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The Workhouse Test
The new Bailout plan has some interesting restrictions on CEO compensation and golden parachutes. For example:
...a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period that the Secretary holds an equity or debt position in the financial institution.
This could either be a disaster or a saving grace. If you think the situation is very dire and also that Wall Street is ruled by greed then it's a disaster as the captain may prefer to go down with his ship, rather than give up the golden parachute (life-jacket?). Thus, those who think the situation is very dire must be gambling on CEO altruism!
On the other hand, if you think that there is still private capital out there ready to buy at the right price then this clause may mean a smaller public bailout than many are predicting.
It all reminds me of the workhouse test.
Posted by Alex Tabarrok on September 29, 2008 at 07:25 AM in Current Affairs, Economics | Permalink
Comments
Thus, those who think the situation is very dire must be gambling on CEO altruism!
Yes!
What we should really do is make sure no one in the USA can earn more than the President, and anyone below the CxO level can't earn more than the Vice President.
Especially sales people. And lawyers. (Most especially lawyers.)
And because our Congress critters work so hard, they should all get raises!
Posted by: at Sep 29, 2008 7:53:43 AM
The limit on executive compensation is nothing but a PR stunt. It makes 'ordinary' citizens feel good but has little to no impact on how companies will be run.
Will the small-government conservatives please take back the Republican Party?
Posted by: Vincent Clement at Sep 29, 2008 9:07:04 AM
It is a PR stunt but it's also an effort to get rid of some of the moral hazard of giving these firms money.
Posted by: Person at Sep 29, 2008 10:12:56 AM
Are these restrictions only for financial institutions? If so why would any executive staying working in financial services if they could move to another industry? I see a great potential for unintended consequences.
Posted by: Ed at Sep 29, 2008 10:19:35 AM
I agree with your workhouse test analogy. I really don't have any way to directly determine if the bailout is needed, so I have to rely on the opinion of others with more direct knowledge. Given that most of those with direct knowledge are not people that I'm inclined to give the benefit of the doubt, the more unpleasant provisions are for those running the companies being helped, the more I'm convinced the bailout is needed.
Posted by: MH at Sep 29, 2008 11:04:13 AM
If a CEO wants a new job, having saved the ship might actually help him. Or maybe not.
Posted by: IWantCookieNow at Sep 29, 2008 1:34:20 PM
The vengeful limiting of CEO pay attacks a symptom, not the cause of the problems.
It's long been remarked that CEO pay was a much smaller multiple of worker pay until fairly recently. Something in the institutions that regulate CEO pay has changed.
Unless we change the institutions (and I'm going to suggest that the institutions of corporate governance are at fault), then the same imbalance of CEO power that allowed the CEOs to write themselves and their cronies huge checks will be abused just as badly for another purpose.
Posted by: Mike Huben at Sep 29, 2008 1:36:04 PM
To the ramparts! The credit snobs are going after CEO's!
CEO's of the world, unite! You have nothing to lose but your chains.
Posted by: Dave at Sep 29, 2008 5:13:21 PM
"captain may prefer to go down with his ship"
The hidden assumption here is that the captain could not be thrown overboard.
Posted by: Matthew Ernest at Sep 29, 2008 5:26:26 PM
CEOs have fiduciary obligations to corporations. A CEO who refused a deal to enrich himself could find himself prosecuted for mail or wire fraud. In fact, much of the case against Ken Lay was based on the honest-services theory of mail and wire fraud.
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