rssExecutive Compensation Limits: The Loopholes
Wednesday, February 04, 2009 at 12:34 pm
- 5 Comments
With Treasury Secretary Tim Geithner by his side, President Barack Obama just announced the highly anticipated new executive pay limits for companies receiving taxpayer help under the $700 billion Troubled Assets Relief Program.
“In order to restore our financial system, we’ve got to restore trust,” Obama said. “And in order to restore trust, we’ve got to make certain that taxpayer funds are not subsidizing excessive compensation packages on Wall Street.”
And while the rules certainly go further than the Bush administration ever attempted, several loopholes stand out:
First, the $500,000 pay limit doesn’t apply to each executive — only to “senior executives.” And those senior executives will remain eligible for unlimited stock options as long as they don’t cash in while the company still owes the government money, or “after a specified period according to conditions that consider among other factors the degree a company has satisfied repayment obligations, protected taxpayer interests or met lending and stability standards.”
Second, the cap won’t apply to all companies bailed out by taxpayers. Instead, the Treasury will distinguish between firms benefiting under the “standard” TARP program and those receiving “exceptional assistance.” Only the latter group is subject to the cap.
Third, the ban on golden parachutes doesn’t apply to each executive — only to the 10 highest paid executives. Again, only companies getting exceptional assistance are subject.
Fourth, the new limits apply only to companies accepting TARP funds in the future. That is, an untold portion of the $350 billion or so that’s already out the door might still wind up in the pockets of the same executives who ran the companies into failure.
Fifth, a “claw back” rule requiring executives to return bonuses and other compensation-based pay that was based on deceptively erroneous financial statements applies only to the top 20 executives of the company. So the 21st guy on the list who knowingly gave inaccurate figures, and was paid a bonus for the fib, gets to keep that bonus.
A White House press release attempts an explanation of the laxity, saying the guidelines “seek to strike the correct balance between the need for strict monitoring and accountability on executive pay and the need for financial institutions to fully function and attract the talent pool that will maximize the chances of financial recovery and taxpayers being paid back on their investments.”
One wonders if the public will agree.
5 Comments
Comment posted February 5, 2009 @ 2:16 pm
I recall reading some years ago that the IRS did not allow corporations to deduct executive compensation above $1M annually unless it was tied to performance. Was that the rule, and is it still the rule?
Comment posted February 6, 2009 @ 1:07 pm
Still the rule. President Clinton signed the law in '93, so you're right: companies have incentives to pay executives in bonuses rather than enormous salaries. But would they care so much about the tax incentive if the alternative was losing folks they want to keep? Maybe not.
Comment posted March 18, 2009 @ 5:47 pm
“So the 21st guy on the list who knowingly gave inaccurate figures, and was paid a
bonus for the fib, gets to keep that bonus.”
Isn't this the method revealed by John Perkins in his book, Confessions of an Economic Hit Job? Lots of happy talk about how putting people into houses they couldn't afford was going to work out just swell, now it's time to pay off the hit men, the AIG Financial Products unit in London, among others, that took the wind-up key of the global economy and twisted like make until they broke the globe.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
AMY GOODMAN: So what were your conversations at the time with other so-called economic hit men? I mean, you became the chief consultant at Charles Main.
JOHN PERKINS: Chief economist.
AMY GOODMAN: Chief economist.
JOHN PERKINS: Right. Well, you know, when I was with other people that—we could be sitting at a table, say, in the Hotel Panama, knowing that we’re both here to win these guys over, but we also had our official jobs, which were to do studies on the economy, to show how if the country accepted the loan, it was going to improve its gross national product. We would talk about those kinds of things. It’s, I suspect, a little bit like if two CIA agents, spies, get together or have a beer together, they don’t really talk about what they’re really doing beneath the surface, but they’ve got an official job, too, and that’s what you focus on. And, in fact, the two, in my case, are very closely linked.
So we were producing these economic reports that would prove to the World Bank and would prove to Omar Torrijos that if he accepted these huge loans, then his country’s gross national product would just mushroom and pull his people out of poverty. And we produced these reports, which made sense from a mathematical econometric standpoint. And, in fact, it often happened that with these loans, the GNP, the gross national product, did increase.
But what also was true, and what Omar knew and Jaime Roldos knew and I was coming to know very strongly, was that even if the general economy increased, the poor people with these loans would get poorer. The rich would make all the money, because most of the poor people weren’t even tied into the gross national product. A lot of them didn’t even make income. They were living off subsistence farming. They benefited nothing, but they were left holding the debt, and because of these huge debts, their country in the long term would not be able to provide them with healthcare, education and other social services. http://www.democracynow.org/2007/6/5/john_perki…
Comment posted March 19, 2009 @ 12:47 am
“So the 21st guy on the list who knowingly gave inaccurate figures, and was paid a
bonus for the fib, gets to keep that bonus.”
Isn't this the method revealed by John Perkins in his book, Confessions of an Economic Hit Man? Lots of happy talk about how putting people into houses they couldn't afford was going to work out just swell, now it's time to pay off the hit men, the AIG Financial Products unit in London, among others, that took the wind-up key of the global economy and twisted like mad until they broke the globe.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
AMY GOODMAN: So what were your conversations at the time with other so-called economic hit men? I mean, you became the chief consultant at Charles Main.
JOHN PERKINS: Chief economist.
AMY GOODMAN: Chief economist.
JOHN PERKINS: Right. Well, you know, when I was with other people that—we could be sitting at a table, say, in the Hotel Panama, knowing that we’re both here to win these guys over, but we also had our official jobs, which were to do studies on the economy, to show how if the country accepted the loan, it was going to improve its gross national product. We would talk about those kinds of things. It’s, I suspect, a little bit like if two CIA agents, spies, get together or have a beer together, they don’t really talk about what they’re really doing beneath the surface, but they’ve got an official job, too, and that’s what you focus on. And, in fact, the two, in my case, are very closely linked.
So we were producing these economic reports that would prove to the World Bank and would prove to Omar Torrijos that if he accepted these huge loans, then his country’s gross national product would just mushroom and pull his people out of poverty. And we produced these reports, which made sense from a mathematical econometric standpoint. And, in fact, it often happened that with these loans, the GNP, the gross national product, did increase.
But what also was true, and what Omar knew and Jaime Roldos knew and I was coming to know very strongly, was that even if the general economy increased, the poor people with these loans would get poorer. The rich would make all the money, because most of the poor people weren’t even tied into the gross national product. A lot of them didn’t even make income. They were living off subsistence farming. They benefited nothing, but they were left holding the debt, and because of these huge debts, their country in the long term would not be able to provide them with healthcare, education and other social services. http://www.democracynow.org/2007/6/5/john_perki…
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