As you’ve probably heard, Obama’s “pay czar” (seriously, czar is the best word for this?) has cut compensation for the top 25 executives at 10 firms who got substantial amounts of government money. The cuts were an average of 50%, with some as much as 90%-100%.
Treasury Secretary Tim Geithner says the Treasury has the authority to do this because these firms received substantial amounts of taxpayer money in the financial crisis.
Here’s the thing: “received” is a pretty audacious word for him to use. These companies were forced to take the money. They had no choice.
The Obama Administration, once they’d forced these firms to take this money, then turned around to their lap dogs, I mean the new media, and trumpeted how these firms had taken money from taxpayers and, boy, was Obama going to start telling them what to do.
Here are the actions the Obama Administration has taken since then:
- Treasury, in conjunction with the Fed, forced (literally, they threatened to have him fired) the Bank of America Chairman/CEO to buy Merrill Lynch, telling him to deceive his shareholders in the process. Once he did this, the shareholders found out and had him fired as Chairman. Then the Treasury forced him to retire. And then forced him to take $0 compensation for 2009.
- For the two auto firms who took money (GM, Chrysler), the Administration completely subverted existing bankruptcy law to literally steal from the secured creditors of these companies and give ownership of the companies to the unions. When these creditors filed lawsuits, they received threatening calls from the Treasury and subsequently all dropped their suits. Except one pension fund, I believe. I love that fund.
- And now, these 10 companies (8 banks, 2 auto companies) have had their top 25 executives get their pay hammered.
Now, if I’m a top executive at XYZ company and my pay just got cut by 50%, my thought is, polish up the resume. Find some other sucker to get paid half to deal with the government all day.
And, since the pay rate is half, how many other top-tier executives are going to come on board? Yeah, approximately 0. Which leaves these systemically important companies positioned to pick up the cast-offs and no-names that weren’t smart enough to run these companies WHEN THEY WERE HEALTHY. Much less when they need to recover from a crisis.
But wait, CNN thinks this isn’t a big deal:
“Who cares if Wall Street ‘talent’ leaves? If lower pay lures some of Wall Street’s finest away, so be it. It’s not as if the best and brightest were doing a good job to begin with.”
Because if even the best and brightest couldn’t avoid this mess, we should definitely put less intelligent/skilled/experienced people in charge.
It will be interesting to see if there’s an exodus of executive talent at these companies. I’m guessing it won’t happen en masse but if you look over the next two years, I’ll bet we see over 50% of these top 25 leaving these companies.