Economics

Bailout Bonanza for Top Execs

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As Radley Balko notes below, financial institutions that have received some $188 billion in the federal bailout have kicked $1.6 billion to their top 600 employees this last year.[*] Some details, via the AP:

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, country club memberships and professional money management.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines….

The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.

Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million. This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money Oct. 28.

John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options. Like Goldman, Merrill got $10 billion from taxpayers Oct. 28….

The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution.

More here.

My immediate responses to this are a) Of course the bailout's limits on executive compensation wouldn't work, and b) this is all an outrage, and c) why should any of us care what anybody anywhere is making?

The second-beat answer to c) is one of the reasons to be against this or any other bailout: When you shovel tax money, public money, at something, its inner workings do legitimately become the public's business. Certainly this is the case with public schools or civil service employees, where compensation is a public matter. And now it is on Wall Street and various other parts of the economy too. I recognize that any industry has to set its compensation scales, especially of those at the top, to be competitive in ways that outsiders won't always understand. I also think the owners of a company, whether privately or publicly held, should be answerable only to the business's owners (and employees). But here's one more way the bailout muddies everything.

[*] Correction: As several commenters have pointed out, I originally and inaccurately wrote that the compensation packages were for 2008 when in fact they were doled out last year, in 2007. Apologies for my confusion. 

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  1. Makes sense to me. Seems logical!

    jess
    http://www.privacy.de.tc

  2. I pray that every penny of these obscene handouts has been invested in the Madoff fund.

  3. An ambulance-chaser of the financial ilk is already hinting that maybe farmers in Indiana should bail out the wealthy Palm Beach nincompoops swindled by Bernie Madoff. I have a better idea: hang the bastard from the Times Square ball mast on New Year’s Eve. What better way to ring out the bad old year? I’m serious. A $50 billion swindle should be a capital offense, and a public hanging is not something the other pin-striped gangsters on Wall Street would likely forget. Televise it live and stick a copy on YouTube for posterity. Who’s with me?

  4. obscene handouts

    This reminds me of the motorcycle helmet laws. Since the people pay increased healthcare costs, the safety of riders is their business.

    The problem, same as with the bailout, is that the public shouldn’t be footing the bill in the first place. Elementary, sure, but it bears repeating considering the current lynch mentality about any bailed-out exec making more than minimum wage.

  5. Who’s with me?

    Um, not me. I get the sense you’re not hyperbolizing, and that’s just spooky.

  6. I also think the owners managers of a company, whether privately or publicly held, should be answerable only to the business’s owners (and employees).

    Is that what you meant?

    Corporate governance has become a total disaster, because management doesn’t really give a shit what the actual owners of the corporation think, and “captive” boards work for management, as co-conspirators, in an ongoing transfer of wealth from owners to employees.

  7. “The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines….”

    I have to say i don’t understand what this means. So John Thain’s paycheck is as much as 10 or 20 Ma and Pa s&l’s are taking in taxpayer funds? I guess that means something….. but i sure as hell don’t know what.

    (Except that if i was John Thain, et. al. I’d think about purchasing a well run small s&l or two for my own portfolio.)

  8. “My immediate responses to this are a) Of course the bailout’s limits on executive compensation wouldn’t work, and b) this is all an outrage, and c) why should any of us care what anybody anywhere is making?”

    Gillespie obviously isn’t one of the people I’m about to talk about, but it really gets me when the handwringing over executive compensation is coming from people who supported the bailout.

    …as if they supported having me robbed at gunpoint–it’s what the robbers spent it on that was wrong.

  9. It also bugs me when people are shocked–shocked!–at Mission Creep.

  10. They should all be getting shitcanned, not a bonus or even a paycheck. Maybe even seize their personal property as proceeds from criminal activity- fraud.

  11. I’m outraged at some of the bonuses, but not others.

    Many of the “executives” who get bonuses at financial firms are glorified salespeople who have been given officer titles for prestige and to convince potential customers/clients that they’re dealing with a “person of import” and not a flunky.

    A lot of the “bonuses” and “perks” are, in fact, salesperson commissions by a different name.

    And telling a company in financial trouble that what they should do to get out of it is get rid of the commissions they pay to their top salespeople is just silly.

    It’s like when outrage was universal that AIG went ahead with a sales conference at a high end resort after they got their bailout. Hey, maybe it’s outrageous but if they stop paying their salespeople AIG is out of business and the bailout funds will never be repaid.

    In addition, a lot of these bonus amounts are set by employment contract. If I’m not a top guy at Goldman, and am not executive #7 but am executive #55, if I have an employment contract and the company isn’t in bankruptcy I want my fucking money. And if some of that money came from the taxpayers, well – silly taxpayers. Next time don’t elect representatives that will do stupid things like give your money to Goldman so they can turn around and use it to meet the terms of my contract.

    Disclosure: I was against the bailout.

  12. I get the sense you’re not hyperbolizing

    And you are correct. Public executions used to be commonplace in America.
    It’s time again for a little old-fashioned frontier justice.

    The thought of that smirking son-of-a-bitch living the high life in his Manhattan penthouse turns my stomach. He’ll probably be dead before he ever comes to justice.
    Let’s hope he pulls a Ken Lay, but slowly and painfully.

  13. The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution.

    A really good way to avoid “encouraging excessive risk” would be to let the firms and people who engage in excessive risk-taking suffer the consequences of their fuck-ups, instead of bailing them out and allowing them to keep their jobs.

    Also, devising a system in which rewards are based on long term success rather than big payouts on the front end would be good.

  14. Many of the “executives” who get bonuses at financial firms are glorified salespeople

    Confirmed. I was once (c. 2002) an “executive” with the world’s largest bank according to my business cards. I worked in a strip mall and made $31k/year.

    It’s time again for a little old-fashioned frontier justice.

    Mmmkay. Have fun with that.

  15. If you want to visit violence on somebody, you should probably be more focused on the people who actually gave the money away as opposed to receiving it: the politicians.

  16. I realize ed is talking about Madoff, not the random execs BTW. I still think he’s batshit crazy.

  17. The problem of high level compensation is that it is determined by committee within the context of an old boys network. In this environment, it would be considered positively rude to offer below average compensation, whereas trying to bargain down you and me during the course of salary negotiations is just good business practice.

    I’d love to see the day when candidates for these positions have to propose their own compensation packages, knowing that they’re in competition with others, and the one that offers the best value wins. THEN there will be a genuine market in executive pay, rather than the rigged farce we have now.

  18. When you shovel tax money, public money, at something, its inner workings do legitimately become the public’s business. Certainly this is the case with public schools or civil service employees, where compensation is a public matter.

    Unless the civil service employee is a professor at a public university who doesn’t want to go to sexual harrassment training, apparently. Then Reason is OK with someone sucking at the public tit with no strings attached.

  19. did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution.

    Whatever the fuck that means.

  20. RC,

    Exactly. And isn’t the bailout encouraging excessive risk more than any bonuses ever could?

  21. Am I the only one who read the first line of the article?

    “Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.”

    This money was not part of the bailout package — this is what these people were paid last year…

  22. M. Sletten, since money is a fungible good, the money spent last year on irresponsible executive compensation is money that could have been banked and kept as cash on hand, used to prevent an economic collapse that necessitated federal intervention.

    Sort of like having something in savings for an emergency.

    I think that the disconnect between the rank and file investor and the corporate board is largely responsible for this growth spiral in exec pay.

  23. dealing with a “person of import” and not a flunky.

    I wish I were a highly paid ‘flunky’…

    Anyhoo… fuck ’em, public sector employees. All of ’em.

  24. and professional money management.

    I’m sure that was the gift that kept on giving.

  25. Rmasey: I get that, but Mr. Gillespie opens his comment with the statement, “…institutions that have received some $188 billion in the federal bailout have kicked $1.6 billion to their top 600 employees this year.” If that’s the case, where is he getting his information? The above statement is clearly at odds with the opening sentence of the article at Cincinnati.com.

  26. It’s time again for a little old-fashioned frontier justice.

    No, it really isn’t.

  27. Drag his ass out of his penthouse and lynch him.
    Madoff has forfeited his right to exist.

  28. I don’t recognize ed. Does he have a history of this? Either way, I’ll bite.

    Execution of people whose behavior “turns your stomach”, would have to be carried out by the justice system. The same system that has a nasty history of botching prosecution.

    So do we only hang the varmints if they confess? ‘Cause that pretty much guarantees two things: no more voluntary confessions, and lots more involuntary confessions.

    But I still think you are exaggerating for effect, since in your last post you suggest we just take it upon ourselves and murder him without any trial at all.

    I’m right about you exaggerating, …right? …Please?

  29. “Drag his ass out of his penthouse and lynch him.
    Madoff has forfeited his right to exist.”

    I think that tarring and feathering Madoff, live on TV, would be a cathartic experience for the nation.

  30. I think that tarring and feathering Madoff, live on TV, would be a cathartic experience for the nation.

    Make it a regular feature.

    For week 2, I would have the top execs of GM, Chrysler, and the UAW.

    For week 3, the SEC official in charge of the NY financial markets. Although you might want to time this one to coincide with the hearings on his promotion to the top job.

  31. When do we do Greenspan? I want to set my Tivo.

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  33. One problem with executive compensation in publicly traded financial institutions is that being publicly traded concentrates the rewards for executives and dilutes the risk (by spreading it out across shareholders). So yes, the owners of the company should determine compensation, but really, what say did an investor in Goldman Sachs have in compensation for the executive? By diluting the ownership it makes it hard for the owners to have a real say (with so many of them who have competing interests). As long as stock prices kept going up all the owners got what they wanted.

    What they didn’t realize was that the very structure of publicly traded financial companies almost encourages fraud (or something dangerously like it) since the executives’ desire for gain is no longer balanced by fear of loss (it’s not their money they are playing with, but it’s their gain). Privately held investment houses, i.e., those where it was the executives tended to be the owners and had their own money in the pot, tended to act very differently and have not been hit the same way.

    Granted, while things were going well and the executives were delivering good returns, things looked good and people didn’t mind their compensation, but when things go bad and they’re still rewarded, it starts showing the problems. Sort of like investing in houses that people couldn’t afford because they thought the markets would keep going up.

    For a good explanation of the problem, see this article from Portfolio.

    It raises an interesting question for libertarians. While we usually deride regulation, what do we do when the system is structured in a way that incentivizes problems. Is there a place for regulation of executive compensation (at publicly traded firms only) to try and replace the fear of loss that is not there for the executives when it’s not their money on the line?

  34. But I still think you are exaggerating for effect

    You think so? Anyway, the lack of outrage over this swindle is astonishing. My theory is that the huge chunks of dollars being tossed about like so many bales of hay has desensitized America. A billion dollars has become an abstract, not a concrete. But I’d be willing to bet that if Bernie Madoff had been a cop who busted down the wrong door, this crowd would be getting medieval on his ass.

  35. As evidence, I submit this, from Radley’s inevitable cops-shoot-dog thread above:

    What kind of coward kills a dog? Murderous arrogant Nazi bastards. All of them.

    If one of my dogs got out, and the greasy guys opened fire, I would be returning fire.

    The problem with that is that even casual interactions with my local cops make me want to take a shower afterward.

    Id be in jail right now because I would have killed every single cop on my property.

    Whether it’s one cop or one thousand, you’re dead-no fair trial; you die in the gas chamber, in a cell, or in a “suicide” in police custody. If you’re going to be the walking dead, make the most of it. The first one is the only one to cost anything, the rest are free.

    I wouldn’t trust a cop. I consider them criminal gangs with state issued permits to be criminals.

    If anything, they should charge the police with animal cruelty. Another reason why I hate the fucking pigs.

    ——————————————–

    Madoff steals $50 billion? Meh.
    Cops shoot a dog? Kill the jack-booted thugs!
    I rest my case.

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