When President Obama named a “pay czar” in June, he raised hopes that the era of out-of-control executive pay may be over. Unfortunately, the pay czar’s recently released rulings did little to alter a compensation system that was a key cause of the economic crisis.
In fact, among historical czars, Kenneth Feinberg acted less like Peter the Great and more like Good King Wenceslas, doling out more goodies to Wall Street.
Feinberg’s assignment was to ensure that compensation at the top bailout recipients was not “contrary to the public interest.” But rather than consulting American taxpayers, Feinberg spent countless hours trying to reach “consensus” with executives on how much they should be paid.
Granted, Feinberg’s powers are more limited than any real czar’s. He can only set compensation plans for the top seven out of the thousands of companies that received bailouts, and he has no power to break existing compensation contracts.
But Feinberg still could’ve played hardball. He could’ve told these firms to forget ever seeing another taxpayer dime unless they renegotiated contracts to eliminate bonuses and other excessive pay. No more bailouts, no more tax breaks, no more government contracts.
Judging from the outcome, Feinberg played a much weaker hand. While the headlines have focused on the claim that he slashed average total compensation in half, this figure is misleading. For one thing, the calculation doesn’t consider undisclosed amounts of pay that are covered by existing employment contracts. So American taxpayers still don’t know exactly how much of their money these bailout executives are pocketing.
What we do know is that Feinberg approved pay packages worth more than $3 million for 45 of the 136 executives included in his review. Twenty-four will get more than $6 million.
Contrast that with a proposal approved last February in the Senate that would’ve capped pay for all employees of all bailout companies at $400,000 the salary of the president of the United States.
Under the pay czar’s plan, 73 percent of the top bailout executives will make more than President Obama.
The highest paid will be AIG CEO Robert Benmosche. He’ll receive $10.5 million as chief of a company that has received $182.5 billion in federal assistance and continues to be a ward of the state.
AIG has also resisted Feinberg’s “suggestions” to eliminate nearly $200 million in bonuses to employees of the division responsible for the credit default swap debacle that led the company to ruin. Those goodies are still slated to be handed out in March 2010.
Bank of America CEO Kenneth D. Lewis will get to keep his nearly $70 million in retirement benefits when he steps down at the end of this year. Feinberg persuaded Lewis to forgo salary and bonus for 2009, but that will hardly dim this failed executive’s rosy financial future. Of the 12 other Bank of America employees included in the report, each one will make between $3.3 million and $9.9 million.
Feinberg touted his decision to replace some cash compensation with stock as a major step toward encouraging long-term thinking. But this “solution,” if put in place 10 years ago, would have done nothing to prevent the subprime carnage. Wheeler-dealers like Angelo Mozilo, who led mortgage lender Countrywide Financial off a cliff, would still have walked away with hundreds of millions.
Sadly, more than a year after the crash, there’s still much more work to be done to fix a pay system that was a cause of our economic disaster. The Obama administration should go much further to encourage more rational pay practices throughout the economy.
There are bills before Congress that would go a long way toward this goal. The most promising would deny corporations that overcompensate executives both tax deductions on the excessive pay they shell out to executives as well as access to government contracts and subsidies.
U.S. taxpayers should no longer be expected to aid and abet excessive executive pay.