{"id":1328,"date":"2009-05-23T08:43:31","date_gmt":"2009-05-23T16:43:31","guid":{"rendered":"http:\/\/hodakvalue.com\/blog\/?p=1328"},"modified":"2009-05-28T17:32:09","modified_gmt":"2009-05-29T01:32:09","slug":"new-comp-rules-brewing","status":"publish","type":"post","link":"http:\/\/hodakvalue.com\/blog\/new-comp-rules-brewing\/","title":{"rendered":"New comp rules brewing"},"content":{"rendered":"
\"Congress

Congress cooking up new legislation (artist's depiction)<\/p><\/div>\n

According to this story in Bloomberg<\/a>:<\/p>\n

Treasury Secretary Timothy Geithner called for an overhaul of compensation practices at financial companies and said the Obama administration\u2019s plan to help realign pay with performance will be rolled out by mid-June.<\/p><\/blockquote>\n

\u201cI don\u2019t think we can go back to the way it was,\u201d Geithner said in an interview on Bloomberg Television\u2019s \u201cPolitical Capital with Al Hunt,\u201d to be aired tonight and over the weekend. \u201cWe\u2019re going to need to see very, very substantial change.\u201d<\/p><\/blockquote>\n

Geithner is not too clear what he means by “the way it was” in compensation practices that begs for “very, very substantial change,” so let me clarify.<\/p>\n

1)\u00a0 Let’s say you work in a bank that has seven divisions.\u00a0 One particularly leveraged division, not the one you work in, totally screws up pushing the whole bank into a loss.\u00a0 Your division made money.\u00a0 In fact, it made enough to keep the whole bank from going under.\u00a0 In Geithner’s view, echoing the view of the rest of the government and the media, you should get no bonus<\/a>.<\/p>\n

2)\u00a0 Let’s say you work for a company that the government has more or less taken over.\u00a0 You have a contract with the company for your services, a contract the government in essence approved, dictating compensation to be paid later (bonus, retention payment, deferred comp, whatever).\u00a0 The media hates you and embarrasses the politicians.\u00a0 In Geithner’s view, you should get none of the promised payment<\/a>.<\/p>\n

In other words, given the mob’s inability to distinguish behavior and results within institutions, once those institutions become unpopular, the mob’s sensibilities of what other people should be paid should be made the law of the land.\u00a0 The mob is similarly blind to the difference among firms in an unpopular industry, as if there were no difference<\/a> between Goldman and Lehman, or between JP Morgan Chase and Citi, in their need or willingness to take bailout money.<\/p>\n

The hypocrisy doesn’t stop there:<\/p>\n

[Geithner] said that Wall Street\u2019s pay practices encouraged taking on short-term risk, and helped precipitate the financial crisis. What\u2019s needed is a set of broad standards that federal regulators can use to make sure that doesn\u2019t happen again, he said.<\/p><\/blockquote>\n

If we exchange “Wall Street’s pay practices” with “Congressional policies” we get a far more accurate sense about what precipitated the crisis<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

According to this story in Bloomberg: Treasury Secretary Timothy Geithner called for an overhaul of compensation practices at financial companies and said the Obama administration\u2019s plan to help realign pay with performance will be rolled out by mid-June. \u201cI don\u2019t think we can go back to the way it was,\u201d Geithner said in an interview […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,21,25],"tags":[],"class_list":["post-1328","post","type-post","status-publish","format-standard","hentry","category-executive-compensation","category-politics","category-reporting-on-pay"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1328","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=1328"}],"version-history":[{"count":7,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1328\/revisions"}],"predecessor-version":[{"id":1370,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/1328\/revisions\/1370"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=1328"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=1328"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=1328"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}