After Huge Losses, a Move to Reclaim Executives’ Pay

The New York Times ^ | 21 Feb 2009 | GRETCHEN MORGENSON

[BGHater]

SHOULD executives get to keep lavish pay packages when the profits that generated their compensation go up in smoke?

As the financial crisis deepens, what might have been a philosophical question is now the topic of the day. With losses mounting at the nation’s largest financial institutions, years of earnings have been erased, investors have lost billions, thousands of employees have been let go, and taxpayers have been tapped to rescue the financial system. But executives who helped set the problems in motion, or ignored them as they mounted, are still doing fine. Humbled, perhaps, but well paid for their anguish.

Executives at seven major financial institutions that have collapsed, were sold at distressed prices or are in deep to the taxpayer received $464 million in performance pay since 2005, according to an analysis performed for The New York Times. Almost half of that consisted of cash compensation.

Yet these firms have reported losses of $107 billion since 2007, a result of their own missteps and the ensuing economic downturn. And $740 billion in stock market value has been lost since these companies’ shares peaked in 2007, just before the housing bubble burst.

Against that landscape, a growing chorus is demanding that executive compensation snared shortly before problems emerged be given back.

“There is a line that separates fair compensation from stealing from shareholders,” said Frederick E. Rowe, a money manager in Dallas and a founder of Investors for Director Accountability, a nonprofit group. “When managements ignore that line or can’t see it, then hell, yes, they should be required to give the money back.”

Corporate boards that awarded lush executive pay packages almost always justified them by saying they encouraged superior performance and were directly tied to benchmarks like profitability.

[The_Victor]

SHOULD executives get to keep lavish pay packages when the profits that generated their compensation go up in smoke?

If we're going to implement this for business, then we should do the same for government, especially Congress.

[Nervous Tick]

>> SHOULD executives get to keep lavish pay packages when the profits that generated their compensation go up in smoke?

Frankly, NO, they shouldn’t be compensated for failure.

But it’s boards of directors and shareholders that should punish them. Not the government.

Corporations by and large suffer from the same problem as our democratic republic: apathetic and clueless “voters”. That right there is your real problem.

[GonzoGOP]

If we're going to implement this for business, then we should do the same for government, especially Congress.

One of the "When I become dictator" rules is that in any year there is a budget deficit congress would be required to surrender their campaign funds to help pay down the deficit. This has three effects.
(1) Congress has a real and personal incentive to keep budgets balanced.
(2) When congress does run a deficit it makes it easier for challengers, who have campaign funds, to unseat incumbents, who wouldn't. So if government is not well run it naturally throws out those who were doing a bad job.
(3) Cuts down on the tendency to start collecting campaign funds from the day they are elected. For example in the Senate why start bankrolling campaign funds when any deficit in the next six year wipes out whatever you have saved.

[RabidBartender]

"SHOULD executives get to keep lavish pay packages when the profits that generated their compensation go up in smoke? "

Didn't the Clinton buddies make a pretty dime at Freddie Mac and Fannie Mae before jumping ship?

[Reeses]

Reclaim Executives’ Pay

That means the government will have to give the income taxes back too, to companies that have losses so won't be paying income taxes. Good luck with that.

[A CA Guy]

I agree, especially in that Fannie Mae deal where results were altered to pay out millions to there old affirmative action CEO.

[Malsua]

But it’s boards of directors and shareholders that should punish them. Not the government.

That's the problem really. The board supports all the nonsense and won't do the slightest thing to scale back the looting, so the villagers with the torches and pitchforks will make Uncle Sam do it.

[HighlyOpinionated]

If we're going to implement this for business, then we should do the same for government, especially Congress.

You have hit the nail on the head. The 'only' thing we can do since the barn door's been closed, is to work to vote the bums out and vote solid USofA citizens into their positions.

I found something yesterday that you all might want to read. It was written in 1888 by the then Pope . . . and it speaks to what's going on today.

Libertas ENCYCLICAL OF POPE LEO XIII ON THE NATURE OF HUMAN LIBERTY
QUOTE: But many there are who follow in the footsteps of Lucifer, and adopt as their own his rebellious cry, "I will not serve"; and consequently substitute for true liberty what is sheer and most foolish license. Such, for instance, are the men belonging to that widely spread and powerful organization, who, usurping the name of liberty, style themselves liberals. End QUOTE.

QUOTE: Of this we have almost daily evidence in the conflict with socialists and members of other seditious societies, who labor unceasingly to bring about revolution. It is for those, then, who are capable of forming a just estimate of things to decide whether such doctrines promote that true liberty which alone is worthy of man, or rather, pervert and destroy it. End QUOTE.

[Boiling Pots]

I tend to agree with your sentiments, although these huge company’s Board of Directors are filled with nothing more than friends of Executives. They all sit on each others boards, and vote themselves outrageous packages. It’s a classic “good ole boys” network.

Of course, more government is not the answer, but as it stands now, shareholders really haven’t much say in compensation packages.

[Red in Blue PA]

“Frankly, NO, they shouldn’t be compensated for failure.

But it’s boards of directors and shareholders that should punish them. Not the government.”

The problem with that is that mutual funds own most of the shares and vote the way the BOD tells them to, leaving shareholders with essentially no voice in the matter.

[grey_whiskers]

I can't believe I'd ever agree with The Slimes.

They must be coming around.

Cheers!