believe that that emphasis on compensation has slipped a little bit. And if people maybe aren’t talking about it so much anymore.

FEINBERG: No, I still think there is a very high degree of public angry and outrage and frustration. And I think there is a lot of attention being paid by the public to what corporate America is making in the way of compensation.

Ryssdal: Kenneth Feinberg, the Treasury Department’s special master for compensation. Otherwise known as the pay czar. Mr. Feinberg, thanks so much.

FEINBERG: Thank you.

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