Title VII is the section applicable to compensation. I have examined it carefully, and it has enough loopholes that I seriously doubt whether any executive in a TARP recipient company will lose a single dollar.
Loopholes are exemptions under any number of given conditions. To use a loophole, one simply structures his personal situation so as to fall into the exemption.
The financial community or their friends in congress inserted these points at the 11th hour, when there wasn't much time for it to be studied, or challenged. Who owns the government?
Perhaps, but even with the perception of a $500k ceiling, I think it will make it more difficult for these distressed companies to recruit. As a member of the American public who took on this debt, I'm more concerned with getting back our money and restoring these companies' and the economy's health. I would rather have an A-team in there than a B-team. I know a lot of people are upset about the amount of money these execs are getting paid, and I just fear that we're handicapping battered companies whose debt we own in order to satisfy an emotional (and not rational) need for justice. What do you think?
Your perspective is rational. I'm in favor of incentivized production, as well.
However, the financial community incentives are purely to benefit a group of few. We would need to rethink their purpose. Let's say that because the general public believes the economy depends on the welfare of the financial community, then, it makes the financial community a sort of "public utility" that must answer to the benefit of the society, thus their incentives should be collectively based on the economic performance of the public as a whole.
There incentive should be based on full employment, and shared wealth by those who produce it. Thus, incentives based on employment and public standard of living, would suit me just fine.
As it stands, their bonuses are based on getting their company wealthy at the expense of the rest. It is this attitude that made the system fall apart. It is this attitude that the original intent of the legislation was to curb. It doesn't.
So if it's business as usual, I say, cap executives' pay and total compensation to be no greater than that of the President of the United States. If they change the criteria for performance to the economic performance of the people in the society, then, by all means, reward them handsomely when every one is doing well, and people have what they need to carry on decent lives.
Really interesting post. It's one of those classic tensions between individual and collective gain. Sometimes they're aligned - sometimes they're not.
What's remarkable is just how much executives' compensation is already tied to the collective well-being of society. Executives are paid largely in companies stock options, so that as their company's stock goes up, they make more money. About 45% of a stock's performance is just based on how the market as a whole does (the "beta"), so these executives' compensation are already tied to the economy as a whole. As the markets rise, their compensation rise, when the markets fall, their compensation falls. The executives just may not think of it explicitly. Additionally, there's the tragedy of the commons when one group thinks that they can make fast profits without realizing the consequences of their actions on the whole.
What's interesting is that the most recent BusinessWeek had an interview with the CEO of Bank of America. They asked him why he bought debt-laden Merrill Lynch, which has been so damaging to BoA, and he said if he hadn't, it would have hurt the economy too much. "We are so inextricably tied in with the U.S. economy that what's good for America is good for Bank of America." If only we had all thought like that pre-crisis.
I am about to post about some comments Greenspan made at the Economic Club of New York. It's a speech I think is worth watching, but it's an hour long. Really interesting perspective on how all this happened.
I don't quite see it the same way. The executives' salary is tied to one company's performance; not to the society as a whole. I also see that the financial community is tied to its members, which explains why BofA had to buy Merrill Lynch. If Merrill Lynch were to go under, it would primarily hurt BofA because they're heavily tied to one another, and BofA toxic assets would drop to the value of ML's liquidated value; thus, BofA's holdings in ML, would seriously damage BofA's balance sheet. And BofA did this with taxpayers money via TARP. As long as toxic assets cannot be clearly evaluated, they can remain as "assets" in a company's balance sheet.
Had their performance been tied to the whole health of the economy, they would have stopped earning big bonuses at least by 2002; or earlier had people began to realize earlier how they bring about these problems.
Additionally, many execs who left the failed companies got their golden parachutes. Sure they had lost value, but leaving with 10 millions, instead of 50 million couldn't be such a heavy penalty.
The first thing BofA, and Citibank did when they had to write off their huge losses was increase service costs to its customers.
I'm afraid, as most of the public, I have totally lost confidence in the financial community because no Greenspan apology or BofA executive PR rhetoric can excuse their behavior which resulted in this and every recession for the last fifty years or more.
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