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 31, 2009 under Politics, Unintended consequences |
That’s what a statistically improbable number of death certificates are likely to read due to our tax law. No one will be able to prove which of the death certificates were fudged, or which doctors might have been fogging up the mirror for their patients until the magic hour struck. But there is no question about how powerful the incentives will be for perhaps dozens of would-be beneficiaries of congressional ineptitude.
Congress has allowed the estate tax to be completely repealed. Over 90 percent of Congress did not want this result. Virtually none of the Democrats wanted the wealthy to have any shot at keeping all their money in the family. The mere thought makes your fainting liberal…well, faint. Even a majority of Republicans were willing to keep an estate tax around, as long as it was something less than confiscatory. And it’s not like Congress didn’t have plenty of warning to do something about it. Like 10 years. This is the kind of failure that in the private sector would have gotten someone fired, for sure. The congressmen involved will most likely be reelected.
But Congress will not simply recognize its incompetence and let the law be the law. It’s not: “Hey, we screwed up on the estate tax. We guess we’ll have to figure out how to fix the mess we created later.” No. They are doubling down on their fecklessness by threatening to make their “fix” retroactive, making the mess even messier.
That’s right. Congress is telling law-abiding taxpayers with a straight face, “Sure, the law says that your estates will be exempt from tax in 2010. And we know that you selfish slobs will plan accordingly in order to deprive us of your hard-earned cash to the extent allowed by the law, you unpatriotic wretches. But don’t spend too much on that party, fair shitizens. When we’ve fixed the law to our satisfaction on our unhurried timetable, we will reach back into the past to take your money away. Don’t like it? Tell it to the justices.”
That’s the way I’m hearing it. How about you?
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.
Read more of this article »
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 14, 2009 under Executive compensation, History |
This story about the demise of Tavern on the Green is a story of failure by a young heiress to keep alive her father’s fabulously successful restaurant. Tavern was a New York institution for 30 years run by Jennifer LeRoy’s father. When her father passed away, giving his 22 year old daughter control of the business, the first thing she did was scrap his incentive plan:
“Tavern made an incredible profit,” says Mr. Coyle, adding that top managers “earned hundreds of thousands of dollars in bonuses,” and that his bonus allowed him to purchase a Porsche.
The bonuses were based on a generous profit-sharing plan implemented by Mr. LeRoy, who was known for his excesses. Ms. LeRoy can be credited with a more fiscally conservative approach to running the business. Shortly after she took over, the bonus program was restructured. Managers were given a guaranteed amount based on their salary, not on the restaurant’s profits. It would be the first of several major moves as Ms. LeRoy put her stamp on the restaurant and grew into her role.
While there are many possible reasons that a business that had survived everything from New York’s near-brush with bankruptcy, a Central Park that could not be risked entering after dark, and everything else since, the end of the story is that she got what she paid for.
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 December 8, 2009 under Patterns without intention |
They don’t just work directly for the government.
My new, provisional test for credibility is this: If your conclusions go against, or at least are neutral with respect to the interests of your funding source, you’re credible. For instance, if you are being paid by the government, you are credible only if you come up with conclusions that imply less government intervention. Sloppy, I admit, but it would cull a lot of questionable research.
Posted by Marc Hodak on December 7, 2009 under Executive compensation, Unintended consequences |
HR executives are rated, in good part, on their ability to retain their talent. If your best people keep leaving, you’re unlikely to see much progress If progress is making enough money to pay back, or at least get a fair return on, the $182 billion that your main investor has provided, you need all the help you can get.
So far, Kenneth Feinberg has not done well on the retention score at AIG. About half of the 25 executives whose compensation he was charged with reviewing have left the company. Another five are likely to leave pretty soon, including: Anastasia Kelly, General Counsel; Rodney Martin, head of one of AIG’s international life-insurance businesses; William Dooley, head of the financial-services division; Nicholas Walsh, vice chairman and head of AIG’s international property-and-casualty-insurance businesses; and John Doyle, head of the U.S. property-casualty business. By giving their notice and leaving before the end of the year, they get to keep their rights with respect to severance and prior bonuses.
A fair percentage of the people in the next tier of earners whose pay is subject to less stringent regulation have left as well, but about 20 of them are about to get bumped up to the top 25 category. This is a promotion that they will not relish. They will be interfacing directly with their government masters, trading off political and business considerations while having their pay scrutinized and limited.
Posted by Marc Hodak on December 3, 2009 under Irrationality |
The news from GM is that Edward Whitacre, Chairman and now CEO of GM, is going to push for market share. We’ve seen this picture before.
