Monday, November 2, 2009

Massive cuts? Or not?

A couple of weeks ago Kenneth Feinberg, the Special Master for TARP Executive Compensation for the U.S. Department of the Treasury, came out with his rulings on executive compensation. These were immediately splashed across all the front pages. Most of the declarations went like this: "The Obama administration plans to order that top earners at firms that received billions of dollars in government bailouts will see cash payouts cut by an average of about 90 percent from last year, a source familiar with the matter said on Wednesday The sweeping cuts, negotiated by the U.S. pay czar Kenneth Feinberg will mark a bold move for an administration that has recently railed against excessively high pay on Wall Street." Wow, 90% pay cuts, jubilation in many circles. However, reading on it turned out that this was salary, and that "total compensation ... will be reduced by an average of about 50 percent." OK, 50%, that is still quite a substantial hit...that's showing those Wall Streeters! Rah, rah, score one for "Main Street!"

A few of those in favor of pay cuts cavilled... the cuts only effected companies that were TARP recipients... only the top 25 earners at these firms were effected... they were still left with untold lucre, etc. Those against the pay cuts bemoaned government's interference in matters that did not. However, both sides seemed to agree that big cuts had been effected in remuneration for certain executives.

Well, maybe not. A look at the detail showed a different picture:
  • Average cash compensation rates will fall more than 90 percent for the final two months of 2009, compared to the annualized rate for 2008. Base cash salaries are limited to $500,000 for more than 90 percent of employees affected by the ruling.
  • No salary already paid this year will be "clawed back."
  • Including long-term stock awards, total compensation rates for the final two months of 2009 will fall by about 50 percent from annualized 2008 rates.
  • Exceptions were made to the cash compensation rule in cases where Feinberg deemed increases necessary to retain "key talent critical to a company's long term success."
  • New salary rules and lower pay rates apply to the final two months of 2009.
And, lastly, Feinberg's rulings are expected to set a template for executive pay proposals to be submitted by the seven firms in 2010 if they are still holding taxpayer funds.

Bottom line: these cuts, while real, are nowhere near 90% or even 50%, and this blogger expects that there will be a stampede to pay back; and those that can, will!

Feinberg's Folly
U.S. czar poised to slash cash pay at seven firms
Wall Street, Meet Ken Feinberg, the Pay Czar
Feinberg Said to Order 50% Pay Cuts at Rescued Firms

Feinberg's cuts mean nothing
Executive Pay Cuts? Hold the Standing Ovation

Factbox: Details of pay czar rulings on bailout firms

Quick clarification: this blogger is not in favor of meddling with existing employment contracts....

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