Taxpayers have been crying foul for weeks now after it was revealed that executives of failing financial institutions were still being rewarded with extraordinary pay outs. How big were the pay outs? If you include stock options, bonuses and perks, the chief executives of 10 banks which received $161 billion in federal bailout money took home a cool $200 million – or $20 million each. Not bad for running a company or two into the ground (note to banks who are hiring: I will offer to run your company into the ground for a quarter of that).
Notably, Bank of America Chief Executive Ken Lewis earned a base salary of $1.5 million plus nearly $20 million more in “extras” in 2007. Vikram Pandit, the head of the beleaguered Citigroup, was said to have received a salary of $250,000 plus double that in “extras” in 2007 and total compensation of $573,813; the Wall Street Journal, however, claims that SEC and other filings put his compensation at closer $5.66 million for 2007. That’s still less than his predecessor, Charles Prince III, who as chairman and CEO of Citigroup received nearly $26 million in total compensation in the prior year. And good ol’ Martin Sullivan, who was ousted from AIG last year, still made out just fine: the British-born businessman took home $14.3 million in salary and compensation in 2007. For more information, you can check out this list of compensation for top bank executives as compiled by CNN.
All totaled, estimates are that Wall Street bonuses topped $18 billion for failing companies in 2008.
To put it into perspective, that translates into 1,321,197 full time wages for the year at the minimum wage rate of $6.55/hour. Yep, the equivalent of more than one million jobs low wage earning jobs. If you use the average wage (nationally) as determined by SSA and DOL wage data, it works out to 485,463 full time jobs for the year.
Nonsensical for sure and more than just a little offensive to most taxpayers who are finding it difficult to make ends meet.
In an effort to stave off complaints from ordinary taxpayers – those same taxpayers that have been called upon to “make sacrifices” – President Obama has announced that executives of companies receiving “exceptional assistance” in the way of federal bailout money will have their pay capped at $500,000 annually. Companies that want to pay their top executives more than $500,000 can issue restricted stocks that cannot be sold until money borrow from the government bailout plan is repaid. The new rules will also require banks to allow shareholders of financial institutions to have more say about executive compensation. The plan will also mandate greater transparency for discretionary spending such as holiday parties (remember the $440,000 bash at a California spa for AIG execs a mere week after the bailout was approved?) and office renovations (no more $35,000 toilets for Merrill Lynch execs?).
And the rules are, of course, prospective. That means that they would apply to future TARP assistance. We wouldn’t want to muck up what’s already in place – we blew that chance already.
So now everybody’s happy, right?
Um, not so fast.
There are a lot of issues to consider. For one, even though this feels like a good idea, do we really want this level of government intervention into what we’re at least pretending, for now, is the open market? And what are the penalties for failing to comply with the new rules? I haven’t heard much talk about penalties. Is it a dollar amount? Or, like a stern father, will we just threaten to “cut the banks off” from further borrowing? Will compensation in excess of $500,000 mean that the loans are called immediately? For the full amount? So many questions. And I’m not sure that I want to know the answers. Because the answers mean that we’re getting closer and closer to being the boss of the banks. And goodness knows, we really don’t want that.
And what qualifies as discretionary spending? No more bashes, we get that. But what else? Citibank has agreed to drop its plans for a new private jet but they may still be clinging to naming rights that they worked out with the Mets for their new stadium. And while I’d like for this corporate name stickering to stop (c’mon, the Mets can afford Beltran but they need corporate sponsorship to build a new stadium), I have to think that interfering in private contracts isn’t the best way to govern. The Mets say that they are “fully committed to our contract with Citi,” according to Mets spokesman Jay Horwitz. Of course they are. They’re on the good end of the deal. But Citi? Not so much. They’re kind of damned if they do and damned if they don’t. Again, not a fan of Citi (or the Mets – Go Phillies!) but I don’t know that we should be forcing companies to undo deals that they’ve negotiated.
Of course, there’s the argument that it’s our money. You know, since it’s a loan. But that’s kind of a scary road to go down. If you take a personal loan from one of these banks, do you want really them monitoring your spending on every dollar? It’s kind of like when your dad loans you money and then questions whether the purchase of new shoes was the best way to go (not that I remotely know of where I speak… ahem).
There’s just so much going on here with the loans and the rules and spending…
I have the real answer. It’s incredibly simple. And yet, apparently too complicated a concept for the CEOs of big banks to grasp. Try being accountable and responsible. Then government wouldn’t need to monitor anything – but then, if they had done that in the first place, they likely wouldn’t be begging for money now.
