Comments on: Executive bonuses: heads you lose, tails I gain

By: Bank Investor

Bank Investor — Wed, 04 Mar 2009 15:45:05 +0000

Well done.

By: rbsjr

rbsjr — Tue, 03 Mar 2009 20:27:16 +0000

Thoughts:

1. A contract is a contract.

2. Directors are protected by the “business judgement rule”. You would need to show bad faith/self-dealing to hold them accountable.

3. Folks could consider new legislation going forward, but not backward-looking for things already closed. Consider (i) cdo/credit swap/derivatives/lending rules that were avoided over the last decade or so or (ii) allowing only equity bonuses with long term (even post employment) vesting rules.

4. Not anyone was complaining when stock and housing prices rose consistently, and without any basis in underlying value (stocks: actual earnings; housing: cost of ownership vs rental cost), but were simply happy to treat these assets as perpetual cash-and-goodies machines.

5. The only issue with lenders re-selling their loans is (i) it makes them toss credit-worthiness concerns out the window and (ii) we had credit rating agencies rubber-stamping all loans as AAA (wondering when there will be fraud claims on this point?).

6. If everyone who took out a home loan would pay it back, we would not be in this situation.

By: Jake Berzon

Jake Berzon — Tue, 03 Mar 2009 14:41:21 +0000

A very clever analysis of the psychology behind bonuses and a very appropriate conclusion that the board of directors can and should be held accountable in many cases. They had a fiduciary duty towards shareholders and they violated it by being generous at the wrong time and for the wrong reasons.

By: profjack

profjack — Tue, 03 Mar 2009 13:03:14 +0000

Excellent article by Professor Frankel, devoid of the usual cynicism and envy that usually permeates most opinions about this subject. I agree totally with her sentiments regarding directors’ liabilities but would also point out that they have agreements too. They may well be indemnified from such suits and should action be taken, the onus could fall back on the corporation and hence, the shareholders. Since most extraordinary executive compensation consists of stock, there is a simple solution: no employee, executive, or director of a public company should be allowed to own or trade in their company’s stock. Call me crazy but these, in case you haven’t noticed, are crazy times.

By: Franz Kafka

Franz Kafka — Tue, 03 Mar 2009 10:39:04 +0000

You should address the grievances with your local politicians, the current rules of corporate governance are clearly not based on moral principles – though corporations would like you to think so (ie. social responsibility, credos etc). The notion of rewarding failure is sort of a norm as the recent government actions demonstrate with a taxed revenue, so what do you expect from publicly traded firms? There is a clear imbalance between accountability for failures of judgement in the executive contracts and a link to compensation. It starts with the recruiting standards which are very poor and biased. The boards fear that no-one will accept harsh contract terms. I’m affraid the whole society is geared towards immoral behaviour it’s just that during affluent times the failures are not disclosed and it makes little difference who is at the controls. When times get tough the real leaders shine out.

By: paul

paul — Tue, 03 Mar 2009 07:12:26 +0000

This reeks, guys like Stan O’Neal, John Thain et. al. have walked away with 100s of millions of dollars, while destroying not only their companies but bringing the world economy to the brink of collapse. There are literally millions of people worldwide who had nothing to do with the mess but are now suffering because of these greedy clowns. To have them retire to their 14 room mansions while millions suffer is unacceptable. Laws are made to bring justice to society. These people must be made to give back all they have looted, and do stiff time in prison. Change the laws.

By: P Smith

P Smith — Tue, 03 Mar 2009 02:25:18 +0000

“Generosity is fine at one’s own expense but it’s not fine at the expense of others whom one represents.”

If only this same sentiment were applied to the bureaucrats that confiscate our earnings and generously redistribute it to those that allow them to continue in their own pursuits of power.

By: James Perly

James Perly — Tue, 03 Mar 2009 00:35:52 +0000

Sales people are motivated and paid directly on performance. A standard clause in their contracts states that in order for them to keep their commissions, the sale must hold. There are a hundred and one ways to juice the game (such as stuffing the channel, etc), and so companies protect themselves from this. Having this be non-existent in the banking sector is beyond immoral. I’m not saying that anyone should be penalized when the whole market tanks. But look at all the pensioners losing their benefits, while the top dogs are getting to keep their millions. If it is found that the profits that paid your bonuses were based on illusory money, why should you get to keep your money? Why are we even debating this???

By: cyn

cyn — Mon, 02 Mar 2009 21:31:56 +0000

The problem is more deep-seated than this. Directors should be accountable; but they are not–the vast majority of publicly-traded companies are controlled by institutions (mutual funds, banks, etc.), who have for years resisted efforts to limit executive compensation. Those institutional investors elect the directors, who often rubber stamp whatever management presents in terms of compensation packages, on the theory that management should run the business. Times clearly indicate that management has not performed well, and although corporations can carry their losses back and forth to eliminate past income, shareholders cannot and while losses can be carried back, that doesn’t help address the problem that compensation was paid based on earnings that turned into losses in a later period. Because these same insitutions support your local politicians with contributions, etc., in the battle to choose who to protect — individuals or corporations — guess who wins?

By: Terry

Terry — Mon, 02 Mar 2009 18:33:39 +0000

This is an excellent article! Directors are presently and always have been -behind the cloak. Time to remove it!