Posted by Marc Hodak on April 21, 2010 under Collectivist instinct, Economics, History, Movie reviews, Politics, Reporting on pay, Stupid laws | 
The IMF is pushing for a bank tax:
[T]o pay for the costs of winding down troubled financial institutions, the IMF proposed what it called a Financial Stability Contribution”—a tax on balance sheets, including “possibly” off-balance sheet items, but excluding capital and insured liabilities. That tax would seek to raise between about 2% to 4% of GDP over time—roughly $1 trillion to $2 trillion if all G-20 countries adopted the tax.
On top of that, the IMF proposed that nations to adopt what it called a Financial Activities Tax, levied on the sum of profits and compensation of financial institutions. That would be paid to a nation’s treasury to help finance the broader costs of a financial crisis…
The IMF said that a nation didn’t need to put in place a specific resolution authority. Instead, the tax money could go to general revenues and used in case of financial crisis. But the IMF warned that the money would be spent by the time a problem arose.
OK, so let’s see how this would work. Congress levies massive new taxes on every major bank. Congress would then spend that money on…stuff. A financial crisis hits, and certain TBTF banks get into trouble. Congress bails them out, having to borrow gobs of money to do so because the tax revenues that were nominally for “Financial Stability” were in fact spent on…stuff.
So, how is this different from what happened last time? Hard to see. Does it do anything to reduce the systemic risks that regulators insist were at the root of the last crisis? No. Does it strengthen the banks to make them better able to weather such a crisis? Not likely when so much money of their capital–enough to raise between 2% to 4% of GDP–is being sucked out of their coffers. At least if the money were being held in a trust fund instead of dumped into general revenues, it would be there for frenzied politicians to disburse based on the rational workings of the government. But, of course, the money will not be there. It will have been spent not to support the financial system, but to support the reelection of incumbent politicians–the most short-term actors on the planet.
Oh. Yeah. THAT would be the difference.
So the lesson from all this appears to be: When it comes to a justify raising taxes, any excuse will do.
Posted by Marc Hodak on April 13, 2010 under Executive compensation, Reporting on pay |
People intuitively understand “you get what you pay for.” People get that, for a given price, you can either get an extra thousand square feet of space or a view of Central Park, but not both. Or, if you’re dealing with Lee Iaccoca, you can get Corinthian leather but not power doors and windows. Persuasive negotiation only gets one so far.
But when it comes to CEO pay, people pretend that trade-offs don’t exist. They presume that CEO pay is arbitrarily high based on the feckless disposition of the board, and that the perks that rile the mob so much, and presumably have value to the executive, should therefore be arbitrarily banished without a second thought. So, they pretend to be surprised when the Abercrombie & Fitch CEO was denied personal use of the corporate jet and, instead, paid more in cash:
The high-priced teen retailer amended the employment agreement of Michael Jeffries, long-time chief executive, to limit his company-covered personal use of the corporate jet to $200,000 per year. The CEO would have to reimburse the company for any use over that amount.
Previously, Mr. Jeffries was entitled to unlimited personal use. From 2006 to 2008, he booked an average of about $850,000 a year worth of personal travel on the corporate jet. In 2008 alone, he tallied roughly $1.1 million worth of personal travel on the jet. In exchange for agreeing to the limitations, Mr. Jeffries will receive a lump-sum payment of $4 million. The agreement requires Mr. Jeffries to pay back a portion of that money should he choose to leave the company before Feb. 1, 2014.
So, why would A&F’s board do this? Because if you take something away from someone you need to keep, you need to replace that with something else, and cash is a useful substitute. Now, keep in mind that when the CEO chooses to fly Delta, the corporate jet is probably sitting idle, so that “$850,000 a year” cost is partly an accounting fiction. Or, if he continues to fly on the corporate jet at the same pace as before, he will simply be paying back about 75 percent of what the company paid him. The other 25 percent equals about half of the extra taxes the executive must pay to have the company funneling this perk through his personal bank account; the shareholders, who would get no deduction for that $4 million expense, would be out well over a million bucks on this deal.*
CEOs get paid to renegotiate their agreements all the time, but the quid pro quo for that cash payment is rarely this obvious because they are normally renegotiating several terms at once. In this case, the CEO was paid to renegotiate one term, i.e., less jet usage.
Alas, this has nothing to do with the shareholders. It has to do with the “public backlash as corporate jets became a symbol of Wall Street greed,” notwithstanding the fact that A&F is not on Wall Street.
* The difference between $850K per year average use versus the $200K worth of jet use he still gets as part of his package, plus the $1MM per year average extra compensation over the next four years.
Posted by Marc Hodak on March 25, 2010 under Reporting on pay |
You should have guessed there’d be a “however”:
…However, that type of cascading salary payout, which is generally welcomed by shareholder activists such as (“socially responsible”) Ethos Foundation, is likely to draw more attention in coming days.
Gee, what would be the reason for that attention?
Posted by Marc Hodak on March 23, 2010 under Reporting on pay |
The Gray Lady reports:
Of the 104 senior executives whose pay was set by the federal pay regulator in the last two years, 88 executives, or nearly 85 percent, are still with the companies even though their pay was drastically cut back, according to people briefed on the government data.
The relative stability, at least within the executive suite, suggests that a soft job market, corporate loyalty and personal pride helped deter the feared management exodus at the companies hardest hit by the pay rules.
I’m sure every board is ready to apply that magic to their own companies.
Oh, some questions left out in this analysis:
– What was the senior executive turnover of peer companies not subject to these restrictions in 2009? Is it close enough to 15% to render “relative stability” as the appropriate verdict? (Best guess: peer turnover would be in the 9 to 12 percent range last year.)
– What was the composition of that turnover? Did they lose their best people (as is usual in a cash crunch) or their average people (who tend to hunker down in bad times)?
– What about the effect of promised future compensation? Lloyd Blankfein and Jamie Dimon had a sense that whatever they gave up in 2009 they could kind of make up in 2010 to 20??. What would these restrictions do if the Pay Czar threatened to hover around for several more years? (Hint: We got a clear sense of that at AIG, what could only be called an exodus of their top people. We’ll see how it works at Government Motors.)
Posted by Marc Hodak on under Executive compensation, Reporting on pay |
Ford CEO Alan Mulally made the news today with a $17.9 million payday for 2009. This included a $1.4 million salary and $16.5 million in stock and options–a total of about $1 million more than Mr. Mulally made last year. The article noted, as journalists always will, that the CEO got his increase in a year when he secured significant union concessions. This brings us to the first view of his pay:
“It’s an outrage after all the sacrifices we have taken and the pay he gets,” said Gary Walkowicz, a bargaining-committee member for UAW Local 600, representing workers at Ford’s Dearborn truck plant. “His pay is coming out of our concessions.”
So, the CEO got the union to reduce their pay, and he got more pay. Ergo, his pay was coming out of their concessions.
According to this view, Ford Motors is kind of a zero-sum game; the pie is fixed, and the shareholders or the CEO get more if labor gets less, or vice versa. In this view, it’s not fair if the CEO drives down compensation to improve the profitability of the company, only to suck some of that profitability back for himself in the form of higher pay. That is the view implied by this article. It’s the view assumed by most of the readership.
Another view is that Ford is part of a market. Several markets, actually:
Read more of this article »
Posted by Marc Hodak on March 18, 2010 under Reporting on pay |
The headline and sub-title read:
Govt rewarded bank auditors with big bonuses: As banks binged on risky mortgages, govt rewarded regulators with taxpayer-funded bonuses
Wow, this sounds like it’s gonna be good! Their bonuses were funded by taxpayers! And we didn’t get to vote on them! So, how much did these Wall Street overseers earn?
During the 2003-06 boom, the three agencies that supervise most U.S. banks — the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency — gave out at least $19 million in bonuses, records show.
Oh. What does that come out to per employee? Like $350?
Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.
OK. So, these bonuses went to the examiners who’s banks failed, when the signs were obvious at the time, right?
Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it’s impossible to determine how many auditors got bonuses despite working on major banks that failed.
…”In retrospect, a stronger supervisory response at earlier examinations may have been prudent,” FDIC’s inspector general concluded.
In retrospect. I see. This is my favorite part:
In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.
Ah, yes, the Bonus Culture. This is exactly like a trader at Goldman making a little extra–like $5 million–for getting a few extra trades per month done.
Do you get the feeling that the press runs after anything called a “bonus,” the way dogs run after tailpipes?
Posted by Marc Hodak on March 16, 2010 under Executive compensation, Reporting on pay |
UBS is once again paying competitive levels of compensation to try to stanch its exodus of talent, and replace it with similar talent. Their top-earner last year, pulling down $12 million, was their co-head of investment banking Carsten Kengeter. UBS lured him from Goldman Sachs in 2008, and his division narrowed its losses in 2009 by about $25 billion, and is now on a path to profitability. One might think it not unreasonable that his bosses could judge that he made a $12 million difference. But the people who are paid to carp at other people’s pay had another view:
“It’s strange that only more than a year after UBS’s biggest crisis, the bank is once again paying huge bonuses in an area that caused the most trouble,” said Roby Tschopp, director of Swiss activist group Actares. “It shows that under Chairman [Kaspar] Villiger, the bank has lost its sense to act in the interest of the people.”
The latter comment lays bare the difference in mission. UBS’s top management, assumed by the press and critics to be looking for ways to pad the pockets of management, is acting remarkably as if it cares about the bank and its shareholders. The “Swiss activist” organization that is advising shareholders wants the bank to act “in the interests of the people,” as if those interest are somehow served by a bank that suffers for lack of competitiveness.
As usual, the press ignores or glosses over this difference between the managers and the critics. It swallows whole the activist’s premise that the board and managers are working against the shareholders’ interests, and that those interests would be much better served if their managers were paid what the activists think they should be paid or, better yet, if their pay were put up to a popular vote.
Posted by Marc Hodak on February 7, 2010 under Executive compensation, Reporting on pay |
Like many others in the blogosphere, I have said it before and will say it again: Lloyd Blankfein is a mensch. Except that I say it without sarcasm.
I was invited last week onto one of the networks to participate in the TV game “What will Lloyd get!” or “Do you want to tee (up) a millionaire!” I had another speaking engagement that night, which is unfortunate because I had a sure-fire strategy to win this game. I was going to hear what everyone else said, then go $100 below the lowest guess. Folks, I was willing to go down to zero.
My reasoning is that LCB was too. Blankfein doesn’t need the extra $30 or $40 million that he might be entitled to in a pre-2008 universe. He already has more than he knows what to do with, and he doesn’t strike me as someone who really cares about the extra that he wouldn’t know what to do with. People may want to project their image of insatiable greed onto him, but that’s their problem, not his.
Blankfein’s problem is how does he get himself and his firm off the front pages as the poster-child of finance capitalism run amok. If he can navigate Goldman through these rapids without crashing on the rocks of public envy and political hubris, the firm can go back to printing cash for its shareholders, employees and, yes, the tax collector, in peace. And if Goldman can grow its shareholder value, Blankfein makes out even better. Because while everyone else is deer-staring into the bright lights of tens of millions in bonuses, Blankfein is steadily looking at his personal portfolio of GS shares, realizing that with the ups and downs of the market, his personal net worth is fluctuating by an average of $10 million per day. Trust me, with 3.4 million shares already in his portfolio, Blankfein is really not sweating an extra 100,000 restricted shares this particular year versus being allowed to take care of the stock he has without walking around with a bulls-eye on his head.
Posted by Marc Hodak on February 5, 2010 under Innumeracy, Reporting on pay |
It’s fairly well established that most journalists went into their profession precisely because they didn’t get along well with numbers. They deal better with letters. Except when those letters are numbers. This morning’s Wall Street Journal has this at the top:
Punching the Clock on Super Bowl XLIV
The number of man hours an organization devotes to winning the Super Bowl is (M)–that’s one million in Roman numerals. W1 and WSJ.com for updates.
Uh, M is one thousand in Roman numerals. Remember those dates on movie copyrights, etc. with all those Ms?
Someone no doubt beat me to the punch because one of those updates on WSJ.com was to eliminate any mention of M as a million.
The real innumeracy, however, is failing to mention that it takes the same number of hours to lose a Super Bowl, and almost the same amount to not come close to reaching the Super Bowl.
How is this relevant to executive compensation? Because you always hear about “paying for failure,” as if executives haven’t put in the work for a losing effort, as if it’s outrageous they got anything at all for competing and losing. Granted “pay for failure” is often tagged to bonuses or equity grants when a company underperforms or fails, but that ignores the reality that (a) not every individual in a failed organization failed at their particular job, and therefore deserves no bonus, and (b) many of these “bonus” positions are like brush salesmen jobs, i.e., the bonuses are more like commissions, and even a poor brush salesman deserves a commission on what little he sells.
Posted by Marc Hodak on February 1, 2010 under Executive compensation, Invisible trade-offs, Reporting on pay |
The headline is: Bank pay gets boost on the sly.
While the perk angers some shareholders, the reality is that executives at banks and other large companies routinely collect dividends on shares they don’t own.
Let me guess which shareholders:
“People at places like Goldman Sachs are going to reap windfalls in dividends from stocks they haven’t earned yet,” says Tony Daley, an economist at the Communications Workers of America.
The union fought similar payouts at General Electric’s 2007 annual meeting after CEO Jeffrey Immelt was paid $1.3 million in dividends—equal to 40% of his salary—on shares he didn’t own. It lost.
“It makes no sense to pay people dividends on shares they don’t own,” Mr. Daley says. “Shareholders should be outraged.”
No sense? How about this: if management is awarded beaucoup restricted shares, which by definition they can’t collect for a time, their fond hope is for an appreciation of those shares until they vest. And the one lever they most directly control in that appreciation is dividends. Dollar for dollar, the less dividends they pay out, the higher the shares will go. Soooo, if those communications workers prefer dividends, they should push for the holders of restricted stock to get those dividends, too. To eliminate the perverse incentive to chop or hold back on dividends. Which is why boards began awarding dividends on unvested equity, folks.
That part of the rationale was not mentioned in the article. They didn’t ask me.
