LA Times: Wall Street finds ways around executive pay caps

[seafan]

Wall Street finds ways around executive pay caps

By Jim Puzzanghera and Christi Parsons and Walter Hamilton
February 5, 2009

Reporting from Washington and New York -- President Obama moved Wednesday to rein in the pay of executives whose companies get taxpayer bailout money -- putting a $500,000 cap on annual compensation, limiting "golden parachutes" to departing bigwigs and requiring corporate boards to adopt policies on luxury expenditures such as lavish entertainment and parties.

Corporate watchdogs applauded the intent of the new measures, but compensation experts cautioned that abundant loopholes -- and crafty lawyers -- could undermine any lasting effect.
"You're pitting a group of government bureaucrats against compensation consultants and lawyers who are paid lots of money, and they're pretty damn smart," said Graef Crystal, a former executive compensation consultant who has written six books on the subject. "It's a lot easier to find ways around things like this than it is to invent them in the first place."

.....

With the country struggling economically, President Clinton signed a law limiting a company's ability to deduct more than $1 million in salary for top executives from their taxes.
It's widely believed to have backfired. Companies shifted to stock options, leading to an explosion in executive compensation through the rest of the 1990s and setting the stage for scandals over attempts to backdate the options to make them even more valuable.

Thanks to lucrative options and a strong stock market, the typical chief executive was earning 525 times the pay of the average U.S. worker by 2000, according to one recent study. The gap has narrowed in recent years, the study found, but CEOs still on average earn 344 times the salaries of average workers.
"Over the past 15 years there have been a number of efforts to put some sort of restriction on executive pay, both through legislation and through shareholder activism, and yet we see CEO pay continuing to rise," said Sarah Anderson, an executive-pay expert at the Institute for Policy Studies in Washington. "Wall Street has the best, shrewdest lawyers in the world looking to maintain these outrageous pay levels."

.....

Just as in the past, there are ways around Obama's rules.

First, they apply only to companies that receive government bailout money in the future. For companies that don't receive "exceptional financial recovery assistance" -- such as the outsize bailouts that went to AIG and Citigroup -- the restrictions on executive pay would be waived if the company discloses the compensation and allows a nonbinding shareholder vote.
Companies that don't have the restrictions waived still could pay an unlimited amount in restricted stock and other incentives. The incentives can be cashed in after the company has paid the government back, but also if the government decides after an undetermined period that the company has shown it is meeting its repayment obligations. The Treasury website did not detail what constitutes "exceptional" aid.

Also, while executive salaries are capped, there are no limits on the scores of mid-level Wall Streeters such as bond traders or investment bankers who typically pocket million-dollar bonuses.
"It's a move in the right direction, but it doesn't have enough teeth and on some items doesn't go deep enough," said Brian Foley, a pay expert in White Plains, N.Y. "It's important not to be too intrusive, but particularly with companies that have gotten exceptional assistance, the rules ought to be truly tough."


.....

Sweeping, iron-clad changes are needed, and very soon. The levels of public anger are reaching epidemic proportions, Mr. President.




(Bold type added)

[Veritas_et_Aequitas]

1. Not that surprising.

Mr. Obama needs to learn how to write tighter regulations or face severe public backlash.

[jtrockville]

2. He could start by using the term "compensation" instead of "salary"

[Lasher]

3. They can be very creative.

What, no $50 million bonus this year? What's a poor struggling CEO to do? Not a problem! You can just instruct your personal cheerleading section (otherwise known as the complicit BOD) to restate those worthless stock options and - tada! - instant millions magically appear, despite having run the company and its stock value into the ground.

A little to obvious, you say? How about if the BOD buys a luxury apartment suite or two in Manhattan, replete with servants and an endless caviar/champagne bar? Belongs to the corporation, you see. Kinda like a conference room with just a few frills. You just happen to be there when you're not whisking off in your corporate jet to your luxury condo in Maui.

Or if all the stress is just more than you can bear you might be thinking of retirement. Then the special senior executive pension is for you. This is not to be confused with the pension fund for all other employees that corporations have robbed and then closed down over the last 3 decades. With this type the employer pays the money right up front into a separate entity, where there is no way for anybody but you to get at the cash. See, that's so nobody can later do do you what you've done to all your employees. Just a quarter billion dollars or so should get that started.

So don't despair, the possibilities are endless!

What a tangled web we weave,
When we endeavor to deceive.

[closeupready]

4. Of course they find ways around regulations.

These people run rings around the SEC - does anyone truly believe that they WON'T find ways around getting compensated in excess of what the spirit of regulations imposed on them dictate? I'm sorry, but anyone who thinks they won't is light years beyond naive.

[ThomWV]

5. Notice - it took 'em less than a day to figure it out.

[SammyWinstonJack]

6. Gee, what a shock!

:silly:

[unblock]

7. the $1MM limit on deductibility of salary, without limiting deductibility of bonus, is a big problem

it shifted what otherwise would have been large but fixed salary to uncertain bonus. so the bonuses became even larger to compensate for the uncertainty.

and more emphasis on bonus and stock options helped create incentives to make short-term decisions that made the current year look great at the expense of long-term problems.

[Zywiec]

8. The levels of public anger are reaching epidemic proportions?

Where are you seeing this besides this site?

I don't see the general public currently engaged in this public anger that's apparently reaching epidemic proportions.

:shrug:

[seafan]

10. CNN: Unhappy voters jam Capitol Hill phone lines

Unhappy voters jam Capitol Hill phone lines, February 4, 2009

By Lisa Desjardins
CNN

WASHINGTON (CNN) -- The recent debate over the nearly $900 billion economic stimulus plan and revelations of tax problems by three Obama administration appointees have voters angrily jamming phone lines on Capitol Hill to air their frustrations to their elected representatives.

Capitol operators tell CNN Radio that phone lines have been jammed for the past two weeks, sometimes prompting busy signals.
A spokeswoman for Sen. Jim Webb, D-Virginia, said calls on the sweeping stimulus plan jumped from eight during all of January to hundreds a day now.
In a sampling of 12 Senate offices, half had so many messages that their voicemail boxes were full.

.....

We're all getting on the same page now, it seems.

[Zywiec]

11. What does this article have to do with the executive pay caps?

From the article the anger is more about the stimulus package and Obama's cabinet picks:


It's because of people like Betty Davidson.

"I'm very upset!" exclaimed the 63-year-old from Laguna Hills, California.

She called her senators Tuesday, frustrated with the almost $900 billion-dollar economic recovery proposal.

"What a joke!" she said.

But she is particularly incensed by news that Treasury Secretary Tim Geithner and former Obama appointees Tom Daschle and Nancy Killefer didn't pay their taxes properly in the past.

"They can make the laws, but they don't have to abide by the laws," she complained. "It's only we taxpayers."

<snip>

"I think the average American is looking at their taxes during tax time and saying 'Wow, I pay my taxes. Why aren't these guys?' " she said.

That's certainly how Davidson feels. She's worried about shoveling debt onto her grandkids from the stimulus bill, and she is convinced Washington is corrupt.

[seafan]

12. This anger is like garbage. It's been there so long, each part is indistinguishable from the rest.

I'd like my CEO well-done, thanks

Patt Morrison, LA Times
February 5, 2009

.....

Next week, when Barney Frank starts hauling fat-cat CEOs before his House Financial Services Committee, I want him wearing a barbecue apron. Instead of a gavel, I want him wielding a barbecue fork the size of a trident. By the time the grilling's over, I want ... I want a lot.
I want groveling. I want show-trial sweating and stammering. I want their nine-figure bonus checks endorsed over to the rest of us. I want my 401(k) money back. I want blood; I'm a vegetarian, but I'd make an exception for a smoking plate of CEO en brochette.

Political scientists call this a "public mood" moment, when a focal incident like the Olympics or 9/11 fuses a nation of hundreds of millions of identities into one public identity.

UCLA political scientist Lynn Vavreck tells me that, in this case, the public mood is outrage on the part of good citizens -- that's us -- over the misdeeds of bad citizens.
It's embarrassing to think that we share a country with these rich dimwits. As Frank told the bankers: "People really hate you. ... You have to help us deal with that. You have to avoid being stupid."

I don't begin to understand the complicated financial stratagems these men engineered. Even the SEC couldn't keep up.

But we all understand perfectly the flagrant arrogance of Citigroup planning to spend $50 million on a new corporate jet -- and a French-made jet, to boot -- after taking billions in bailout money from taxpayers who are getting pink-slipped. Citigroup backed away from the plane; now, can it still be serious about spending $400 million for naming rights for the New York Mets' field? Mets fans -- resist!

Collateralized debt obligations are beyond me, but I get the dunderheadedness of Wells Fargo booking a 12-night corporate bash in Vegas. The smartest person at Wells Fargo was the one who realized that a big party was itself a moral hazard and canceled the shindig.
People everywhere are fuming about their dismal fiscal futures at the hands of unregulated markets and firms run by chief executive officers who even now seem to be shining their shoes with hundred-dollar bills.

.....

A "public mood moment", indeed.

[customerserviceguy]

9. Stock options only have worth if the stock goes up

and there are a lot of retired seniors, and the soon-to-be retired who would like that to happen. I don't have as much of a problem with people being paid well for success as I do with seeing people get megamillions for driving a company into the ground.