Friday, June 18, 2010

What's Happening With Shareholder Vs Bank Executive Pay?

The following post is from Yves. I feel the message is so important...

White House Opposing Key Measure in Shareholder v. Bank Executive Pay Reform Fight

Well, the BP disaster, in particular the intense press coverage of this week, appears to have provided the Administration with some very useful air cover, by diverting public attention from the final rounds in the battle to reform Wall Street.

One of the common arguments against the need to create mechanisms to moderate corporate and in particular financial services compensation levels is that that burden falls on shareholders, and they don’t seem to be doing much about it. That’s a major misconstruction.

Public companies represent a major agency problem. How, exactly, are fragmented investors supposed to discipline managements that overpay themselves? It isn’t as if this is a new problem; then star Wall Street analyst, Sallie Krawchek, remarked in the early 1990s, when bonus levels were much tamer than now, that it was better to be an employee than a shareholder of an investment bank.
Pay for performance is also a myth. Numerous studies have found that correlation is negative, and particularly highly paid executives are typically at companies that underperform.

Why does this situation persist? Investors have the deck stacked against them. Merely making noise has no impact; for instance, unhappy institutional investors met with Goldman last year to protest its expected record 2009 bonuses, to no avail. Mounting a battle to install new directors is costly and almost always fails (virtually all companies have staggered director elections, so even a successful campaign one year, a rare event, is not sufficient to change how the board votes.
It’s cheaper to sell shares than fight, and with most equity investors having to be diversified by sector (and often having specific sector weights), institutional investors can’t escape practices they deplore once they become well entrenched.

( Moolah: Sadly I always belive in either AVOID LIKE PLAGUE or VOTE WITH OUR FEET! )

And don’t fool yourself: management has stacked the deck in its favor. Board rely on compensation consultants, which are recommended by the human resources department, which reports to the CEO. For reasons I cannot fathom, most boards have been persuaded to set the target pay for their CEO in the top half, sometimes the top third or quarter, of their peer group. This assures constantly escalating pay. When companies drops into the bottom half, they must raise pay levels, which moves the average for that group up, which will put some other firm(s) in the bottom half, who must raise pay, again raising the averages…..

Huffington Post today describes how Team Obama threw its weight behind the financial oligarchs:

  • The White House is intervening at the last minute to come to the defense of multinational corporations in the unfolding conference committee negotiations over Wall Street reform.

    A measure that had been generally agreed to by both the House and Senate, which would have affirmed the SEC’s authority to allow investors to have proxy access to the corporate decision-making process, was stripped by the Senate in conference committee votes on Wednesday and Thursday. Five sources with knowledge of the situation said the White House pushed for the measure to be stripped at the behest of the Business Roundtable. The sources — congressional aides as well as outside advocates — requested anonymity for fear of White House reprisal…..

    The White House move pits the administration against House Speaker Nancy Pelosi (D-Calif.), who told Barney Frank (D-Mass.) to stand strong against the effort.

    “I met with the Speaker today and she said, ‘Don’t back down. I’ll back you up,’” Frank, the lead House conferee, told HuffPost. “Maxine Waters is very upset, as are CalPERS and others.”

    Advocates said that the corporations fought the issue primarily over executive compensation concerns. Given proxy access, investors could rein in executive salaries. The Business Roundtable is a lobby of corporate CEOs…..The investor-protection language was stripped and replaced by an amendment from Sen. Chris Dodd (D-Conn.), who leads the upper chamber’s negotiations in the conference committee…

    The SEC is planning to issue rules related to proxy access. Those rules would be made meaningless by the language currently being pushed.

    We're just horrified that the Senate would try to weaken language that was similar in both bills. To set such a high threshold makes the reform totally unworkable," said Ann Yerger of the Council of Institutional Investors

Yves here. I suggest you read the entire piece. This conduct is a disgrace, and should settle any doubts as to whose interests Obama really serves. Hint: it isn’t yours and mine.


If this executive pay does not stop consider the following..

CEOs Booted With Insane Bonus And Severance Packages!

  1. Lloyd Blankfein: Goldman Sachs Group Inc. – $67.9 million bonus received in 2007.
  2. Charles Prince: Citigroup Inc. – Retires with a $42 million package in 2007
  3. Stanley O’Neal: Merrill Lynch & Co. Inc. – Retires with $161.5 million in 2007
  4. Angelo Mozilo: Countrywide Financial Corp – Retirement package of $23.8 million, while refusing to accept $37.5 million severance package in 2007
  5. Martin J. Sullivan: AIG - $47 million severance package received in 2008

Consider the insane destruction of the value of money: Nice Work John Thain!

Them Insane And Mad CEO Bonuses Just Has To End!

  • By almost any measure, 2008 was a complete disaster for Wall Street — except, that is, when the bonuses arrived. Despite crippling losses, multibillion-dollar bailouts and the passing of some of the most prominent names in the business, employees at financial companies in New York, the now-diminished world capital of capital, collected an estimated $18.4 billion in bonuses for the year. That was the sixth-largest haul on record, according to a report released Wednesday by the New York State comptroller.


  • Some bankers took home millions last year even as their employers lost billions.

Yeah back then ... on cnbc: Obama: Wall Street Bonuses 'Outrageous'

  • Obama said, "That is the height of irresponsibility. It is shameful. It's outrageous."

Sir... what exactly have you done? You talk about reform but what exactly is being reformed?

See blog posting: Citi Broke But Still Insist On A $50 Million Jet

See also Goldman Sachs $20 Billion Bonuses?!!! and What's Wrong With Our Financial Worlds?

See also Bankers To Be Paid Much, Much More In Bonuses!

See also Are You Pissed With The Bankers' Pay???