Reality Continues to Vex Our Salary Czar

Brian Doherty | August 10, 2009

The "guaranteed bonus" is said to be waiting to vex our mighty Salary Czar, Kenneth Feinberg, the New York Times reports:

Mr. Feinberg has met privately with executives at the companies and urged them to voluntarily rework any guarantees for big earners in advance of the submission deadline...with the goal of holding out these pay packages as examples for the industry....guaranteed pay poses a particular problem, some compensation experts say, because it is unhinged from financial results....

For a short time, banks had stopped offering guarantees, after the financial crisis turned their profits into losses and as Washington began to scrutinize their use of public money. But now, with banks apparently rebounding after two consecutive profitable quarters, some have resumed the practice, arguing that such bonuses are needed to attract and retain top performers.

Some of the biggest bonus commitments are being made to bond sales staff workers and traders in currencies and derivatives, and to computer programmers and others who support those operations. Trading has been the main source of the banks’ recent profits....

Stronger banks that have repaid their bailout money and are not subject to Mr. Feinberg’s restrictions — like Goldman Sachs, JPMorgan Chase and Morgan Stanley — have also begun offering guarantees to star prospects....

Some rivals of the bailed-out banks have already benefited from being out of reach of the government’s pay czar. Jeff Michaels, the head of Citigroup’s interest rate trading in the United States, found Nomura Securities knocking at his door in July with an offer that would guarantee him as much as $10 million for 2009 and 2010....

Of course, whether the decision to hire the likes of Michaels for big bucks is benefit or folly is something only time will tell, and something best left to the decisions of private managers, not Washington; certainly, it's not something the Czar, with all his undoubtedly grand magnificence, is going to know.

The Atlantic last month had some thoughts on Feinberg's impossible task, especially the idea he's floating about dealing with already-contracted bonuses he feels he lacks the authority to scuttle by restricting or cutting future compensation enough to in essence "claw back" that bonus:

Let's imagine that for the next two years [Citigroup energy trader Andrew] Hall would have received bonuses of $25 million and $50 million three years from now. That means his bonus would be approximately zero for the next three years if Feinberg has his way. You're Hall, and you've just been paid your $100 million under those conditions. What do you do the next day? I mean after the lavish party. Obviously, you quit Citigroup and join a firm where you will be paid more for the next three years....The result, of course, would be that this strategy would prove effective at only one thing: insuring that talent is driven away as soon as those gigantic bonuses are paid out. That means, not only will these bankers still get their big bonuses, but they'll also still flee the bailout banks.

Tim Cavanaugh examined the cut of the jib of Czar Feinberg, based on his past attempts to quantify not merely some trough-snarfling executive's pay, but the value of life itself. Katherine Mangu-Ward gazed upon all our mighty czars, and despaired, back in May.

Comments

The Libertarian Guy|8.10.09 @ 8:10PM|#

The socialist fellatio enthusiasts who prattle on about a "maximum wage" must be ecstatic about this, our latest Czar.

Shit, let's just pay everyone ten bucks an hour. I'd like to see the Obamas and the Boehners of the tattered States, live on that kind of scratch. No more toy-shopping trips to France, Obamalings!


No, not really, but it would be nice for a day, no?

MNG|8.10.09 @ 8:17PM|#

I think it's really stupid to set maximum pay laws. I'm not sure that's what this guy is doing, iirc he is sort of advising the companies that the government practically bought on how to set their topp salaries. It's really a stupid position and stupid goal.

I'm all for reforms to make corporate management, and their pay, more answerable to the shareholders, but having the government set a maximum wage is inane. If some company really voluntarily wants to pay some guy a bazillion dollars more than the guy is worth, let them.

EscapedWestOfTheBigMuddy|8.10.09 @ 8:23PM|#

Reality Continues to Vex Our Salary Czar

Glad I'm not the only one...

...the right design is way over budget, and that sneaky machinist down in the shop keeps shooting down my "clever" attempts to circumvent these limitation citing inconvenient facts about the properties of materials.

Back to the salt mines.

The Libertarian Guy|8.10.09 @ 8:31PM|#

Probably the first time in history there's ever been a "Czar Feinberg".

He should be a mensch, not a schmendrick.

|8.10.09 @ 8:36PM|#

He should be a mensch, not a schmendrick.

That is racist, you schmuck!

The Libertarian Goy|8.10.09 @ 8:50PM|#

Eh, it's a livin'. You should be so lucky.

Wait a minute, got Jackie Mason on a conference call. We're gonna teach that prick Shecky a thing or two, that putz owes us both a hundred bucks on the over-under on the Bill Clinton Hostage Rescue.

hmm|8.10.09 @ 8:52PM|#

Ah crap. We've gone and stepped in it now.

We as a nation are in the process of the worlds largest to date example of the law of unintended consequences.

Some Guy|8.10.09 @ 9:19PM|#

So long as a company is living off the public dime, I am glad that we have a czar working to punish that company. I'm fine with capping executive pay at bailed out banks at minimum wage. I'd not only like to take away their corporate jets, but I don't see why the public needs to fund their toilet paper. Let them bring in old newspaper on their own dime.

We must make it clear that it is better to go bankrupt than to receive a bailout, because unfortunately there's no way we can get Congress and the Fed to just stop giving them out.

The Libertarian Guy|8.10.09 @ 9:29PM|#

Only problem, Some Guy, is that if we give the gov't power to regulate "compan[ies] living off the public dime", they'll find a way to regulate the ones that AREN'T.

tarran|8.10.09 @ 9:38PM|#

Also remember that some Banks were "made an offer they couldn't refuse" vis a vis the bailout. They were told, point blank, that to refuse to accept it would mean that they wouldbe heavily audited in the future.

I'm sure the people in the room were thinking about the Q-West CEO, who - having refused to voluntarily pipe all of the traffic through Q-West's switchboards through an NSA listening post - suddenly found himself doing 20 years in a pound-him-in-the-ass Federal prison.

MNG|8.10.09 @ 9:44PM|#

"They were told, point blank, that to refuse to accept it would mean that they wouldbe heavily audited in the future."

Cite?

|8.10.09 @ 9:45PM|#

Ya know, if we didn't give all this taxpayer money to the banks, we wouldn't have to regulate their salaries.

Let them pay whatever they want, to whomever they want, but not one dime of bailout or TARP or stimulus or anything.

The Buggles|8.10.09 @ 9:53PM|#

How about "Radio Vexed our Salary Czar"? We could get the band back together, go on tour, pay a shitload of taxes...

Er, never mind.

Chad|8.10.09 @ 10:42PM|#

Just tax the living piss out of Mr. Hall. If he wants to flee to a tax haven, we can hunt his money down AND call him a traitor to boot. I hope he enjoys his trip.

Seriously, though, banking needs to be regulated like a utility and go back to the boring profession it once was.

And btw, I would challenge Mr. Hall to provide statistically significant evidence that he wasn't just plain lucky. The studies I have seen indicate that the Mr. Hall's of the world are no more likely to do well in the future than other traders whose bets didn't pan out the first time.

Tricky Prickears |8.10.09 @ 11:10PM|#

I think a bigger problem at hand is these banks that mislead shareholders as to what compensation is actually being paid to executives.

"They were told, point blank, that to refuse to accept it would mean that they wouldbe heavily audited in the future."

Wachovia (Wells...) said publicly that they didn't want the money, but they have yet to pay it back.

Richard Hoste|8.10.09 @ 11:12PM|#

Is Reason going to talk about this?

Westchester County entered into a landmark desegregation agreement on Monday that would compel it to create hundreds of houses and apartments for moderate-income people in overwhelmingly white communities and aggressively market them to nonwhites in Westchester and New York City.

Racial utopian thinking is the greatest threat to liberty. What else could motivate a modern government to arrange where its citizens live?

Now I hope some of you may begin to understand.

EscapedWestOfTheBigMuddy|8.10.09 @ 11:20PM|#

Is Reason going to talk about this?

Drink!

Reason, btw, generally doesn't approve of subsidized housing.

But race baiting will earn you no points in this forum.

So bugger off.

|8.10.09 @ 11:22PM|#

Shareholders...you mean the suckers who own the company ? What the heck would they know about running a finely tuned instrument like Citigroup (into the ground and 6-feet under)..

As trader pay goes, the best are those the general public knows nothing about. The markets that Mr. Hall & his associates play in can be highly lucrative for both themselves and their parent organization. Just maybe, "C" should work to keep him if the arrangement is profitable. If he's not that good, it's a short line waiting to hand him/his staff gobs of money to leave.

Throw in a longer-term incentive that is recoverable if that employee leaves prior to the contract ending...you know like a 2nd round draft pick as compensation.

For every Amaranth that blows up...there's a desk run by the Halls of the world that pick up the glorious pieces. Just a thought

|8.10.09 @ 11:41PM|#

guaranteed pay poses a particular problem, some compensation experts say, because it is unhinged from financial results....

Wow, good thing we have compensation experts to tell us this. Too bad GM didn't hire some back when they were negotiating their UAW contracts.

|8.10.09 @ 11:49PM|#

Racial utopian thinking is the greatest threat to liberty.

I'd put that rather far down the list actually, far below war and fiat money.

-jcr

|8.11.09 @ 12:18AM|#

"guaranteed pay poses a particular problem, some compensation experts say, because it is unhinged from financial results"

I agree, they should give it up on the condition that Unions across the country give up seniority=automatic raise regardless of merit or hard work.

Richard Hoste|8.11.09 @ 12:24AM|#

I'd put that rather far down the list actually, far below war and fiat money.

I don't like those things either, but you can oppose them on a college campus and not get disciplined or at work and keep your job. What else motivates the elites to throw their opponents in jail (as they do in Europe)? Or force companies to give bad loans that wreck the economy? No one cares if there's a home ownership or education gap between say, rural and urban whites.

You can also forget about a free market in a racially mixed society. Where there's diversity, the group that doesn't do well tries to seize the state to even things out. It's a universal pattern.

The Libertarian Guy|8.11.09 @ 12:33AM|#

Good God... someone actually trying (yet again) to put a Happy Face on segregation.

Un-by-God-believable. Don't we have enough problems with the current "opposition to Obama = racism, 100% of the time" theme?

The Angry Optimist|8.11.09 @ 12:38AM|#

TLG - yup. but for whatever reason, this board won't heed any calls for banning commenters. So far, Dick Host and Lonewacko are the only two that need the heave-ho, but there used to be many, many others.

Richard Hoste|8.11.09 @ 12:48AM|#

Good God... someone actually trying (yet again) to put a Happy Face on segregation.

Un-by-God-believable. Don't we have enough problems with the current "opposition to Obama = racism, 100% of the time" theme?

What's unbelievable is that supposed libertarians attack people who are opposed to government deciding where people live based on race as enemies of liberty.

The government will be nationalizing the supermarkets in order to close the nutrition gap before you stop acting as if whites wanting to be left alone is the the biggest threat to freedom.

The Angry Optimist|8.11.09 @ 12:52AM|#

Jesus Christ it's as if Dick walked out of the 1970s and started chanting something about busing.

Richard Hoste|8.11.09 @ 12:57AM|#

Um, the article is from today.

The Libertarian Guy|8.11.09 @ 1:02AM|#

"whites wanting to be left alone"

Yeah, I heard that kind of shit when a freak named Frazier Glenn Miller tried to hijack his way onto MY party ticket a few years ago...

http://www.whty.org/

I don't know how to put clickable links on these posts, Rich, so it's up to you to be brave enough (or, perhaps, familiar with) to cut'n'paste it into yer own browser.

It just sounds awfully familiar, somehow...

The Angry Optimist|8.11.09 @ 1:06AM|#

somehow, Race-Baiter Dick has it constructed in his mind that we:

- Support forced integration, of any kind, as a matter of public policy, on any scale and that
- Not bowing down to his segregationist tendencies somehow makes us the enemy

Not that I give a shit about racist (oops, racialist) pieces of dirt, mind, but, y'know, even the cognitively crippled deserve a place at the adult table once in a while, even though his table manners are bad and everyone's silently wishing the retard would go away.

The Libertarian Guy|8.11.09 @ 1:12AM|#

"deciding where people live based on race"

Sounds like a plan, Rich.

YOUR plan. Or one you subscribe to.

Richard Hoste|8.11.09 @ 1:17AM|#

somehow, Race-Baiter Dick has it constructed in his mind that we:

- Support forced integration, of any kind, as a matter of public policy, on any scale and that

I'm sorry. I just assumed that you supported forced integration because you start foaming at the mouth when anybody indicates they oppose it. How could I make that mistake?

even though his table manners are bad

You on the other hand, were able to make two or three posts without cussing, which I suppose makes you civilized by Reason commentator standards.

Richard Hoste|8.11.09 @ 1:19AM|#

Sounds like a plan, Rich.

YOUR plan. Or one you subscribe to.

Actually, to anybody with the reading comprehension of a second grader it sounds like what I was complaining about, but whatever.

The Angry Optimist|8.11.09 @ 1:55AM|#

have you ever heard of "dog whistles", Dick?

if you object to forced integration, great. But when someone comes on here (as you have, and not just this time, either) and "sounds the alarm" in the Name of God-fearin' White Folks everywhere, and talks about how integration is THE GREATEST THREAT EVAR, it doesn't take the reading comprehension of a freshman in college to hear what you're really saying: you. are. racist.

That's why we foam at the mouth, because racism is the lowest and ugliest form of collectivism, and most of us are radical individualists.

Now that it's been spelled out for you, FUCK OFF.

Richard Hoste|8.11.09 @ 2:06AM|#

That's why we foam at the mouth, because racism is the lowest and ugliest form of collectivism, and most of us are radical individualists.

If you were radical individualists you'd care more about your government discriminating based on race and nationalizing the economy and education system in the name of equality than one guy's opinions. You're really feminized PC robots.

Now that it's been spelled out for you, FUCK OFF.

Wow, swearing in all CAPS! That's almost as clever as calling me "Dick" and as original as "racist"! Oh, you radical individual you, how do you come up with these things?

The Angry Optimist|8.11.09 @ 2:15AM|#

Let me get this straight: we all have to conform to your priorities to prove we're individualists?

Ye gods, my kingdom for a smart troll.

The Angry Optimist|8.11.09 @ 2:16AM|#

In case it wasn't clear, we can do both! My hatred of you and government action exceeds 100%. YES I CAN!

|8.11.09 @ 2:19AM|#

What will be the salary caps for Oprah, Tiger Woods, Spielberg, Lucas, other Hollywood, the NBA, and Major League Baseball? I thought as much.

|8.11.09 @ 2:22AM|#

Oh, you radical individual you, how do you come up with these things?

We had a secret meeting and he drew the short straw.

Oops, I didn't say that out loud did I?

|8.11.09 @ 2:40AM|#

You can also forget about a free market in a racially mixed society

What kind of a moron are you, exactly? Free markets make it possible for people of any race, creed or color to cooperate. That's one of the best things about freedom of trade.

-jcr

|8.11.09 @ 2:42AM|#

BTW, anyone heard of this nazi troll before? He sounds like the Vangelbot, but i haven't seen that jackass around for quite a long time.

-jcr

|8.11.09 @ 2:49AM|#

hahaha... david nailed it ! go tell oprah, the woman who dubbed barack "The One".. that she can't make any more money.. and then get back to me, mr. salary czar !

Raoul|8.11.09 @ 2:52AM|#

I would usually oppose the Govt. having any power whatever to dictate compensation.

In the case of Wall Street Welfare Queens who extorted billions of "bailout" from taxpayers, tough shit. You sold your ass to to the goobermint. Live with it.

|8.11.09 @ 2:57AM|#

Surprised that the Atlantic wrote that....i guess libertarianism's saving grace (or just sane economics) is that towing the party line simply must get boring for a journalist.

Art-P.O.G.|8.11.09 @ 6:14AM|#

Damn, Richard Hoste got his ass handed to him rather quickly.

that towing the party line

joshua corning,

This is incorrect. The phrase is either "toeing the party line" or "towing the Party Lion".

robc|8.11.09 @ 8:22AM|#

for whatever reason, this board won't heed any calls for banning commenters.

incif allows you to do it yourself. A very individualistic, decentralized approach. Reason as a private entity has no reason to use that approach if they dont want to, but I like the lead by example they are doing.

I dont see LoneWacko posts. Except when non-incif using morons respond to them.

|8.11.09 @ 8:46AM|#

I just want to know when this is going to be applied to professional athletes, musicians, movie stars, et al? Like senior citizens, what real, tangible, value do they provide for society? Who cares about escapism or enjoyment?
Don't you just love it when others, especially the federal government can determine what your worth to society? And the great things is that the feds can apply it to any subset of the society at their own pleasure.
Any government that thinks it has the right to determine my right to exist, prosper and live a full life has no place in a free country. The people who allow this condition to exist deserve what is eventually happen to them.

|8.11.09 @ 10:27AM|#

So the same people who are currently killing the (very mild) pay-for-performance systems instituted in the federal government over the last few years (e.g. NSPS) in favor of mostly senior based GS system are concerned about the performance issues raised by guaranteed salaries at banks. Hmmm....

|8.11.09 @ 10:46AM|#

I have to say how bizarre it is that, through a series of unrelated and extraordinary events, I personally know Ken Feinberg, as well as several other people who have been targets of H&R posts over the years. (He's actually a really decent guy in person. He always makes you fell like you're the most important person in the room; a necessary skill for a person in his position, I would imagine.) I'm actually related (by marriage) to another of the past H&R targets.

This isn't to name-drop, but it's always interesting to see how other people react to the antics of their public lives when you've seen (at least) some of their private side.

Needless to say, I've had a very strange life to end up rubbing shoulders with this many people in high places. The worst part is that they won't do me any favors!

Lady Kenneth Feinberg|8.11.09 @ 11:43AM|#

Out, damned bonus! out, I say!-One: two: why,
then, 'tis time to do't.-Hell is murky!-Fie, my
lord, fie! an executive, and afeard? What need we
fear who knows it, when none can call our power
to account?-Yet who would have thought the old
man to have had so much bonus due him?

|10.28.09 @ 12:24PM|#

I find it funny that so many people are concerned with the TALENT that will be leaving these companies because of reduced compensation or, heaven forbid, compensation tied to performance. Isn't this the same TALENT that ran these companies into the ground? Isn't this BRAIN DRAIN a good thing? These were not brains that did these companies any good to begin with and as a matter of fact destroyed these companies. If the American people didn't foolishly, because of our also not so brainy government officials, bail their sorry asses out,they would have in fact destroyed these companies. And people want them to stay? Really? Don't you just love it when socialism bails out capitalism and then the capitalists whine and complain about any rules regarding their welfare handout?
Hell I'm no genius but I bet I can run a company into the ground and slither off with millions of dollars rewarded for abysmal performance with the best of them.

|10.28.09 @ 12:49PM|#

Oh yeah one thing I forgot. The American people do own these companies where this reduced compensation is going into affect. We have the right to say what they get paid. If this was a privately owned firm we wouldn't and Mr. Feinberg has said exactly that. This is an unusual situation where the American people OWN these companies; so as owners of a company we have the right to say what we will pay OUR executives after we saved them from their own incompetence.
People really have a problem with telling an executive in OUR company that they shouldn't get 20 million for performance that caused the company to fail? I tell you what, I'll come to your company, bankrupt it and then demand five million dollars as I'm walking out the door. Would you be OK with that? Now if the contract said you should get that, regardless of performance, then you were a fool for hiring someone under those terms. But when a group of investors buy the company after the bankruptcy, then they have the right to say what the executive gets because he wouldn't have a job there at all if the investors hadn't pulled his ass out of the fire. Get it? Remember this is a bankruptcy bailout deal here and the American people are the owners of these firms! It's limited to these firms only and under these conditions ONLY. The government isn't trying to take over all business and tell everyone what they should make. One person mentioned athletes and actors. Has anyone seen how much money the professional sports leagues make? These athletes are making a lot of money for their investors. Have you seen how much money movies make? These actors are making a lot of money for their investors. Quite unlike the picture where these banks and investment firms LOST a lot of money for their investors. Seen your 401k lately?

So when you bankrupt your company and someone comes along and bails your incompetent ass out you should keep your mouth shut when they say your compensation will be tied to performance. Compensation tied to performance, wow what a concept. Anyone else who does so poorly at their job that they are considered a total failure,like these executives were, is fired without any compensation. It's time these guys enter the real world.