The First Draft: Executive pay crackdown

October 22, 2009

For a quiet day, there was surprising consensus among editors about the top news — big-time bankers who got government bailout money are going to get their paychecks slashed.

The coverage was fairly straight, but there was a certain glee about the way the story made its way to the top spot in most newspapers.

“Pay slashed at bailout firms,” the Wall Street Journal headlined its story.

FINANCIAL-BAILOUT/“U.S. will order pay cuts at firms with bailout aid,” The New York TimesĀ  said.

“Obama ‘pay tsar’ to order deep cuts,” the Financial Times reported.

The networks were less charitable. CBS’s “The Early Show” flashed the headline “Big cuts for big shots” during its report, while ABC’s “Good Morning America” flashed the headline “Payback: Government to limit exec. salaries.”

According to unnamed Obama administration officials cited in most of the stories, the president’s adviser on executive compensation, Ken Feinberg, will soon recommend a plan that would cut overall compensation in half and would slash cash salary payouts by an average 90 percent.

The plan would apply to those big banks and auto firms that received large amounts of bailout money from the federal government.

The bailout was extremely controversial with the public and triggered public anger after it was revealed that employees at some of the firms were continuing to draw multi-million dollar salaries and huge bonuses.

Under Feinberg’s plan top earners at AIG’s financial products unit, which was blamed for risky bets that threatened the stability of the insurer, would not get more than $200,000 in individual pay.

The unit became a symbol of Wall Street insensitivity after AIG decided to pay employees in the unit $165 million in retention bonuses despite having taken $180 billion in taxpayer funding.

Critics of the bailout welcomed Feinberg’s plan to crack down on soaring executive pay.

“The public has a lot of questions about whether or not these dollars that were given to banks were wasted and whether or not they were squandered on bonuses and, you know, high executive compensation,” Ryan Alexander of Taxpayers for Common Sense told CBS News.

But others expressed concern that government decisions to hold down pay could lead to an exodus of top talent from the firms.

“Now that politicians have gotten the taste for trying to control the pay at some firms, what’s to stop them from imposing those rules on everyone,” Dan Mitchell, a senior fellow at Cato Institute, told CBS.

He told ABC’s “Good Morning America” the decision could lead to top positions at the companies being occupied by “second rate people” and reduce the dynamism of the U.S. economy.

For more Reuters political news, click here.

Photo credit: Reuters/Keith Bedford (Protest in New York’s Times Square last year over government bailout of financial industry)


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I think Im in the wrong field. If I happen to run my company into the ground, lost peoples pensions, retirements, and all there savings. I dont think i would get a bailout, I would go to jail for a very long time. Did the bailout help it looks like it did a little, but thats no reason for these guys to get there leerjets back. Not until all the money is replaced. Im not to sure why they are worried about losing the top guys when there the ones that put us in this place anyways. So if there looking for replacements I,d love 200k a year. I promiss not to ask for a raise.

Posted by jesse | Report as abusive

Do not attempt to cut my pay. I need as many green pieces of paper as possible to remind me that I am happier and better than everyone else.

Posted by wall street exec | Report as abusive

Hm. By ‘second rate people’ he probably means the people he doesn’t want in his country club.

If all the ‘top people’ have their pay slashed, those ‘top people’ have two choices–either they can stay where they are with reasonable pay, or look for a new job–in a marketplace where the pay has been slashed for those positions all across the industry. In that environment they’re better off staying put where they are, because they are not going to get any additional money by going elsewhere.

That whole arguement that ‘we’ll lose top people’ is specious. Besides which, at that level, the difference between ‘top’ and ‘second’ has more to do with luck and politics than actual ability or skills.

What it amounts to is that the remaining royalty and pseudo-royalty of the world don’t want to have to learn to get along with a new, unfamiliar personality doing those jobs.

Posted by Lisa | Report as abusive

Big corp execs who got gov bailouts get pay slashed.

How about citizens who got gov bailouts get pay slashed too?

USA: world’s premiere unfettered Anglo-Saxton hyper-capitalism superpower of the past 2 decades, now its citizens and ‘master of the universe’ fighting over bailout money the government does not have.

Posted by The Real Deal | Report as abusive

Watch the Republicans and the know-nothings jump all over this as an example of creeping socialism. As Real Deal says, the sun is setting on the US empire, and the guys at the top are squabbling over shrinking dollars. My heart bleeds for them. Not!

Posted by Robert L. | Report as abusive

Who cares about the greedy cutthroats who use our money to gamble with and pay off politicians to tilt the market in their favor. If you believe that we have a FREE market than I have a bridge to nowhere to sale you. Lobbyists get laws passed that favors their market advantage, not America’s market. The only time you hear them screaming about a free market is when a law is passed that they do not like or a law passed to protect the little guy from the vultures who live off the backs of hard working tax payers. Let them sink. They are not worth the sweat, blood and tears middle class Americans endure so they buy their brand of the so called FREE market by buying politicians to pass laws that favor the rich and wall street.

Posted by steve | Report as abusive

besides the point that almost all other employees are governed by a regulated award wage as here in Australia .. apart from exploited sweat shops .. these people playing with the money of others shouldn’t be allowed to blackmail and extort obscene amounts because they can sabotage the global economy like terrorists … the danger of complete collapse is ever present as the U.S. heads into a cold winter and strangled energy costs , with small business being bled dry … they don’t see the painful holistic picture of their actions till it’s all to late as with climate change … a moral crossroads here rather than a money argument… if congress resists the needed change it will be shaken to it’s foundations for its own ignorance .

Posted by Harry | Report as abusive

I may as well add this comment too … have all the mafia Godfathers gone soft or mad … if these clowns running their money laundromats start acting like smart ass dictators of their own games , then mess things up .. put bullets in their heads and get new ones for less pay… after extracting the valuable information.

back to family values that work !!

it’s obvious after the bailouts all that cash appeared from nowhere to pay it back … who’s fiddling as Rome burns ?

Posted by Harry | Report as abusive

Another facet of the ideals of socialism,wage control.when the socialist ball starts to roll there are several eventualities that follow not to far behind.We are seeing freedom of speech being attacked as Obama tries to marginalize Fox news,and controlling enterprise with wage control saying that restriction are only on the companies that received bailout money,but this has been shown to be not true.Watch the moves folks!a major part of Harold Wilson,s socialist government failed policies in the UK were because of his attempt to control wages.

Posted by brian lee | Report as abusive

This is also so stupid. You will NEVER be able to ‘control’ wages. I was thinking that the government should tax all compensation (not just salary, ALL compensation, the whole enchiladae) at 99.9999% once you earn more than 20 times the SALARY of the President. But these guys will just find ways to funnel the money overseas to create lavish nest eggs for themselves overseas.

The only option we as voters have is to ensure that NO incumbment gets re-elected during the next election cycles until all of Congress is replaced. All elected officials should go. They oversaw this fiasco and just sat idly watching it all go down. They should know, their jobs aren’t safe either.

Posted by BlackBean | Report as abusive