Posted by Marc Hodak on March 18, 2009 under Politics, Scandal | 
Congressional inquiry of AIG retention payments
I put “bonuses” in quotes for two reasons. The first is a technical objection. This use of the word bonuses is quite different from the idea of bonuses as most people are used to hearing it. My mother-in-law in Missouri says it’s ridiculous for people who destroyed a company to be rewarded for doing so. That’s an understandable interpretation of what is happening here, if one simply takes the headlines literally. The story would be a lot less compelling if the headline were, “Executives collecting fixed payments from old contracts.” Those are payments from contracts, by the way, that the government has known about, and protected in the recent stimulus law.
The second reason for the scare quotes is that this frothing by the government has nothing to do with bonuses, however they’re characterized. This has to do with fear. Congress is afraid that if they are seen as bad stewards of our money, the public will become less willing to let them grab another trillion of it. Obama is afraid that if his administration is seen as rewarding failure, then his popularity will suffer, which will endanger the rest of his agenda. In other words, our goverment officials are afraid the people will know the truth about what they are really doing.
Read more of this article »
Posted by Marc Hodak on March 3, 2009 under Politics |
The following exchange was between Bernie Sanders and Ben Bernanke:
“My question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars?” Sanders asked, referring to the size of the Fed’s balance sheet.
Bernanke responded that the Fed explains the various lending programs on its website, and details the terms and collateral requirements.
When Sanders pressed on whether he would name the firms that borrowed from the Fed, the central bank chairman replied, “No,” and started to say that doing so risked stigmatizing banks and discouraging them from borrowing from the central bank.
“Isn’t that too bad,” Sanders interrupted, cutting off Bernanke’s answer. “They took the money but they don’t want to be public about the fact that they received it.”
For those of you following at home, Bernanke is the Republican and Sanders is the socialist. Confusing, I know.
Posted by Marc Hodak on February 23, 2009 under Politics |
I was taught to think in terms of return on capital relative to cost of capital. Totally outdated way of thinking. In financial terms, the return on capital invested in GM or Chrysler is still less than zero. In fact, it will likely be negative 50 percent. That’s the best case scenario.
The correct way of thinking about this is in terms of return on political investment.
Good commentary on the Chrysler corporate welfare package here.
Posted by Marc Hodak on February 22, 2009 under Collectivist instinct, Politics |
Reuters began an article titled “Europe says all markets must be regulated” with the following lead:
Europe said on Sunday it was time to get tough with tax havens and strictly oversee all financial markets as part of sweeping reforms to avoid future meltdowns.
Let’s translate:
“Europe said“: The heads of several governments, representing the politicized sectors of their respective European countries said…
“it was time to get tough with tax havens“: they see this as yet another opportunity to shut down tax competition…
“and strictly oversee all financial markets“: and expand their political cartel over areas they don’t currently control
“as part of sweeping reforms to avoid future meltdowns“: to increase their already immense regulatory powers, with no real expectation that they will exercise them with any more success or accountability than they have in the past.
This might be a good time to formalize Hodak’s Law: Politicians will assert that there is no problem in society that can’t be solved by giving them more money and more power.
For some reason, the press always credulously reports these power grabs as if they were the only sensible way of discussing or dealing with problems.
Posted by Marc Hodak on February 18, 2009 under Executive compensation, Politics, Unintended consequences |
This is my public service announcement.
Many firms and a few compensation consultants are still trying to figure out what the stimulus plan restriction on executive compensation really mean, and what they should be considering as a result of these rules. Here are the answers.
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Posted by Marc Hodak on February 16, 2009 under Executive compensation, Politics, Stupid laws |
There are so many wonderful features of the executive compensation provisions of the new gigatera-spending law that I have to post them one at a time to avoid TLDR from my fans. One of my favorites is the effective elimination of pay-for-performance as a viable basis for rewarding employees.
Actually, the law reads “…each TARP recipient shall be subject to…a prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees.”
Let’s see if we can get this straight; in golf, the score is the number of strokes one takes to get the ball in the cup. Does compensating one based on this standard encourage cheating? How could it not? So, if golf were under TARP, the number of strokes would be forbidden from being used as a standard for rewarding any player. Under TARP, film talent would be forbidden from getting compensation based on net profit (a.k.a. monkey points, a notoriously manipulable figure). Under TARP, paying patients based on the care provided would be illegal.
I could go on, but the bottom line is that any bottom line serving as a basis for pay is a bottom line begging to be manipulated. An incentive to perform is indistinguishable from an incentive to cheat.
The tightest interpretation of this rule would imply that a company can’t use GAAP earnings as a basis for pay-for-performance, which would be bad enough. But any driver of GAAP earnings–revenue, cost control, inventory turns, etc.–could easily fall under the purview of this law.
So, TARP recipients be warned: pay-for-performance is now illegal.
Posted by Marc Hodak on February 15, 2009 under Executive compensation, Politics, Stupid laws |
…to leave the TARP program as soon as possible.
And Obama is not a happy camper. The bill that finally passed Congress yesterday included a couple of items that his advisors neither asked for nor wanted. They would have been OK with the restrictions on “unnecessary and excessive risks.” They were fine with the clawbacks and the elimination of golden parachutes. They were happy about the limits on corporate jets and office redecoration, and the imposition of “Say on Pay.” But the bonus limits caught them by surprise.
Basically, no officer can get a bonus that exceeds half of his or her salary, and that bonus can only be in the form of stock that doesn’t vest as long as the firm remains on TARP. So, Vik Pandit, who has sworn to only take $1 in salary now has a bonus opportunity of 50 cents. That will lend a whole new meaning to “fighting for that extra penny” at the end of each quarter. The bill nominally imposes these limits on up to the top 20 “most highly-compensated employees” (on top of the five “senior officers”).
Now, here is where having a logic- and math-challenged Congress really begins to hurt. Read more of this article »
Posted by Marc Hodak on February 11, 2009 under Collectivist instinct, Irrationality, Politics |
Today was Circus Day, when “Wall Street Titans” were thrown to the lions in Congress.
First, we hear from Massachusetts Democratic Rep. Michael Capuano: “America doesn’t trust you anymore.” True enough, but rather a strange critique coming from a Congressman.
Capuano also let go with the following rant: “You come to us today on your bicycles after buying Girl Scout cookies and helping out Mother Theresa and telling us, ‘We’re sorry, we didn’t mean it, we won’t do it again, trust us.’ Well, I have some people in my constituency that actually robbed some of your banks and they say the same thing.”
Awesome.
Read more of this article »
Posted by Marc Hodak on February 10, 2009 under Politics |
My theory of the failed Bush presidency is pretty simple. Bush spent all his political capital on tax cuts and Iraq. The tax cuts were nice, except that they were accompanied by higher spending. I’m sure Bush didn’t personally care for most of that spending, but in order to maintain support for his war, he put away his veto pen. So, in the end, the cost of the war was not just defense appropriations, but also cash for wood use research and bridges to nowhere.
Obama now realizes that this spending stimulus bill MUST PASS. His nascent presidency depends on it. He will sign anything that reaches his desk, no matter what it costs, no matter how imperfect.
He may end up having to explain why, after spending four times on the recovery what Bush spent on Iraq to stop WMD, we still can’t find any signs of one.
Posted by Marc Hodak on February 9, 2009 under Executive compensation, Politics |
Carly Fiorina, who collected $21 million on her way out of HP to the outrage of many critics, starts a column by saying, “Americans are outraged over excessive CEO pay and perks. That outrage is justified, particularly when American taxpayers are footing the bill.”
Her answer, more transparency because, you know, we don’t yet have enough disclosure rules on executive pay, and say on pay. She also believes that CEOs should accept responsiblity for failure, unless, I suppose, the company turns around after their departure.
There’s a reason that this monograph appeared in CNN’s “Politics.com.”
