Well, this is exciting and encouraging news:

“Kenneth Feinberg, the Obama administration’s pay czar, said Sunday that he had broad and “binding” authority over executive compensation, including the ability to “claw back” money already paid, and he is weighing how and whether to use that power.

He also said he has the authority to use a “clawback” provision to go after compensation for executives from any company that received money from the U.S. Treasury’s Troubled Asset Relief Program (TARP).”

That’s the good part. Uncle Sam should be going after senior executives who were vastly overcompensated for helping to drive their firms into the ground. In particular,t he focus should be on the excess compensation that was unrelated to actual performance.

Stock options, bonuses for excess risk taking should all be clawed back to the taxpayer.

Where the czar may be acting too Russian is going after traders who made their money legitimately, but at bad, TARP receiving banks. Energy trader Andrew Hall is the poster boy for misplaced clawback efforts. For the record, I do not think the government has the authority to go after his contract, as it pre-dates the new TARP rules.

Nor should they. Hall is one of the most profitable contract employees of Citigroup. If he were to leave, it would negatively impact the now partially government owned bank’s profitability. Hall earned as much as $100 million this year trading energy, and PhiBro, the unit he works at, generated $667 million in profits to Citi.

There are some who seem to think that people earning lots of money is inherently wrong. My position is simple: If you legitimately earn millions or even billions of dollars, well then, chalk one up for being int he right place at the right time with the right idea. Guys like Steve Jobs, John Paulson, and Jim imons earn billions, and their shareholders/investors are thrilled to pay them it.

My bone of contention is with the crony board members awarding outlandish pay for non-performance; with compensation schemes paying absurd amounts regardless of risk or future losses; and with the big institutional shareholders looking the other way as it all happens.

This is yet another reason why the government should not be in the business of owning large banks. Receivership, asset sales and/or liquidation is the correct way to go. Uncle Sam should have been saving the banking system –not specific banks.

>

Previously:
CEO Clawback Provisions in the Bailout? (September 24th, 2008)

http://www.ritholtz.com/blog/2008/09/ceo-clawback-provisions-in-the-bailout/

Clawing Back at Exec Comp (part II) (December 18th, 2008)

http://www.ritholtz.com/blog/2008/12/clawing-back-at-exec-comp-part-ii/

TARP Recipients and their Bonuses (February 5th, 2009)

http://www.ritholtz.com/blog/2009/02/tarp-recipients-and-their-bonuses/

Source:
U.S. Pay Czar Says He Has ‘Clawback’ Power
Dealbook, August 17, 2009, 8:14 am

http://dealbook.blogs.nytimes.com/2009/08/17/pay-czar-says-he-can-claw-back-compensation/

See also:
“Pay Czar” Refusing to Back Down Over Possible $100 Million Citi Bonus (naked capitalism)

http://www.nakedcapitalism.com/2009/08/pay-czar-refusing-to-back-down-over.html

Ditch Bonuses, Bring Sense to Wall Street’s Pay (Bloomberg)

http://www.bloomberg.com/apps/news?pid=20601039&sid=aRb1t81srE58

Category: Bailouts, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

69 Responses to “Clawbacks Coming?”

  1. Mannwich says:

    Much ado about nothing. The only thing they’ll be clawing back is Main Street’s economic recovery.

  2. km4 says:

    Mannwich I agree…Clawbacks are 8 mo. late and $12 Trillion short.

    Obama could have done the “right” thing in the first place and let failed banks and insurance companies fail. But he and his administration continued to prop up the 19 too greedy to fail banks in an attempt to try and keep the gigantic ponzi scheme US economy going rather than investing the $12 Trillion in infrastructure, education, health care, manufacturing and REAL wealth creating endeavors for Main St economic recovery !

  3. Better than nothing

  4. woody says:

    Guys like Steve Jobs, John Paulson, and Jim imons earn billions at PROFITABLE companies and I say more power to them. IMHO, no employment contract is sacrosanct at a bankrupt company or a company that would be bankrupt if the Gov’t didn’t bail it out.

  5. VennData says:

    Clawback puts in the mind of futures boards, CEO’s etc that if they award outlandish pay, they will be in the spotlight.

    Clawingback the handful of industries that the gov’t has assisted is so marginal as to have zero effect on “Main Street’s economic recovery” buy plenty of long run effect on the charity circuit / country club contingent who don’t want their names in the paper for being greedy.

    That money saved in the long term goes to investors, bottom line.

  6. Mannwich says:

    They should start with Mozillo, O’Neil, Fuld, Greenburg, Sullivan, Paulson, and many, many others who basically stole from shareholders and the American public. Then, and only then, will I think they are serious about this.

  7. ToNYC says:

    Payback is a bitch or a blessing. A cross-the-board 10 million pay cap tied to cash performance..choice of designated option to the charity or non-profit public policy of their choice solution provider or pass it on, thank you very much..contracts paid in real -time from bankrupt banks/finance companies mean squadiddle.

  8. Moss says:

    Maybe he can also clawback the pay of all the incompetent politicians.
    How ’bout a give back of the last ten years of Senate and Congressional pay raises.

  9. Dervin says:

    Barry, but on the flip side of Andrew Hall – if the US Taxpayer didn’t bail out his company and Citi was forced into bankruptcy, would he still get his bonus? Or would he have to stand at the end of the line with all the other unsecured creditors? He gained from the false profits as well (not nearly as well). And he should share in the loss.

    Why should the top 5% be exempted from the same risks of post industrial capitalism which the rest of the world has lived with for last 40 years?

  10. leftback says:

    Compensation is the last bubble. This is why there has been such a mad scramble to cash in on the spoils this year. After the next Red October™, the bonus structure as we knew it is going to be gone for good. Congress is starting to hear the voice of the people a little more clearly. They have seen our pitchforks.

  11. EAR says:

    Clawbacks? It’s a start.

    In other places they’re doing things Taleb’s way…

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajWuDKceXqWk

  12. David Yaseen says:

    So Hall should pay no vig for trading with our money? I will gladly concede that he performed extraordinarily well, and should be well-compensated for his efforts. However, I believe we taxpayers are due something from him for providing the conditions of the possibility of his meritorious activity.

  13. EAR says:

    Clawbacks? It’s a start.

    In other places they’re doing things Taleb’s way…

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ajWuDKceXqWk

  14. Mannwich says:

    @David Yaseen: That “vig” should be a 95% tax on that $100MM. That would satisfy me. That money can go back to the people on Main Street, who can then use it to pay for the increase in gas prices that Mr. Hall helped drive upward recently.

  15. cvienne says:

    I agree with BR…”Better than nothing”

    “Well the crowd cleared away
    And I began to pray
    As the water fell on the floor.
    And I’m telling you son,
    Well, it ain’t no fun
    Staring straight down a forty-four”

    GIMME 3 STEPS
    LYNRD SKYNRD

  16. riley says:

    Let me get this straight. The government is not going to prosecute anybody for criminal activity, but they are going to apply a “special tax” on specefic citizens because it believes those citizens earned too much money? What a great country.

  17. Moss says:

    Relying on the BOD and the so called shareholders will not do much to reign in excessive compensation.
    Who the F can even figure out who the shareholders are when the holding period of most equities is 4 months. This has more to do with the benign neglect of excessive pay since the shares are all held by speculators who want the CEO’s to take excessive risks in the short term. Pump the numbers beat the expectation and dump the shares on the next sucker in line.

    This is what the ‘markets’ have become.

  18. Mannwich says:

    @riley: Too many criminals to prosecute. Our country’s economy depends on criminal activity in a big way to keep things humming. Can’t eliminate criminality by the royals. What would the rest of us do in an economy with no predatory white collar crime?

  19. constantnormal says:

    I tend to see bonuses as “subordinated income”, with the most senior income being paid in the form of salary or “base pay”. When a company is operating at a loss, the subordinated income goes out the window, or at best, those contracts are renegotiated to be paid out of operating profits at a later point in time where such profits return. Under NO CIRCUMSTANCES WHATSOEVER should bonuses — contractual or otherwise — be paid using bailout money, or while a company is receiving bailout money. It is too tempting to juggle the books as to where the bonus money is coming from.

    If you cannot see that Barry, then perhaps you should remove those bundles of $100 bill blinders and take another look at the situation. No bankruptcy judge would ever countenance such payments, and the entire purpose of having negotiated agreements (“contracts”) is so that they may be altered should the need arise. That is the difference between the phrases “unconditional promise” and “negotiated agreement”. Contracts are not, and never have been, “unconditional promises”. I expect the NY bar association to be contacting you about your standing (right after Yale pulls Dubya’s diploma, and fires their history department).

    Regardless of the performance of individual business units, Citi, like AIG, is effectively bankrupt. Their ability to control their fate is in the hands of others now, and just as contracts with suppliers are subject to modification by the proper authorities, so are compensation contracts.

    If Andrew Hall is worth as much as he thinks he is, he can get similar compensation from another firm. Hopefully he will be smart enough to sign with a company that is not going down the tubes next time. everybody makes mistakes, and his was in not paying attention to the fact that his job as first chair trombone in the band was on the good ship Titanic. Better luck next time.

  20. Greg0658 says:

    In June – WH Press Sec Mr. Gibbs was asked at a press conference:

    Question: And on executive compensation, will the administration be naming Kenneth Feinberg as the pay czar to oversee the packages — pay packages for executives and companies that are receiving bailout money? And how much of the decision on these measures was driven by the President’s desire to quell public anger about compensation news that has come out recently?

    Answer: Well, look, Ken Feinberg is going to assume the role of special master that will allow him to review for soundness, appropriateness, and to limit risk relating to compensation packages for those companies that are either receiving extraordinary assistance or might in the future.

    Special Master? Ummm ..
    I think if the GOP takes back the White House we will see the MSM start using one of these words (thesaurus synonyms) for DIRECTOR:
    authority in an organization: administrant, administrator, executive, manager, officer, official.
    shows the way: conductor, escort, guide, lead, leader, pilot, shepherd, usherboss, chief, chieftain, head, headman, hierarch, leader, master.
    directs and supervises workers: boss, foreman, foreperson, forewoman, head, manager, overseer, superintendent, supervisor, taskmaster, taskmistress.

    I sorta like “Administrant” it has a feel of non-permanency and not so Russian sounding or Freemasonry.

  21. riley says:

    @Dervin Says
    “Barry, but on the flip side of Andrew Hall – if the US Taxpayer didn’t bail out his company and Citi was forced into bankruptcy, would he still get his bonus? Or would he have to stand at the end of the line with all the other unsecured creditors?”

    His contract would have been voided, he could have left Citi, started his own firm earned a bigger paycheck and Citi would have had $667 million less in earnings. As a reluctant Citi shareholder I want them to hire more Andrew Hall’s and pay them in a similar manner. With 5 or 6 more employees each generating $667 million in earnings, Citi might become profitable and actually be able to pay the taxpayers back.

  22. cvienne says:

    @Greg0658

    LOL

    And if they screw it up, they get put on “double secret probation”…

  23. constantnormal says:

    damn. apparently missed a closing italics tag (2, in fact). Y’know, if WordLess aspires to be a superior blogging platform, they better be working on an improved product, ’cause they are not likely to get improved users any time soon. I think that — at a minimum — they need to allow editing of posts (with indications that the post has been edited, and preferably, a means of drilling down to see all the edits, much the same as Wikipedia has done for a Very Long Time.

    Next on my list would be a means of applying style attributes/tags without having to type in the raw html. Javascript is perfectly capably of allowing such faculties to be coded into a site, where one selects some text and a drop-down menu of permitted style attributes emerges within the composition area.

    In the meantime, I would humbly suggest that you change the footnote of this page to read “The Big Picture is powered by WordPress” instead of “The Big Picture is proudly powered by WordPress”. It’s only a blogging platform, nuttin’ to be proud about. The pride can come when it’s worthy of such.

  24. constantnormal says:

    @Greg0658 11:42 am

    As indicated, I tend to think of the government constraints over Citigroup as being akin to a bankruptcy judge’s appointment of an administrator to ride herd over their spending and contracts. The only reason that they have not gone the formal route is the fear of collateral damage from a formal Citi bankruptcy, and the inconvenience to the proper functioning of the Happytalk Express.

    But in my mind, if not legally, and certainly from an accounting standpoint, Citigroup is kaput. That we maintain the fiction of their being an ongoing concern is more a political statement than anything else.

  25. EAR says:

    Sorry about the double post.

    It was due to some “nodes” hangup… not my belief that it was doubly relevant.

  26. km4 says:

    Another reason why Clawbacks are 8 mo. late, $12 Trillion short, and generally bullshit!

    Financial Whistleblowers, Brad Birkenfeld & UBS (Unbelievable BullSh*t)
    http://www.dailykos.com/story/2009/8/17/768005/-Financial-Whistleblowers,-Brad-BirkenfeldUBS-%28Unbelievable-BullSh*t%29

    Go Jesselyn Radack !

  27. km4 says:

    The truth behind the $780 million “Fine” (27+ / 0-)

    The U.S. settled possible criminal charges against UBS by allowing UBS to pay a $780 million fine and provide information on a couple hundred account-holders (out of more than 50,000) whose names were discovered in the investigation. The government then filed a civil lawsuit seeking the names of all U.S. citizens and residents with secret UBS accounts, vowing to settle for nothing less than full disclosure.

    Of course UBS settled on that amount and paid that amount last years just a few days after receiving $800 million in TARP funds compliments of the U.S. taxpayers.

    UBS must be laughing its head off at the U.S.
    –They get to keep the U.S. taxpayer’s money via TARP.
    –They get to keep the profits from off-shore tax havens that were illegally established despite DOJ’s knowledge of them.
    –They don’t have to disclose the names of the U.S. entities – entities & people that were solicited ON US SOIL — and which control billions of off-shore assets.
    –The DOJ, after ignoring what UBS was doing and deliberately choosing not to go after the principals responsible for it, conveniently prosecutes the whistleblower who turned in UBS and tried to save U.S. taxpayers billions of dollars.
    Sweet deal for UBS!

    http://www.dailykos.com/comments/2009/8/17/71713/4161/21#c21

  28. BSNEATH says:

    It is theorized that one of the contributing factors to the first great depression was the concentration of income and wealth into the hand of a few. As a result “the many” did not have the where with all to purchase goods and services and the economy collapsed.

    It is my understanding that the concentration of wealth today is even greater than it was back in the 20s and 30s. Middle class incomes have been stagnant or falling for years and the middle class has been “living large” on credit cards and home equity loans as a substitute for wages and income.

    Regardless of the merits of retaining money earned legitimately as opposed to that earned through inappropriate means, wealth and income never the tends to concentrate.

    I agree with previous comments that we are very likely in a slow motion collapse. Social turmoil is a real possibility as more and more individuals lose their middle class lifestyles and seek out someone to “blame” for their misfortunes. (Few can accept these consequences as being the result of their own actions). I expect we may ultimately see an unwinding of the concentrations of wealth, probably through changes in the tax code.

    Lets just hope this time it turns out differently than it did last time when social unrest resulted in fascist dictatorships or a massive world war.

  29. constantnormal says:

    @km4 12:13 pm

    and who is the vice-chairman of UBS? Is it still Phil Gramm? I guess we’re still just a “nation of whiners”.

  30. constantnormal says:

    @BSNEATH 12:23 pm

    “Lets just hope this time it turns out differently than it did last time when social unrest resulted in fascist dictatorships or a massive world war.”

    I think it all depends upon how long things remain like this. In the fullness of time, as people grow increasingly enraged at the plethora of blood-sucking vampire squids on their personages, it become increasingly easy, even inevitable, for some lunatic extremist to float to the top, carried by a paranoid faction of the population that are out of their minds with the helplessness of their positions, blaming all the convenient scapegoats from their imaginations and bigotry (there are all KINDS of bigots, please do not read too much into my use of this word), and have the entire system disintegrate in the next global conflict, fought this time around with cyberwar, bioweapons and nukes.

    Such a conflict might be — finally — the “war to end all wars”. We don’ need no steenking SkyNet.

  31. The Curmudgeon says:

    Here’s an idea for “clawbacks”: Clawback the f-cking security blanket, and let these bastards live or die based on their own ability to manage risk. Quit pretending there is ever anything under the heavens that is too big to fail and disabuse yourself (the feds) of the conceit that you can save it without yourself failing when it does.

  32. Onlooker from Troy says:

    Boy, I sure wish really smart guys like Andrew Hall would apply their smarts and guile to truly productive means in our economy instead of trading which is just shuffling money and assets around and trying to outsmart other folks. Essentially a zero sum game.

    I know that’s a pipe dream and kind of naive’ sounding, but it gets at a more basic issue of how we’ve incentivized so many of our best and brightest to take up employment in the financial realm which mostly just siphons money off of the productive industries, apart from the limited amount of truly productive capital formation for productive means. But lately that’s a really small part of the pie. They’ve spent the last decade, especially, levering up all the capital they could get their hands on (by merging IB with commercial banking) and creating endlessly complicated derivatives to gamble with.

    We need our physicists and mathematicians to get back to science so we can create new productive means to get us out of our hole, not just keep gambling and conning people on Wall Street.

  33. Bruce N Tennessee says:

    “This is yet another reason why the government should not be in the business of owning large banks.”….

    What business should they be in, Barry?

    http://www.nypost.com/seven/08172009/postopinion/opedcolumnists/the_gang_that_cant_insulate_straight_184898.htm

    “Here’s how it works: If you’re eligible, the government will pay to weatherstrip your doors, insulate your walls and ceilings, fix your windows and, in some cases, buy you a new refrigerator and heating system — all for free. You just have to sign up with a local community-action group, which will send over workers to do the repairs.

    It’s proving a rip-off — the government is spending a fortune for each household that benefits. A quarter of the money is squandered on a vast bureaucracy of regulatory field staff, administrators and training. Also inflating the costs are prevailing-wage mandates and provisions that encourage states to spend the most money on the fewest homes.

    With $400 million, New York state intends to repair 45,000 units, or nearly $9,000 a home.”

    “. As part of the stimulus bill, Obama and Congress are pouring $5 billion into the program — a nearly 10-fold increase in funding. “…..

    …large banks, retirement, healthcare, car manufacturing, mortgage loans, green energy….what is it that makes people think the government gets anything right except national defense…and the guys and gals in that do that because they feel duty bound..not because they are a government worker…at least the postal service is….oh, never mind…

  34. [...] Are compensation clawbacks coming to TARP banks?  (Big Picture) [...]

  35. Onlooker from Troy says:

    Curmudgeon

    Something you said made me think about this Andrew Hall’s big trading gains. Has the big back stop of Uncle Sam allowed him/them to take bigger risks which have paid off in bigger gains? We’ll likely never know, but it’s certainly a factor here.

    On the other hand, it’s possible (likely?) that Hall would not have stayed with Citi if he hadn’t thought they were TBTF and therefore back stop allowed him to not only stay there with huge compensation, but also to bet bigger with OPM and the Bernanke Put. On his own it would likely be harder to “succeed” as he has. Just speculative on my part, but…

  36. wally says:

    My position is simple, too:
    Millions of people who acted perfectly responsibly are being assessed to pay for ‘saving’ the economy. Having done so – in the statements of a number of government officials – they should now be compensated by return of any and all funds beyond what was necessary to effect this ‘rescue’.

    Unless, of course, you don’t believe the whole sham. In which case: they should get whatever they can get politically… which is what the banks did.

    So, either way: grab the money from those who have it.

  37. My position is simple: If you legitimately earn millions or even billions of dollars, well then, chalk one up for being in the right place at the right time with the right idea.

    Err … no.

    If a bank teller makes $30K a year over 30 years, that is $900,0o0. If a high-end employee makes $30 million in one year, they earn 30 times more in one year what their bank teller will make during their entire lifetime of loyal service. This level income disparity is truly insane, is thoroughly destructive to a civil, advanced technological society and has no rational, ethical or even capitalistic defense. Unless your only defense is the right to avarice without limits and without regard to human consequence.

  38. bdg123 says:

    I would like to see clawbacks not only for underperformance but for underrecognition of risk. That means any firm that has participated in excessive risk-taking should have their salaries clawed back for the period of time during which that happened. That means every Wall Street firm for the last ten years give or take. That’ll happen when pigs fly. This is generally too late. I believe politically the window has closed to regain trust unless the Obama administration would shift course very substantially in its actions. ie, A Pecora-style commission, giving the SEC authority to press for criminal convictions instead of civil fines, gut the gambling going on in the markets, etc.

  39. aupanner says:

    @BR: I couldn’t disagree more. i thought the bailout was to address “systemic risk”. the alternative is bankruptcy. what kind of bonus would he have gotten from a judge?

  40. Accepting Barry’s premise, incredibly large income disparities within a company are reason why profit-sharing was invented. If the company is successful, then profits are distributed in an equitable way to all those who helped create them. In a financial corporation where CEOs are pulling in $10-$50 million bonuses, that money should be equitably distributed as profit sharing to all of the people who created that wealth, from the mail clerk up to the senior veepee. Take the total profits and figure out what percentage everyone should get. Presumably everybody contributed. In this way, your profit sharing amount is tied to your wage level, but it is truly an equal percentage. The mail clerk gets the same percentage increase in their salary (as a bonus) as the CEO and senior management get in their pay envelopes as a bonus.

    Not sure why this is not being done.

  41. I-Man says:

    @ D. Watts:

    “If a bank teller makes $30K a year over 30 years, that is $900,0o0. If a high-end employee makes $30 million in one year, they earn 30 times more in one year what their bank teller will make during their entire lifetime of loyal service.”

    How much risk does a bank teller take? And how much money does a bank teller make for a firm? And how much “career risk” does a teller take?

    As a low level bank employee myself… (I know you are all shocked :) )

    Your comparison is upsurd.

  42. I-Man says:

    Ahem… absurd. Damn you wordpress.

  43. aupanner says:

    the income disparity in a company should be as large as the guys at the top can make it. everyone should be left to negotiate for their fair share. and their fair share is be definition, whatever they can negotiate to get. if you’re doing a job that is non-essential, you’re only going to get paid what the next guy would need to get paid. you’re expendable. and if you were the CEO, you’d see it that way too. if you’re a good business person, and have something of value to offer (whether a product or a talent), you know you need to get a contract that spells out what you get for your services. and then, if you know your a$$ from your elbow, you know that with that contract, you’re taking counter party risk.

    @ Douglas Watts – if you think profits “should” be spread around – you should start your own company and run it that way.

    but these aren’t the issues of the Ctit guy and his $100mm bonus. the issue there is what is the purpose of the “bailout” for Citi? to make all of it’s employees whole or to address global systemic risk? we were sold on the latter. the former is just nothing short of a disgusting transfer of wealth.

    I can’t figure out why this is debatable. I think BR must have some kind of stake in this somehow – perhaps just emotionally. This is the first subject where he seems to depart from logic.

  44. km4 says:

    constantnormal Says:August 17th, 2009 at 12:26 pm
    @km4 12:13 pm
    and who is the vice-chairman of UBS? Is it still Phil Gramm? I guess we’re still just a “nation of whiners”.
    *********
    BINGO !

  45. call me ahab says:

    aupanner Says-

    “the income disparity in a company should be as large as the guys at the top can make it”

    “the former is just nothing short of a disgusting transfer of wealth.”

    well let’s see- re the 1st quote- they did right?- make the disparity as large as possible? The rest of the people in the company- expendable- not important- pay them as little as humanly possible- fucking losers- who cares about them

    the 2nd quote- disgusting? hmm . . .

    so . . . the big spot light is on these companies due to their ineptness- if you don’t send the world’s ecomony over a cliff and then recieve taxpayer funds to remain solvent- then you probably sneak by with no-one noticing the inequities in pay-

    but now it is seen for what it is- and these supposed “masters of the universe” are seen as the greedy, selfish, small minded people they really are-

    suggestion- they should donate large sums to charity- and they better show a good side soon or they may set themselves up to have the money beat out of them by a not-to-happy populace- you know the losers

  46. aupanner says:

    ahab, it’s not “effing losers” or “who cares about them” – it’s more like “pay them market”. if you pay them above market, that’s charity. – which is fine, i wouldn’t disagree with it at all. but it can’t be “expected’ or mandated… and to pay people all the same – that’s kinda like socialism, isn’t it? when you dictate what pay is in the private sector, that’s trouble. and public companies are still private sector. once they are infused with cash from the Gov/Tax Payers, then all bets are off and that money needs to have serious strings.

    my position is – if these companies truly are TBTF and pose systemic risk, then put the money where it is needed to save the system. (i’m skipping the fact that i disagree that anything is TBTF). why are employee bonuses systemic? it sucks, but why does someone with an employment contract with a company expect the government to back it? why, just because it’s a lot of money? as far as the comments others have made about losing a “top earner” – that’s pointless. he siphoned money – what if made the money off trading Fannie debt! what true value-add is that?

    i don’t know if the crooks/masters of the universe should donate to charities – but i do agree they should not be surprised when they receive threats from the populace. and when they are beaten, as you say. they took risk – and their downside whether they realize it or not is society stands up to their corruption.

  47. How much risk does a bank teller take? And how much money does a bank teller make for a firm? And how much “career risk” does a teller take?

    How much risk does a CEO take? The exact same amount as a bank teller. If your superiors don’t like the job you do, you get fired or you don’t get promoted. No difference.

    aupanner: @ Douglas Watts – if you think profits “should” be spread around – you should start your own company and run it that way.

    Well, first of all, your model suggests that if the law allowed you to use slaves, you would. And second, if you do actually own or operate a company, I think it would be amusing if your front-line employees knew that you believe they should see none of the profits and you should get all of them. And third, your entire “start your own company” response went out of business with post-1900 minimum wage and child labor laws and worker safety laws and sexual harassment laws.

  48. From Bailout Nation:

    • Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC:LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month. Fuld also sold nearly a half-billion –$490 million – from selling LEH stock;

    • Goldman Sachs (NYSE:GS)paid its Chairman and CEO Lloyd Blankfein $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively.

    • Bears Sterns (BSC JPM)former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPM, received $60 million when he was replaced;

    • American International Group (AIG) chief executive Martin Sullivan got a $14 million compensation package in 2007. He was ousted in June. The insurance giant (NYSE:AIG) is on the receiving end of an $85 billion federal bailout. Robert Willumstad was handed $7 million for his three months at the helm. (Edward Liddy took over as AIG’s chief executive earlier this month).

    • Morgan Stanley (MS) Chairman John Mack earned $1.6 million + stock. Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007. Morgan Stanley also received an expedited approval to become a banking holding company in 48 hours — that’s record time.

    • Countrywide Financial’s (CWF BAC) founder & CEO Angelo Mozilo, which has been at the forefront of the subprime fiasco, cashed in $122 million in stock options in 2007; His total take is estimated at over $400 million dollars;

    • Stanley Neal, who steered Merrill Lynch (NYSE:MER) into financial collapse before being taken over by Bank of America, was given a package of $160 million when he left his post last year; That package makes current CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007 look like a bargain.

    • Bank of America (NYSE:BAC) is acquiring Merrill. BofA CEO Kenneth Davis brought home $25 million in 2007.

    • JP Morgan Chase & Co. (JPM) Chairman and CEO James Dimon earned $28 million in 2007. Chase acquired troubled investment house Bear Stearns earlier this year with the federal reserve backstopping $29 billion in Bear assets to help get the deal done.

    • Fannie Mae (FNM) CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac (FRE) Richard Syron, brought in $18 million. Federal government is taking over the mortgage backers with Herbert Allison to serve as Fannie CEO and David Moffett the new CEO at Freddie.

    • Wachovia Corp. (WB) Chairman and CEO G. Kennedy Thompson received $21 million in 2007. He was succeeded by Robert Steel as CEO in July. Steel is slated to get a $1 million salary with an opportunity for a $12 million bonus, according to CEO Watch. Wachovia (NYSE:WB) is one of the banks that could be sold in the midst of the financial crisis.

    • Seattle-based Washington Mutual (WM) will pay its new CEO Alan Fishman a salary and incentive package worth more than $20 million through 2009 for taking the helm of the battered bank, according to the Puget Sound Business Journal.

  49. aupanner says:

    Well, first of all, your model suggests that if the law allowed you to use slaves, you would. And second, if you do actually own or operate a company, I think it would be amusing if your front-line employees knew that you believe they should see none of the profits and you should get all of them. And third, your entire “start your own company” response went out of business with post-1900 minimum wage and child labor laws and worker safety laws and sexual harassment laws.

    I’m not saying you can treat people disrespectfully just because you’re within the law (which I think get’s to the real point of your “slave” comment). Obviously, I don’t advocate slavery. I just advocate fair market value. If the employees at some bank are take advantage of so terribly, why don’t they go to another bank or pick another profession? far as i can tell, that’s what a free market it – pay someone the market value for their services. if i ran a company, i would of course pay them bonuses and profit share. but it would be PROFIT share. i would do it to attract the top talent. i would treat them extremely fairly. and the very best would get higher bonuses because their services would be worth more. it might be worth it to me to pay them above “market” to retain them. but it would still be a function of a market price. if market for my Associate is $200k. If I can afford it (i.e. if i’m profitable) I might give him $300k to keep him. but i’m not going to simply give everyone their pro rata share of the profits! that’s a great way to lose your top employees/earners and thats a good way to take away motivation. that situation would only create motivation for those employees who know they’re over paid. on your third comment – i don’t get it. i don’t see how anything i’m saying suggests that i advocate disrespecting people and slavery or anything of the sort. in fact, i think what i’m saying is opposite – the idiots operating that way would never be able to compete.

    lastly, i submit that ultimately we’re all slaves. you’re freedom is an illusion anyway. sorry to break that one to you.

  50. David Yaseen says:

    The trader only has to have one good year, and then he’s set for life. If he happens to wind up losing a big pile of Other People’s Money, nobody comes after him for it. He isn’t hauled into court to account for his actions and chucked into jail for them. But god help the teller who is short $100 at the end of her shift…

  51. aupanner says:

    apologies for the poor formatting above. that first paragraph was from Dwatts and should have been italicized.

    i could go on for hours on this topic – but one last point – employees don’t contribute equally to the success of a company – how can they be paid pro rata? and a ceo and teller don’t have the same career risk and certainly don’t (or shouldn’t) have the same investment in their career (i.e. education and time spent building relevant skills).

  52. As anyone who has worked in a large company knows, the risk v. reward performance formula (as measured by if you do not do a good job, you get fired) is astoundingly skewed in favor of the high level executives. If you make $30K and have a family, if you get fired and cannot immediately find a job at the same pay rate, you can easily face bankruptcy due to health care costs, food costs, childcare/daycare costs and mortgage/rent costs. If you are an exec. making $1 million or more per year, you have plenty of $$$ in the bank and investments to weather the storm for many years and find another job without any material reduction or threat to your family’s basic needs. Yes, you might have to sell that 2nd or 3rd vacation home, but you are in no danger of being homeless, or going without healthcare or being unable to put your kids through college. So, by this real world metric, the risk faced by a CEO getting fired is orders of magnitude less than that faced by a front-line employee who gets laid off. In fact, the risk faced by a CEO is utterly inconsequential. There are no recently fired CEOs living in tent cities and applying for food stamps.

  53. But god help the teller who is short $100 at the end of her shift.

    Thank you.

    For the more obtuse, I am not saying everyone in a company should be paid exactly the same. It is the income disparity (as measured in orders of magnitude) that is askew and growing more askew. My wife used to work in an insurance company and she was constantly being drilled with seminars and workshops about how to please the customer, how to increase sales, etc. At the same time, the company rather unsubtly let people at her “level” know that if they did not sufficiently absorb and implement all of this training to the satisfaction of management, they would be fired and replaced. In other words, all of this training and incentive/disincentive was management’s way of saying to even the lower person in the company that “your performance is vitally important to the success of the company.” Well, if your performance is vitally important to the success of the company, then by definition, your and your job is important to the success of the company. If your job was not important, the company wouldn’t care if you performed it well or not. So once the company makes that gambit/challenge/requirement to its employees, it’s a bit disingenuous when profits are robust for the company to say you didn’t “really” help create those profits so you shouldn’t get any. It’s one way or the other.

  54. aupanner says:

    it is skewed in favor or top execs – as it should be. (and i am a laid off low to mid level person who did a good job but got laid off any way). but top execs used to be low level people, and they did what it took to get to the top – and sometimes that means kissing a lot of ass, being an overall suck-up, and other things that make it hard to look at one’s self in the mirror. this is especially true in these big shops where it is more of a popularity contest than actual merit based system. i hate it, but i get it. and if i want to go back to work for one of these places, that’s the way it is.

    first of all, if you make $30k and have no other assets or income, you should not have a family – not in the northeast where we’re from anyway. if you do, you should know that you are taking huge risk doing so.

    the real world metric to the ceo after money is his reputation and status in his little world. selling that third home could mean losing all his “friends”. how devastating is that? i know how ridiculous this is sounding. but take it to another level and realize the problem is actually at your (and society’s) obsession with wealth. that ceo losing his third house might commit suicide over that – don’t tell him and his family it’s not “real”. it’s all relative. and it’s all important if your unit of currency that makes or breaks your life is money. rise above it.

    after all, we all break even in the end.

  55. aupanner says:

    you say “drilled” with seminars. others may say she was getting free education. if she’s any good, she’ll take the education and make money for a competitor.

  56. call me ahab says:

    “and a ceo and teller don’t have the same career risk and certainly don’t (or shouldn’t) have the same investment in their career (i.e. education and time spent building relevant skills).”

    so what is your point? A CEO of an oil company isn’t out at the wells doing the drilling- right? Where would they be without the wokers at the oil fields? Everyone puts in time for the company’s success- it takes everyone to make it work- not just the people in the corner offices-

    the people at the top need to set the example and everyone should beneift in good times- sadly the corner office folk benefit in good times and bad-

    that only creates animosity and sets up the case where capitalism fails because the money is concentrated too greatly at the top- what is in it for the rest of the 95%?- that’s how revolution’s get started-

    the “masters of the universe” then would bring on their own demise

  57. aupanner says:

    ahab: “so what is your point?” my point is everyone has a different value to offer. where would the engineers and oil drillers be with the CEO? everyone should be paid their market value. how many people in the world can be the CEO vs. how many can dig ditches? supply v. demand.

    it’s capitalism guys. pretty basic.

  58. I-Man says:

    So if I, a “little person”, become very successful at trading and find myself in the position of say, an Andrew Hall…

    Does that make me one of those “masters of the universe?” Are they “masters” just because they make a lot of money?

    Should I not be paid according to merit, ie: how much money I made for the firm?

    This could be C, it could be any firm… and the whole TARP piece is really irrelevant. It matters not who the “shareholders” are. We are all de facto shareholders in C now. Shouldnt we want them to pay a guy like Andy Hall who is responsible for one of their most profitable divisions, what they said they would pay him?

    Its not about what a teller makes versus an allstar energy trader. A teller that does a great job deserves the best pay a teller can get… and vice versa. Thats capitalism… and it is merit based.

    CEO’s that run companies into the ground and DONT MAKE PROFITS are a completely different discussion. If they are compensated with multi millions for losing a firm money, then thats criminal, not merit.

  59. aupanner says:

    I-Man, we (tax payers) are not shareholders of C. we’re shareholders of the system, so in that context we need to save C – but only enough to keep the system operating. but cash is tight – we (U.S.) need to put cash where it is most needed to save our system. if I owned shares of C personally – then of course i’d want him paid and retained. but i’m not. i say let him go to one of his “competitors” – we probably “own” them too! Andy Hall didn’t make anything. he just re-allocated money in the system. Sucked it out of the market. Good for him, and he earned it. He took the risk, and if C were solvent he should get every cent. But C is bankrupt. sorry.

    I agree with your last point. i would not hold stock in a company that does not make money. And if I had to own some because of some restricted covenant (which actually is the case for me now as my prior employer is sucking wind and i cannot sell my restricted stock), I would be outraged if the CEO got paid anything in losing years.

  60. call me ahab says:

    “Andy Hall didn’t make anything. he just re-allocated money in the system. Sucked it out of the market. Good for him, and he earned it. He took the risk”

    hahahaha- what was his risk exactly?

    -outside of being fired- because he is not betting with his own money- so why not bet large-nothing to lose and everything to gain-

    don’t hold people like him in such high regard

  61. Pat G. says:

    Having the power and actually wielding that power are two distinctly different issues. I think the USG is the poster child for that confliction.

  62. [...] By Stephen GrocerThe claw back is coming: Obama administration pay czar Kenneth Feinberg says he has the authority to “claw back” money already paid to executives at the seven companies whose pay plans he will review, the Martha’s Vineyard Times reports. Barry Ritholtz has no problem with Feinberg going after executives “who were vastly overcompensated for helping to drive their firms into the ground.” He just doesn’t think the government should be going after Andrew Hall. “There are some who seem to think that people earning lots of money is inherently wrong. My position is simple: If you legitimately earn millions or even billions of dollars, well then, chalk one up for being in the right place at the right time with the right idea. Guys like Steve Jobs, John Paulson, and Jim Simons earn billions, and their shareholders/investors are thrilled to pay them it… My bone of contention is with the crony board members awarding outlandish pay for non-performance,” Writes Ritholtz. [...]

  63. philipat says:

    Agreed BUT even the succesful Trader in a PUBLIC Company should be compensated in PART on the total performance of the Company. If he doesn’t like it, he is free to leave and trade with his own capital.

  64. aupanner says:

    ahab, i didn’t mean to refer to him in high regard at all. i simply meant his actions earned money. of course playing with OPM is not “risk”. but he did what he was hired to do, nailed it, and earned his pay. too bad for him that one “bet” he made didn’t play out – his counter party risk with C as the payer of his bonus didn’t pan out (or shouldn’t). funny, that’s the one “position” he did take that put him at risk, and it was a zero (should be). i don’t mean to sound like a dick. i mean the guy “earned it” according the rules of his game and would deserve it if C had it. but they don’t.

  65. [...] Coming? (BigPicture) Barry Ritholtz criticizes the lavish compensation schemes paying absurd amounts regardless of risk [...]

  66. [...] with Dylan Ratigan & Co. on MSNBC’s Morning Meeting at 10:00 am. We will be discussing executive clawbacks, TARP, and the usual [...]

  67. [...] By Steven RussolilloRegulators should go after overpaid bank executives, who were “vastly overcompensated for helping to drive their firms into the ground,” but not profitable traders, like Citi’s Andrew Hall who’s the “poster boy for misplaced clawback efforts,” FusionIQ CEO Barry Ritholtz says. [...]

  68. [...] Regulators should go after overpaid bank executives, who were “vastly overcompensated for helping to drive their firms into the ground,” but not profitable traders, like Citi’s Andrew Hall who’s the “poster boy for misplaced clawback efforts,” FusionIQ CEO Barry Ritholtz says. [...]

  69. Kimble says:

    Yeah, clawback the money! but not from the traders. Big surprise.