Posted by Marc Hodak on January 27, 2010 under Executive compensation, Reporting on pay | 
…or else we’ll tax ’em!
British officials have blessed the shift to higher salaries, saying they help rein in risky decision-making. But the salary increases must be permanent, or they will be taxed like a bonus. “A significant, one-off leap in salary is something we’ll be keeping an eye on,” says Paul Franklin, a spokesman for the U.K.’s tax service.
Their concern about bankers salaries is kind of touching, don’t you think. It contrasts to the obsession in the rest of this article about how banks keep trying to get more money into the pockets of their employees.
Posted by Marc Hodak on January 14, 2010 under Politics, Reporting on pay |
Could a so-called news report begin with any louder bias than this?
The fat cats were supposed to get their comeuppance.
If we’re going to assume that the market for talent doesn’t exist, which this entire article does, then, sure, I can see the problem in banks refusing to simply cut back on what they pay their people. But why not assume that the market for real estate is arbitrary, too, and lament the fact that banks are still paying almost the same rents as they did in 2007? Or that the market for loans is arbitrary, and lament the fact that banks could simply charge less interest to everyone?
One thing that apparently doesn’t change is the market for envy, which is counted in circulation and votes. If you can tap into that ever more profitably, you’re considered quite a fine fellow.
Posted by Marc Hodak on January 10, 2010 under Reporting on pay |
Wall Street will be announcing their year-end bonus results soon to a green-eyed mob. As usual, the press gets to write their annual story about how “the banks that got us into the financial crisis” and “whom we had to bail out”, and are now set to “pay themselves huge bonuses.” They then get to write the story about the outrage caused by those stories. This year, they are going one step further and writing stories about the way their stories will create outrage.
The story they will not write, once again, is about how the government created the financial crisis, put itself in a position of having to bail out the largest financial institutions, beginning with Fannie and Freddie, then somehow managed to pin the blame on anyone but themselves.
Alas, taking credit and shifting blame is what politics is all about–that and squandering society’s scarce capital on questionable projects. And pandering to readers’ most primal emotions, with a casual interest in the truth, is how one sells papers.
But banks are being resented for what they do–give money to people with the hope of getting repaid. And when they do a good job, and society has its scarce capital allocated a little more efficiently, the banks make money, and their people make money. But when bankers make much more money than journalists or politicians, well, that apparently can’t be allowed.
Posted by Marc Hodak on January 4, 2010 under Executive compensation, Politics, Reporting on pay |
A few top executives at AIG left on the last day of 2009, including Anastasia Kelly, general counsel and chief HR officer of AIG. By leaving then instead of after New Years, these officers, among the “Top 25” of the firm, got to keep their rights with respect to severance and prior bonuses. While these officers were doubtlessly driven by their short-term incentives, they certainly weighed those against the potential long-term benefits of sticking with AIG, and found those prospects wanting. Kelly in particular was outspoken in critiquing the general effect of pay regulations on AIG and its ability to remain competitive for talent. Why would she want to stick with a foundering ship with little hope of getting righted?
Politics has driven the compensation policy of this administration (as it would any administration, perhaps), especially with regards to companies that have received government funds. Fair enough. We own them; we tell them what the score is with their pay. We get to grumble about the $2.8 million in severance that Kelly was collecting for abandoning ship, even though that is what any of us would have done if we had the chance. We get to say, “Who needs her?” as if each of us had the position or wisdom to judge that, better than her CEO boss, who has also complained bitterly about his ability to retain talent under the current pay regime.
But just because we can deal with the talent issue glibly and dismissively doesn’t mean that it isn’t real. Talent is not being dealt with in a serious manner in the press. Like the utter lack of questioning about what would happen to AIG if Hank Greenberg were pushed out for political reasons, no one is getting by the big numbers that these executives make, and could expect to make anywhere outside of the government sector, and asking, “Is this really good for AIG, a giant company in which I have a direct investment, and was saved because its presumably out-sized effect on our economy?”
Posted by Marc Hodak on December 16, 2009 under Reporting on pay |
With the headline “Executives Enjoy ‘Sure Thing’ Retirement Plans” a pair of writers created a story about the iniquity of retirement plans for executives vs. “ordinary” workers. But the headline is misleading. Here is how the story actually begins:
Jacqueline D’Andrea last year lost more than 60% of the 401(k) savings she built over a decade as a Wal-Mart Stores Inc. manager, she says. The 1.2 million employees in the retailer’s 401(k) retirement plan lost 18% as the market plunged, corporate filings show.
Top executives at Wal-Mart didn’t face such risks. Thanks to a guaranteed 6.6% return, Chief Executive Officer H. Lee Scott Jr. had gains of $2.3 million in a supplemental retirement-savings plan, bringing its total savings to $46.7 million.
But they aren’t actually comparing retirement plans; they compare a supplemental deferred compensation plan designed to provide the kind of modest returns that few people would accept for the bulk of their retirement assets to a fully invested 401k retirement plan in a year of steep stock market declines.
And that’s what happens when you have financially illiterate journalists writing for a financially illiterate audience–the opposite of education.
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Posted by Marc Hodak on under Reporting on pay |
The Wall Street Journal, desperate to remain relevant as a pseudo-business paper, has continued to cover the BofA’s succession drama. As any good writer knows, a drama is better if you can include greed in the narrative. The WSJ’s headline yesterday was “Talks Collapse with Robert Kelly Over Pay.” This headline was based on this part of the interview with a BONY spokesman, where Kelly is currently chief:
A Bank of New York Mellon spokesman said pay was “at the bottom of the list” for Mr. Kelly. “Mr Kelly was very flexible on compensation,” he said. “The more important drivers of his decision were the strategic opportunities for growth at BNY Mellon.”
OK.
So, here is what the process for writing the story must have looked like.
Editor: The headline is going to read that Kelly is refusing to move to BofA because they aren’t paying him enough.
Writers to Editor: OK
Writers interviewing BONY spokesman: So, is Kelly not going because BofA is not offering enough?
BONY Spokesman: I wouldn’t say that. There are many issues being discussed in the negotiation. Pay is just one of them.
Writers: So pay is a significant issue?
BONY Spokesman: It’s an issue, one among many. I wouldn’t call it significant.
Writers: So pay is an issue, a reason he wouldn’t go to BofA.
BONY Spokesman: Look, pay is at the bottom of the list. Mr Kelly was very flexible on compensation. The more important drivers of his decision were the strategic opportunities for growth at BNY Mellon.
Writers to Editor: OK, we got your headline!
Posted by Marc Hodak on December 10, 2009 under Executive compensation, Reporting on pay |
Goldman Sachs has decided to take their usual 30/70 split of cash and stock for bonus payments this year and make 0/100 split instead. This is supposed to satisfy the mob crying out for no bonuses for bankers.
GS is either the cause or the symptom of a disease in this country, depending on your point of view. The disease has no name, as far as I know, but it is manifested by extreme anger rooted in the fear of something one does not understand. In this case, the anger comes from non-bankers (what the press insists on calling “Main Street”) directed toward bankers. What the non-bankers don’t understand is how money is being made, or, more generally, how markets work to derive so much value from the messy allocative processes that we call banking or trading. The bankers and traders, of course, don’t understand the anger directed towards them because they do understand how banks and markets work, though this esoteric knowledge is of little use or defense against the mob.
Few people understand how banks, markets, or, for that matter, “Main Street” work better than Goldman Sachs. That’s why they make so much money. The problem is that right now they aren’t allowed to pay themselves what they earn, so they are disguising it in the form of restricted, deferred stock. Same value; different form. We’ll see if the public, festooned with arbitrary distinctions about pay, will accept this one with a nod. The press seems to view this as some sort of victory.
Posted by Marc Hodak on November 12, 2009 under Reporting on pay, Scandal |
But the verdict was not at all what the prosecutors were looking forward to when they tried a pair of Bear Stearns traders in the press, using what we now know to have been highly selective leaks. Once the jury saw the leaked material in context, in a forum that consisted of more than soundbites and press outrage, they came to their own conclusion:
In the indictment, the prosecution quoted from a note Mr. Tannin sent in April 2007 from his personal Gmail account to Mr. Cioffi’s wife. The government made much of the fact that Mr. Tannin chose not to send it to Mr. Cioffi himself or from his Bear Stearns’ e-mail account, suggesting he was trying to hide something. “The subprime market looks pretty damn ugly,” Mr. Tannin wrote, adding that if a recent financial report was correct, “I think we should close the funds now …. The entire subprime market is toast.”
But the jury eventually saw the entire message, in which Mr. Tannin ruminated at length about various courses of action and seemed to be striving to make the soundest financial choice. In other words, it was just what you would hope your fund manager would be worrying about in a precarious time. In the end, he concluded he was feeling “pretty damn good” about what was happening at the funds and that “I’ve done the best possible job that I could have done.” Any wonder the jurors came away with reasonable doubt?
The Bear Stearns executives are smiling now, but that’s what one does when the authorities threaten to take your life away, and you suddenly get it back. The jury made it clear this case was not close:
“They were scapegoats for Wall Street.”
“The entire market crashed,” one juror explained. “You can’t blame that on two people.”
But you can try if you’re a young prosecutor with the press, public, and political bosses cheering you on. And unlike these traders who lost their jobs, their firms, and much of their personal fortunes on their gamble, the prosecutors lost nothing personally on their gamble. Like the traders, though, the prosecutors did lose millions of dollars of other people’s money–ours, the taxpayers.
And even now, most commenters are assuming that this an unfortunate outcome, that the prosecution was merely incompetent rather than opportunistic.
Posted by Marc Hodak on November 4, 2009 under Reporting on pay |
Articles are starting to prepare us for a horrible truth: many Wall Street bankers are going to get (gasp) big bonuses this year!
Incentive pay on Wall Street is set to rise by about 40% as stronger financial markets collide with the political backlash over bonuses, according to a closely watched survey set to be released Thursday.
Clearly, the backlash is as expected as the bonuses.
Whatever the actual numbers, the bonuses — most of which will be calculated between now and the end of the year and paid out in early 2009 — are bound to be controversial given the hard economic times many Americans are facing and the resentment directed at the financial industry.
After all the talk about pay for performance, you’d think that we would recognize and accept the fact that some bankers have performed perfectly well this year, and therefore should be paid what well-performing bankers can get. But the fact that such bonuses are still grabbing headlines reveals that the underlying controversy is not about big pay for good performance–it’s a about big pay, period. The story is not really one about greed; it’s about envy. It’s about the idea that no one should make that much more than I do, dammit.
I really like the Santa drawing accompanying the WSJ article, as if the bankers lined up for their bonuses are getting a gift from a generous Mr. Claus, instead of getting as little as their embarrassed, profit-seeking firms could get away with paying them without losing them.
Posted by Marc Hodak on October 28, 2009 under Executive compensation, Reporting on pay |
The headline reads that pay czar Kenneth Feinberg increased base pay while cutting total compensation in half. As the reporter puts it:
The move reflects the complexity of regulating something that mixes politics and economics.
Actually, this move reflects the need to include politics in what is otherwise an economic trade-off between the three governance objectives of compensation:
– Attraction and retention of management talent
– Incentives that align managements’ interests with the owners’
– Control of total compensation costs
This trade-off is universal. It applies equally to any business one is charged with overseeing: auto companies, banks, drug companies, drug stores, and drug dealers.
Here is how this story characterizes Mr. Feinberg’s trade-offs for the Sorry Seven:
The Treasury Department assigned him the job of tying more compensation at the companies to long-term performance and cutting pay deemed “excessive.”
Government officials say Mr. Feinberg met that objective. All 136 employees and executives working at the seven companies under his review will earn much less this year than in 2008, even after accounting for the rise in regular salaries, also known as base salaries.
So, Treasury says he did fine, and this story does nothing to question that. Let’s see how he did against the universal governance objectives for compensation:
– Attraction and retention of management: Well, management talent is running for the exits at the Sorry Seven. The best have fled, leaving their belongings behind. Citibank sold off one of their most profitable units simply to avoid having to record that they paid that unit’s chief $100 million. Those that remain are doing best they can, I’m sure.
– Alignment incentives: Well, when you substitute bonuses for salary, dramatically reducing the overall level of pay, you take away a lot of incentives to perform. I’m not saying that people need 80 percent of their total compensation to be variable in order to get their attention, but it doesn’t hurt. Of course, how that variable portion of total compensation varies is hugely important, and devilishly tricky to get right, but I’m sure the Pay Czar or the Fed will make sure the companies do that right.
– Cost control: check!
Looks good to Treasury.
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