"Have Feinberg sign your report card and bring it back to me, understand?"
Feinberg, the Obama administration's"special master" on executive payEnvy Czar, is due to receive compensation proposals by tomorrow from Citigroup Inc., American International Group Inc., Chrysler LLC, Chrysler Financial Corp., Bank of America, GMAC Inc. and General Motors Corp. The companies must tell him how they plan to pay the 25 top-earning employees. Feinberg will rule on the plans within 60 days after they're completed.Governments worldwide are examining the pay of bankers blamed for fueling the worst financial crisis since the Great Depression. The U.K.'s financial regulator today told British banks to comply with new rules to limit bonus payments. Swiss lawmakers today rejected a plan to limit pay at UBS AG after the bank posted a record loss.
Given the success of Toxic Bonuses, we wouldn't be surprised to see a lot of plans include these sorts of tools, and a lot of bankers getting even richer than cash bonus plans ever would have made them.
Feinberg's Pay Decisions Be Wall Street Template [Bloomberg]
Posted by guest , Aug 12, 2009 11:58AM
If I'm getting socialism, can't I get some T&A in the process?
Posted by Novice , Aug 12, 2009 12:04PM
You imply that there's a problem if bankers end up with more compensation under a scheme that's both riskier and more closely tied to their own performance. Either Arrow or Alchian demonstrated that that outcome was beneficial to both owner and employee decades ago.
On the off chance that you're asserting that it's an unintended and unwanted outcome from the administration's point of view, I think that qualifies as an ideological blind spot.
Posted by guest , Aug 12, 2009 1:42PM
-@2
Two things are going to happen, both bad - the vesting period will get drawn out and proportionately more of the compensation will be in company stock.
As a senior manager, my incentives will then be geared towards increasing balancesheet leverage and thereby increasing the volatility of the value of the nastier parts of the capital structure, hoping the equity distribution tails keep getting fatter.
Posted by Novice , Aug 12, 2009 2:16PM
@3 So you'll willingly be risk-loving when it comes to your primary compensation?
Posted by guest , Aug 12, 2009 2:26PM
-@3
As an unvested equity owner with a multi year lockin, it makes more sense to increase the gearing in the balance sheet and (thereby) increase the volatality of the returns on my stock. Yes, I could get clocked, but I could also have a massive payoff, just from being geared up.
If I instead do the opposite, and reduce gearing (and thereby volatality of equity returns), my payoff looks bond/cash-like - except, its unvested, unreachable and earns little/no return.
Posted by guest , Aug 12, 2009 2:36PM
-@4, #5 was meant for you, apologies.
-@3
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