Reality Continues to Vex Our Salary Czar

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.