Should We Really Cap Executive Salaries at Bailed-Out Companies?
President Obama, with Treasury Secretary Timothy Geithner by his side, announced that executive compensation for firms that accept tax payer bailout money in the future will be capped at $500,000 plus restricted stock. They insist that there will be no way to circumvent this limit by granting 7 figure bonuses. Executive compensation on Wall Street certainly needs to be reigned in, but I am not sure that this is the way.
Although I worship at the altar of capitalism, I have been embarrassed and shocked not only at the debased greed of my colleagues but also their total obliviousness and disregard for the economic suffering they have wrought. Much of Wall Street, deposed Merrill Lynch CEO John Thain, and former New York City Mayor Rudi Giuliani have been behaving like Marie Antoinette. Their actions have spawned such outrage that one brave blogger has already suggested that those that fail on Wall Street, the ultimate high risk, high reward profession, should share her guillotine experience. He argues that other professions such as pilots already risk death every day on the job for much less pay.
The phrase "Let them eat cake" certainly flitted in my head when the New York State Comptroller, Thomas Di Napoli, announced that the financial services companies paid a staggering $18.4 billion in bonuses for the year 2008. Incredibly, it was the 6th largest bonus haul in history despite this year being one of multi billion dollar taxpayer bailouts, the disappearance of several storied Wall Street firms, and staggering losses. At a radically different time, when the Dow was over 10000 and climbing higher in 2004, the equivalent bonus pool was paid out.
The cash and stock distributions tell only a small part of the sense of entitlement of these Wall Street Pooh-Bahs. It can be argued that private planes are a necessity for busy executives, but I am not sure that a vacationing Sandy Weill, the retired former CEO of Citigroup, falls into that category. Citigroup shareholders have suffered a whopping 89% loss in value. Much of the decimation in value was due to Sandy Weill and the management team he built. In addition, the taxpayers had to bail out the mess that he created to the tune of $45 billion. Most normal people would be embarrassed at failing so miserable but not Mr. Weill. Sandy, with his imperial tendencies intact and nary a sign of humility, did not give it a second thought when he and his family hopped on a Citigroup financed private plane for a vacation not a work related trip for a cost of $90,000