Obama Folds

I had dinner last night with a friend who describes himself as a “businessman Republican.”  He doesn’t cotton to the right –wing moral issues.  He voted for McCain.  Yet, he effusive praise of Obama and thought he was “pragmatic.”  I wasn’t up for an argument, so I changed the subject.  It’s not hard to see why business people are happy.

While the White House’s new so-called special master for compensation, prominent Washington lawyer Kenneth R. Feinberg, has been given unprecedented powers to set pay at seven of the most troubled firms, the plan that was laid out Wednesday largely maintains the status quo for compensation practices at all other publicly traded companies, including hundreds that are receiving taxpayer assistance. In addition, the administration got rid of a previously announced $500,000 salary cap at financial firms that in the future take the kind of exceptional assistance that firms such as Citigroup and Bank of America have received.

Pay Caps for Corporate Executives

This doesn’t make sense.

Treasury Secretary Timothy Geithner says the Obama administration doesn’t want to place caps on executives’ pay — even though it believes excessive compensation led to risk-taking that contributed to the financial crisis.

OK, excessive pay packages costs taxpayers billions but the Obama administration is getting weak-kneed.  So they want to pass the buck.

Geithner said the administration will seek legislation that will permit shareholders to vote on executive pay packages, but the results would not be binding on boards of directors.

So we’re going to pass legislation with no teeth in it.  But there is at least a kernel of a new idea that might help.

Geithner said the shareholder measures, as well as legislation to keep corporate compensation committees independent from boards of directors, will reinforce pay guidelines that the administration released Wednesday.

What does independent from boards of directors mean?  Who will select them, compensate them?

Finally, this brief article ends with this contradiction.

Those principles encourage corporate boards to adopt pay packages that reward long-term performance rather than short-term gains.

I thought the boards of directors wouldn’t be involved in pay packages.  WTF?

U.S. CEO Pay Debate & Role of Boards of Directors

Here’s one of those compensation consultants, defending exorbitant CEO Pay, along with a rep. from the AFL-CIO debating CEO compensation packages.

He claims it’s a numbers game, meaning that they’re not really making that much money.

Anchor Mark Haines then asks the labor rep that if it’s true you get what you pay for, why shouldn’t they be paid as they are?  He must have known the answer.  She says, after what’s happen in the banking industry, did they really know what they were doing?

Haines then points out that Japanese companies, which tend to “kick out butts,” are making far less than American CEOs.  Haines then lays the blame where it deserves to be, “The boards have no spine.”

Which is what President Obama said yesterday

[T]oo many corporations have operated for too long is that you have a CEO who basically selects his board; the board, in a fairly cozy relationship oftentimes with the executive, hires a executive compensation firm, which, surprisingly, tends to think that it’s necessary to retain the best talent to pay people $20 or $30 million a year; and we get into the kinds of habits and practices that I think have not been — have not served shareholders well, I think ultimately distort the decision-making of many CEOs.

Late in the afternoon, Jim Cramer and Haines tackle CEO pay.  Haines again blames the boards of directors. Cramer, who had transformed himself into a populist since being raked over the coals by Jon Stewart, joins in beating up on the compensation committee chairmen of boards of directors (about 3:00 into the video).

Directors Culpability in Extravagant CEO Pay (Part 2)

OK.  It’s not just some crack pot Post reader and blogger who says it, the president of the United States, in response to a question on CEO pay at the G-2 press conference today, just said that the problem is…

  • CEOs select their boards
  • Setting up a cozy relationship
  • Then they hire comp. consultants and
  • Surprise, they get $20-30 mil. comp packages
  • Does not serve shareholder interest
  • Distorts CEO decisions
  • Need shareholder voice/vote

And as CNBC pointed out yesterday, big salaries don’t automatically provide shareholder value.

So, as I just wrote to several Post reporter’s and its ombudsman, what about an examination of the role of boards of directors?