OBAMA wants 500K pay cap for execs whose companies receive bailout

[Bobblehead]

Originally Posted by ikaris

What's the alternative? After seeing Wall street asking for a bailout in one hand, and then shortly after taking 18 billion of that and handing it out to the people that have failed, what other action can the government take?

No idea, but this action has, "good politics/bad idea" written all over it.

[SeeGeeWhy]

http://www.portfolio.com/news-market...-Caps-Bad-Idea

[RougeUnderoos]

It has become obvious to me that all the "top end talent" that they won't be able to attract with 500 grand is actually not so talented after all.

It is the "talent" that got them into this mess in the first place.

If these people can turn it around and actually make a profit, pay back the money the taxpayers loaned them, then they can buy a rocket powered car and a solid gold house for all I care.

In the meantime the government shouldn't be giving the tax dollars of 50 middle class people to one talented guy who ran a bank into the ground.

I can make a bank fail, if given the opportunity. Am I talented?

[Bobblehead]

Put it in an NHL context.

The Coyotes are going down the drain. The NHL is covering their payroll. So Betteman says, "No salaries above $1 million until you pay us back".

While I'm sure they will have a few great young players emerge, do you think they will ever be competitive? Will they be able to sign any quality free agents?

How will this help them pay the NHL's money back?

[tkflames]

Originally Posted by Bobblehead

Scenario - a really good candidate has the coice of 2 jobs. One at an institution that received bailout money, one that didn't. Said another way, one where your pay will be capped at 500K, and one that won't be capped.

So this is going to make it much harder for those places to hire established executives.

Sure, if the execs are the cause of the problem and they don't like earning ONLY 500K, don't the the door hit you on the way out. But the honestly good execs aren't exempt from this. Companies that did not get bailout money are now going to find it much easier to hire established talent.

The more I hear, the more I'm sure no one learned any lessons from Japan. In their crisis in the 90s, they put onerous conditions their bailout money. That resulted in no banks wanting to take the money, so the credit crunch dragged on and on until the government loosened up.

This type of move sounds good. I understand the motivation. It makes good press. But it is counter-productive.

HAHA..if Investment Bankers had choices of where they wanted to work, we wouldn't be in a recession now would we?

[RougeUnderoos]

Fair point.

But if the Coyotes give 5 million bucks to Eric Lindros and hire Barry Melrose to coach to the team, is the NHL going to get their money back then?

Anyway, this cap thing isn't forever. I would hope/imagine that if the people in charge can get these institutions to stop dying and actually make money, they'll get paid as much as they want.

Meanwhile, if the taxpayers are signing the cheques, the old "Rewards for Incompetence" philosophy should be on hold.

[Teh_Bandwagoner]

Originally Posted by GirlySports

This might be even worse. They'll just find another way to get the money and it won't be taxable income! Wouldn't you rather tax a guy making millions than a guy making 500000? People are sneaky. They'll get money through bonuses and under the table deals, and swiss bank accounts.

Your concept intrigues me, and I would like to subscribe to your magazine.

[edn88]

I would prefer to see low base salary with bonuses tied to the success they have getting the company back in black and getting loans paid off.

[CaptainCrunch]

I can drive a company straight into a mountainside for a half million a year, for another half million I'll gut it and mount it for you.

[Iowa_Flames_Fan]

Originally Posted by Bobblehead

No idea, but this action has, "good politics/bad idea" written all over it.

I think this is actually a regulatory move necessitated by the bailout--and clearly, there should have been better oversight from the outset, to prevent banks from using the bailout money for bonuses anyway. But the optics of CEOs of newly-bailed out banks using taxpayer dollars to pay themselves giant bonuses while taxpayers themselves are taking a beating are not good--and it's not just optics. If you need a bailout to survive, you need to accept that the money comes with strings attached.

As for CEOs now limited to 500K a year.... well, I'm not exactly crying in my beer for them. And I doubt they're sitting on any multimillion-dollar offers anyway, after almost driving their corporations into bankruptcy. Some of those guys will be lucky to be working at all soon enough.

[MelBridgeman]

As a CEO of a company hoping to get it's own bailout package. This idea sucks.
BUT
It does mean more money for company excursions, to boost morale...

[Azure]

Originally Posted by Bobblehead

No idea, but this action has, "good politics/bad idea" written all over it.

The whole stimulus bill has good politics/bad idea written all over it.

In fact, everything that has something to do with a bailout can be referred to like that.

I wonder if the US remembers what they told Korea to do in the 90's.

[Bobblehead]

Originally Posted by Azure

The whole stimulus bill has good politics/bad idea written all over it.

In fact, everything that has something to do with a bailout can be referred to like that.

I wonder if the US remembers what they told Korea to do in the 90's.

Well the bailout IS the correct thing to do. Liquidity must be freed up, and it is the only realistic way to do it. But attaching strings like this to the funds are a good way to ensure the companies in trouble can't do what they need to do to get out of trouble.

I agree with everyone that the guys who caused the problem shouldn't be rewarded. But this measure penalizes the company into the future. Even if the shareholders do fire all the individuals responsible for getting them into this mess, who are they going to hire to replace them when the wage being offered isn't competitive?

[HotHotHeat]

Originally Posted by octothorp

Right, but let's say there's a hypothetical where a company receives a bailout, sometime shortly before or after firing their CEO. That 500K limit is going to reduce the number of qualified individuals who would be willing to take this job, essentially giving these companies a competitive disadvantage against other, non-bailout companies. Which essentially means the government is reducing the likelihood of them recouping their investment.

Now, the other possibility is that this creates a situation where you attract individuals who are less concerned about getting a paycheck and more concerned about doing something meaningful and important; and it might be an incentive for these companies to forget about hiring the most high-profile candidate and instead hire the most appropriate and competent. I hope that ends up being the result of this legislation.

How exactly does one become qualified to run a Fortune 500? Sure some of the characteristics are tangible, but if this crisis has taught us anything it's that generic MBA's do not qualify someone to run a tire company, for example. You can't walk in off the street and plan to turn a company around unless you have a true understanding of the specifics of that company.... Something our education system has emphasized much too heavily. Look at the current CEO of Chrysler, no background whatsoever in the auto industry, yet here he is running the company into the ground. How are we to know whether a CEO willing to work for 500k is going to do a worse job than a CEO getting paid 10 times that amount?

Companies are being forced to attempt some out of the box thinking, and it's the healthiest thing possible for this era.

[badnarik]

Originally Posted by HotHotHeat

How are we to know whether a CEO willing to work for 500k is going to do a worse job than a CEO getting paid 10 times that amount?

How do you know whether a CEO getting paid 500K is going to do a better job than someone willing to do it for a sandwich and some coffee?

I surely don't know, but there must be some criteria certain people meet to command higher pay.

[Azure]

Originally Posted by Bobblehead

Well the bailout IS the correct thing to do. Liquidity must be freed up, and it is the only realistic way to do it. But attaching strings like this to the funds are a good way to ensure the companies in trouble can't do what they need to do to get out of trouble.

I agree with everyone that the guys who caused the problem shouldn't be rewarded. But this measure penalizes the company into the future. Even if the shareholders do fire all the individuals responsible for getting them into this mess, who are they going to hire to replace them when the wage being offered isn't competitive?

Well, I agree with you for the most part, especially regarding the last paragraph.

But a lot of this 'bailout' money is being as a political leverage to gain political points. Just look at the proposed stimulus bill. A lot of money being thrown away for 'nothing.'

[RougeUnderoos]

These executives have proven themselves:

A. Inept
B. Greedy (if not outright crooked)

... but we can't limit their pay, because they'll quit.

In related news...

My wife is cheating on me and she beats my kids. If I don't buy her a Mercedes, she's going to leave me. What colour should I get?

[Bobblehead]

Originally Posted by RougeUnderoos

These executives have proven themselves:

A. Inept
B. Greedy (if not outright crooked)

... but we can't limit their pay, because they'll quit.

In related news...

My wife is cheating on me and she beats my kids. If I don't buy her a Mercedes, she's going to leave me. What colour should I get?

But you aren't limiting the pay of just these (bad) executives.

You are limiting for the role, not matter who is in the role.

You aren't going to be able to attract the best and the brightest, the exact type of new person you will need to pull yourself out of this mess, because you can't pay what your competitors are willing to pay.

Hell, throw the "inept and greedy" in jail if you want. They probably deserve it. But to put this sort of a stipulation into place is only going to drag out the misery.

[Shazam]

Big deal.

So they get paid $500K now. Once the company is successful again they can get triple their normal salary and pat themselves on the back for a job well done.

[Devils'Advocate]

I have trouble believing that you can't find a bright person for $500,000 a year. I can swear to you that the guys making $50M/year are *NOT* 100x smarter than the guys making $500,000/year.