Monday, September 29, 2008

Executive Compensation During this Financial Meltdown Is An Issue For Me

According to Steve Kaplan:
The White House and Congress appear to have reached an agreement on a bailout plan that restricts executive pay at companies that participate in the bailout. The plan limits CEO compensation that encourages "unnecessary and excessive" risk-taking, creates a tax disadvantage for CEOs who are paid more than $500,000, prohibits severance payments (so-called golden parachutes), and recovers bonuses or compensation paid based on promised gains that later turn out to be "materially inaccurate." Unfortunately, restrictions on the pay of operating executives are unlikely to strengthen the plan; instead, they have the potential to weaken it.

The advisability of imposing pay restrictions depends on the extent to which they weaken the bailout plan. This can happen in two ways. First, companies have to choose to participate in the bailout by selling mortgages-related or other securities to the U.S. Treasury. The pay restrictions will weaken the plan if they lead some companies not to participate that otherwise would have. Second, the restrictions will weaken the plan if they lead to a reduction in the quality of CEOs and executives who choose to work for the participating banks.
Read more at: Kaplan: Pay Curbs May Weaken Bailout
by Steve Kaplan - Wall Street Journal - Management - September 29, 2008

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According to Federal TRIO Programs 2008 Annual Low Income Levels (Effective February 2008 Until Further Notice)

The official "Annual Low Income Level" for a family of 4 (for example) in the 48 Contiguous States, D.C., and Outlying Jurisdictions (not including Hawaii and Alaska) is $31,800.00.
The term "low-income individual" means an individual whose family's taxable income for the preceding year did not exceed 150 percent of the poverty level amount.

The figures shown under family income represent amounts equal to 150 percent of the family income levels established by the Census Bureau for determining poverty status.
(The Federal TRIO Programs are educational opportunity outreach programs designed to motivate and support students from disadvantaged backgrounds.)

So the actual "weighted average" poverty "threshold" for a family of four is $21,203.00 from the U.S. Census Bureau's Poverty Thresholds for 2007 by Size of Family and Number of Related Children Under 18 Years.

The TRIO number above is about 150% of that.

Now, we are talking about a bailout which may put some kind of cap on financial instiution CEOs who are paid more than $500,000 a year , and that isn't the whole bailout picture for these executives.

What is wrong with this picture?

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Soooo ... what do I think?

Now, I'm not well educated about economics, and I realized this post is somewhat scattered, but its my visceral reaction to one of the proposals to fix this mess.

Being quite generous, I think any CEO/executive of a financial institution that is getting help from our U.S. government in a bailout during this crisis -- because they and their company acted irresponsibly to put us here -- should be limited to no more than $100,000.00 a year.

And IF they quit because they don't want that deal, they should get NOTHING.
Butkis! Let them live off the money they already earned, like the rest of us would if we were lucky enough to have any savings.

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More:

The Fiscally Insane Bailout Bill Might Not Pass -- Here's 5 Reasons It Shouldn't
by David Sirota, Alternet - for Blog for Our Future - September 29, 2008

Trickle-Up: What a Progressive Bailout Would Look Like
by Joshua Holland, AlterNet - September 28, 2008

1 comment:

Jackie said...

Good post. I have learned so much about economics since this crisis.
Your plan is generous. Most of these greedy CEO's have already pocketed healthy "bonus" amounts annually. The present plan, that was defeated yesterday, does not go far enough to cap CEO salaries or to bailout us regular folks.