Bailout, shmailout. Executive pay still safe.
Posted
Sep 29 2008, 01:12 PM
by
Kim Peterson
Rating:
The bailout provisions that limit executive pay? Yeah, right. If you believe that, I have $700 billion in bad real estate to sell you. I read the executive compensation part of the bailout bill (which you can read here, but trust me, you don't want to).
The idea is pretty clear. Cut the pay for bosses at banks that sell toxic assets to the government. Take back the bonuses the execs got if a bank's financial statements prove inaccurate. Ban them from getting golden parachute payments.
But the loopholes in these conditions are huge -- huge enough certainly for a smart company to get around.
"The golden parachutes have been exchanged for camouflage parachutes," one Democratic congressman said. "The execs on Wall Street will still get millions."
How is that possible?
The contracts stay. Top executives already have golden parachutes and other compensation lined up before they even start a job. The government isn't forcing any company to rewrite an employment contract. So any golden parachutes already in place will remain that way.
And future golden parachutes? They can still be paid, a Treasury official told CNN. But only if they're triggered by a sale of the company and not by involuntary termination or corporate failure. Now tell me, how often do you hear about a CEO's "involuntary termination?" Never. No company wants that public drama. Instead, a CEO might resign to pursue other interests or something like that. And what exactly is corporate failure? Very unclear.
Yanking bonuses won't matter. The Wall Street Journal says taking back bonuses upon discovery of inaccurate financial statements won't have much of an impact. That's because the existing Sarbanes-Oxley legislation already covers this, requiring that executives be paid for actual performance.
There's always a way around. What happened the last time Congress tried to restrict executive pay? That was in the early 1990s, according to USA Today, and companies quickly figured out how to reward executives with stock options, country club memberships and even private airplanes.
Former Countrywide CEO Angelo Mozilo, for example, made $362 million from 2005 to 2007. That included things like country club fees and the personal use of company planes, according to USA Today. The CEO of AIG received a company car, a home security system and financial planning services.
If golden parachutes disappear, the Journal says, a board can make up for it by giving executives massive signing bonuses. Or even bumping up salary by a few million.
I don't mean to throw cold water completely over this effort. Some good may come out of this yet. Investors who paid little attention to executive pay in the past may start keeping track. And boards who previously approved ballooning pay packages might be more circumspect about doing so in the future.
So the politicians can go on bragging about how they won't reward CEOs for mistakes. It makes for good sound bites and happy voters.
But in reality, these executive pay provisions are not punitive or enforceable.
