Executive Pay Limits May Prove Toothless-Loophole in Bailout Provision Leaves Enforcement in Doubt

[tk149]

I know Washington is used to spending money without any kind of accountability, but WTF? I mean really, WTF?

It sure smacks of cronyism. Maybe it was even planned this way.

<a target=_blank class=ftalternatingbarlinklarge href="http://www.washingtonpost.com/wp-dyn/content/article/2008/12/14/AR2008121402670.html">"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

</a>

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

The Bush administration at first opposed any restrictions on executive pay, congressional aides said. The original three-page bailout proposal presented to lawmakers in September contained no mention of such limits. "Treasury was pretty clear that they thought doing this exec-comp stuff would limit the effectiveness of the program," said a Democratic congressional aide involved in the negotiations, who, like others interviewed for this story, spoke on condition of anonymity. "They felt companies might not take part if we put in these rules."

So, basically the Treasury thought that company executives would rather have the company go belly up rather than take a pay cut. Actually, that might be a valid argument given the disconnect between stockholders and Directors.

Here's a bargain: I'll run any company into the ground for only half the compensation of what the CEO gets.

 

[Kwatt]

Originally posted by: tk149
I know Washington is used to spending money without any kind of accountability, but WTF? I mean really, WTF?

It sure smacks of cronyism. Maybe it was even planned this way.

<a target=_blank class=ftalternatingbarlinklarge href="http://www.washingtonpost.com/wp-dyn/content/article/2008/12/14/AR2008121402670.html">"The flimsy executive-compensation restrictions in the original bill are now all but gone," said Sen. Charles E. Grassley (Iowa), ranking Republican on of the Senate Finance Committee.

</a>

Congress wanted to guarantee that the $700 billion financial bailout would limit the eye-popping pay of Wall Street executives, so lawmakers included a mechanism for reviewing executive compensation and penalizing firms that break the rules.

But at the last minute, the Bush administration insisted on a one-sentence change to the provision, congressional aides said. The change stipulated that the penalty would apply only to firms that received bailout funds by selling troubled assets to the government in an auction, which was the way the Treasury Department had said it planned to use the money.

Now, however, the small change looks more like a giant loophole, according to lawmakers and legal experts. In a reversal, the Bush administration has not used auctions for any of the $335 billion committed so far from the rescue package, nor does it plan to use them in the future. Lawmakers and legal experts say the change has effectively repealed the only enforcement mechanism in the law dealing with lavish pay for top executives.

The Bush administration at first opposed any restrictions on executive pay, congressional aides said. The original three-page bailout proposal presented to lawmakers in September contained no mention of such limits. "Treasury was pretty clear that they thought doing this exec-comp stuff would limit the effectiveness of the program," said a Democratic congressional aide involved in the negotiations, who, like others interviewed for this story, spoke on condition of anonymity. "They felt companies might not take part if we put in these rules."

So, basically the Treasury thought that company executives would rather have the company go belly up rather than take a pay cut. Actually, that might be a valid argument given the disconnect between stockholders and Directors.

Here's a bargain: I'll run any company into the ground for only half the compensation of what the CEO gets.

There is $700 Billion to waste !
You need to pay top dollar to retain people that have proven they can waste it effectively.


Besides it is all some Unions fault anyway...

 

[StageLeft]

Not that surprising, the first version of the failout was 2 pages, wasn't it? Basically Pauslon wanted them to send a fleet of trucks full of money to his house.

 

[Kwatt]

Originally posted by: Skoorb
Not that surprising, the first version of the failout was 2 pages, wasn't it? Basically Pauslon wanted them to send a fleet of trucks full of money to his house.

I was right:Q They hired Teamsters to drive the trucks.

 

[StageLeft]

BTW, Greenspan's admitting that he was wrong about Companies acting to preserve themselves was not wrong, but his level of granularity was wrong; people look out for themselves. Companies are made of people, but they are not people and people if they can burn a company but do well for themselves will often do it. Again, tragedy of the commons comes into play. People do what is best for themselves. In most cases that is congruous with success of a company but if you are getting bonuses for something that is directly impairing the company and you're of questionable moral stock, you'll do it. You win, company loses.

 

[BoomerD]

Originally posted by: Kwatt

Originally posted by: Skoorb
Not that surprising, the first version of the failout was 2 pages, wasn't it? Basically Pauslon wanted them to send a fleet of trucks full of money to his house.

I was right:Q They hired Teamsters to drive the trucks.

I dunno...the Teamsters would have just stolen all the cash and sent the trucks to a chop shop...



I can't believe anyone actually believed that this was anything except a last-ditch cash give-away by the Bush administration to their friends in the financial industry.

Virtually zero accountability--just like the Bush administration, No guarantees of performance--just like the Bush administration, only benefits the wealthy--just like the Bush administration, leaving taxpayers holding the bag--yep, just like the Bush administration.

The fleecing of America continues.

 

[Kwatt]

Originally posted by: BoomerD

Originally posted by: Kwatt

Originally posted by: Skoorb
Not that surprising, the first version of the failout was 2 pages, wasn't it? Basically Pauslon wanted them to send a fleet of trucks full of money to his house.

I was right:Q They hired Teamsters to drive the trucks.

I dunno...the Teamsters would have just stolen all the cash and sent the trucks to a chop shop...



I can't believe anyone actually believed that this was anything except a last-ditch cash give-away by the Bush administration to their friends in the financial industry.

Virtually zero accountability--just like the Bush administration, No guarantees of performance--just like the Bush administration, only benefits the wealthy--just like the Bush administration, leaving taxpayers holding the bag--yep, just like the Bush administration.

The fleecing of America continues.

I can't believe the Teamsters took it. If the Teamsters had taken it they would be spending it not sitting on it. That might stir up the economy.

 

[JS80]

Originally posted by: Skoorb
BTW, Greenspan's admitting that he was wrong about Companies acting to preserve themselves was not wrong, but his level of granularity was wrong; people look out for themselves. Companies are made of people, but they are not people and people if they can burn a company but do well for themselves will often do it. Again, tragedy of the commons comes into play. People do what is best for themselves. In most cases that is congruous with success of a company but if you are getting bonuses for something that is directly impairing the company and you're of questionable moral stock, you'll do it. You win, company loses.

I do remember doing game theory in college on this scenario/hypothesis, and we pretty much concluded that people will act selfish and act in his best interest even if the company's survival is at stake.

And I have seen VPs at the company I work for do this over and over (all people in sales). In my experience, salespeople tend to try to maximize personal pay at the expense of the overall company health.