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Gone, gone, gone
At BofA and AIG close to a majority of the top executives whose salaries were to be cut have already left. Nuff said.
"There's no question people have left because of uncertainty of our ability to pay," said an executive at one of the affected firms. "It's a highly competitive market out there."
At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.
At American International Group, only 13 people of the top 25 were still on hand for Feinberg's decision.
A big hat tip to Ryan Lee for the link.
Posted by Alex Tabarrok on October 23, 2009 at 07:05 AM in Current Affairs, Economics, Education | Permalink
Comments
So 23 out of 50 is a majority? No wonder I can't understand economics.
Posted by: capitalistimperialistpig at Oct 23, 2009 7:19:36 AM
I wonder how many people will now apologize to Alex for their vituperative comments yesterday?
Posted by: Paul at Oct 23, 2009 7:42:33 AM
I thank capitalistimperialistpig for the correction (I first read the quote as the number of people who left rather than the number who were still around.) Not to worry it will soon be a majority who leave.
Posted by: Alex Tabarrok at Oct 23, 2009 7:45:03 AM
The interesting thing would not be that they are going galt. The interesting thing would be when new galts take their place. Then they will slowly come back if they can.
Posted by: milieu at Oct 23, 2009 7:56:35 AM
An "ideologue" is someone who has biases. I'm pretty sure that means everyone, though it is clearly stronger or more obvious in some. I find it very interesting that the people who most quickly level the accusation of "ideologue" are frequently the same people who believe in things like "libertarian paternalism" and "second bestism" because of market failures which are frequently rooted in bias. In other words, they believe that everyone has biases and needs to be saved from them. Or more precisely, they believe that everyone **else** has this problem.
But I might be suffering from confirmation bias in that observation.
Posted by: Eric H at Oct 23, 2009 7:57:04 AM
I wonder how much more productive and wealthy our economy would be if a majority of the really smart people left the finance industry altogether and went into other industries. How does the ratio of value creation to rent-redistribution compare for financial engineers and managers vs. the next most lucrative occupation for these engineers and managers.
Posted by: Erik Brynjolfsson at Oct 23, 2009 7:59:43 AM
I don't like what was done and hope it will never happened again. Its a gross overreach. Would not do it myself or vote for anyone who would. That being said, I have no issue with the results. There will be more "talent" to fill the void.
Posted by: tony p at Oct 23, 2009 8:12:04 AM
The important point is that unless the 23 left in the last 36 hours, they didn't leave because of the planned restrictions on compensation - they left because they were fired, or because they thought the organizations were no longer a good fit for them, or because that's what such people do. In any case, I think this fact weakens Alex's case rather than strengthens it.
It strikes me as odd that Alex doesn't notice that this is all about signalling, mostly to the public that the feds are not completely in the pockets of the bankers, but also to the bankers that they need to rethink how they operate.
Alex says compensation structuring did not contribute to the meltdown. Bernanke says it did. I'm going with Ben.
Posted by: capitalistimperialistpig at Oct 23, 2009 8:20:10 AM
capitalistimperialistpig, do you work here?
Posted by: C at Oct 23, 2009 8:27:05 AM
The basic question is: CAN THE GOVERNMENT DICTATE SALARY IN THE PRIVATE SECTOR?
The answer is: NO! The compensation packages of these guys is contractual, not arbitrary. Look for some lawsuits to follow.
Unfortunately, it appears from the comments and blogs that WAY too many people are simply accepting the government's fiat regarding compensation. Are you a bunch of ignorant sheep or do you REALLY buy into the "Big Brother" government of Obama?
Posted by: DavidMac at Oct 23, 2009 8:27:34 AM
Tyler said that there is very little evidence that executive compensation contributed to the meltdown. To my knowledge, Alex hasn't posted on this.
http://www.marginalrevolution.com/marginalrevolution/2009/09/did-high-banker-pay-cause-the-crisis.html
Posted by: Anon at Oct 23, 2009 8:28:20 AM
This isn't sensible. People leaving before the restrictions go into place are an argument against the restrictions? Perhaps an argument against considering the restrictions, but it is an argument FOR the restrictions themselves--the "cost" of having these people leave was already sunk, if not completely then substantially, whereas you still get whatever benefits you were expecting to accrue.
Posted by: matt wilbert at Oct 23, 2009 8:50:50 AM
Eric H.
I think my earlier comment on Alex being an ideologue struck a nerve, and I wish I hadn't said it because it really wasn't the point I was trying to make. I have no problem with Alex's political or economic views. In fact, I am sympathetic to a great many of them.
My problem with Alex is not so much that he's an ideologue but rather that he's a *crude* thinker. And as with any crude thinker his posts are utterly predictable. I can read the first line of anything he writes and I already know what he's going to say. Boring. It's like being in the lunchroom with a bunch of 20 year old Cato Institute interns. Someone with a more nuanced mind - Tyler for instance - could make the same points Alex does but in an interesting way, a way that makes unexpected connections/observations, a way that raises the dialogue.
Anyway, I only come here to see what Tyler has to say. Tyler, unlike Alex, often surprises and edifies. And I regret being a bit mean-spirited about Alex's inanity, but it's annoying to have to wade past his nonsense to get to Tyler's posts. I wish I could block him like I can block David Bernstein - another crude thinker - on Volokh.
Jason H.
Posted by: Jason H. at Oct 23, 2009 8:56:40 AM
People will be able to rationalize a new rationale. And, the trouble is they'll be about half right. High pay is an indicator of either rents or values, and the way to address rents is to increase the opportunity for competition. If the gov't comes in and provides advantage in return for the restrictions in return for the bailout then the system will be ossified.
If you don't like other people making money, go get some of it by doing what they do. Direct competition for a legit service is the only way to undermine profitability. To attack it with regulation is the wrong route. Maybe the salaries will be cut if they stay constantly under public scrutiny (which they won't) but there are other ways to get paid. The logical conclusion of regulation is something like the drug war, which is why drugs are so profitable and can often even be obtained inside prisons.
Posted by: Andrew at Oct 23, 2009 8:57:23 AM
The important point is that unless the 23 left in the last 36 hours, they didn't leave because of the planned restrictions on compensation - they left because they were fired, or because they thought the organizations were no longer a good fit for them
...and...
This isn't sensible. People leaving before the restrictions go into place are an argument against the restrictions? [...] the "cost" of having these people leave was already sunk
This is disingenuous. In an industry whose bread and butter is sniffing out industry trends and inside information by hook or by crook and profitably acting on it before everyone else does, is it really possible that none of these folks knew in advance (or at least anticipated) what was to come?
Posted by: anonymous at Oct 23, 2009 9:06:49 AM
Jason H you were wrong on the economics and now you are once again rude and inconsiderate. Sad. Tyler and I have a very open comments policy and don't mind comments that conflict with our views, even strongly expressed comments, but we do like substantive comments on the economics rather than personal attacks.
Posted by: Alex Tabarrok at Oct 23, 2009 9:11:00 AM
Again, you guys are killin' me.
First you said that they wouldn't leave. Now here's proof that they left. Now you say that this doesn't count because they left too soon.
That's the difference between the highly talented and you. They read the writing on the wall quite some time ago and left. It's that sort of vision that made them valuable -- and makes them valuable somewhere else.
It is your inane thinking that caused Andrew Hall to say, "sell my unit or I walk." You chased out a $380M/year on average cash cow because he got paid $100M after a particularly good year.
The barn door is still open and all the producers are leaving.
Posted by: anon at Oct 23, 2009 9:23:49 AM
I guess these Goldman guys are adding 20-30 times as much value to the economy as the average worker. There is no other way to justify their pay.
Posted by: Mike S at Oct 23, 2009 9:27:39 AM
Is it really so hard to just say "Alex was right?"
Posted by: Ryan at Oct 23, 2009 9:28:18 AM
I, for one, am going to be investing with John Merriwether and his new hedge fund.
Posted by: Mike S at Oct 23, 2009 9:29:41 AM
The real shame is that the board of directors and shareholders are unable to accomplish this on their own! Most corporations seem to be run run as piggy banks for the CEOs, where pay for performance has no real meaning (all of those executives should be on the street anyway). And I know from experience that it takes someone very special to mess up as much as those clowns at AIG..anyone could do those jobs...and do them better than they were done...
Posted by: Joe at Oct 23, 2009 9:34:04 AM
The restrictions were not just put in place this week. Everyone knew of the restrictions and the pay czar since at least June. They knew what his guidelines were and they were just waiting on his actual decisions. So, to the extent the executives have already left, they rationally anticipated this week's events.
Posted by: Anon at Oct 23, 2009 9:34:47 AM
So they've left. So what? I think this is where there is a big disconnect between the financial world and some of the rest of us. So you don't have the best people? I just don't care. I'd rather pay more to firefighters and get the best firefighters than pay more to the top bankers and have the best top bankers.
Posted by: tom s. at Oct 23, 2009 9:40:00 AM
Mike S:
Many are paid as a percentage of the profit they generate. So if they generate $500M in profit, they're going to get a really big paycheck -- enough to cause hate and discontent now that it is public information.
These folks don't need Citi or BoA, it is the other way around. They aren't employees in the sense that they punch a clock and do what they're told. Instead, they are self-sufficient engines that generate revenue
The really good ones have already left for places out of the reach of the government.
Posted by: anon at Oct 23, 2009 9:42:16 AM
Ummm... I fail to see how this is a bad thing. People will step into these jobs - maybe even people less concerned with stealing as much money as possible from a company and more concerned with making the company work.
Posted by: Brian at Oct 23, 2009 9:45:41 AM
