Now while it sounds like Timothy Geithner is happy with Kenneth Feinberg, at least according to this press release, there were other rumors coming out of the Treasury that they were less than happy. I’m not sure about that, those are just rumors. I’ll tell you what, though, if they admitted to being confused that I would just take on faith.
I’ve read the rulings and there are some things that are pretty obvious
- all incentive pay is going to be paid in stock predicated on three years’ service, TARP repayment, and the achievement of performance goals agreed with the Special Master
- no increases to existing golden parachutes
- perks capped at $25,000
- SERPs frozen and no more company contributions to NQDC accounts.
OK, all of that is pretty plain. But before it gets into that easy bit there’s a whole section on salary that I can’t make head nor tails of. First there’s this:
Approved cash salary generally limited to $500,000: Consistent with the Administration's February 4 guidance on executive compensation at TARP recipients, the Special Master approved base salaries of $500,000 or less for more than 90 percent of the employees in this group. Base salaries greater than $1 million were approved in just three cases: for the new CEO of AIG, as previously announced, and for two employees of Chrysler Financial, which will wind down its operations in the near term and cannot grant employees long-term incentives.
OK. So, lucky Robert. Though why he’s different I don’t know, and $3 million in cash salary exceeds $500,000 by quite a lot.
Then it goes doolally.
Requires Salaries to be Paid in Company Stock Held Over the Long Term: The Special Master's rulings fundamentally change the structure of compensation at these firms. Rather than cash, today's rulings require that the majority of salaries be paid in stock that must be held for the long term-giving executives incentives to pursue long-term value creation and financial stability.
Stock is Immediately Vested, Requiring Executives to Put Their Own Funds at Stake: Rather than just cash, executives will earn base salaries in the form of vested stock in their companies. In effect, the Special Master is requiring each executive to invest their base salary in the long-term future of the firm, alongside taxpayers. These structures ensure that executives do not have incentives to take the excessive risks that contributed to the financial crisis.
Stock May Only Be Sold in One-Third Installments, Beginning in Two Years: Unlike the pay practices of the past, which allowed executives to sell stock in their companies immediately, the Special Master's rulings require stock to be held for the long term. Stock received as salary may only be sold in one-third installments that will not begin until 2011, unless the taxpayer is repaid earlier.
Now, I think, just think, mind you, that this is different from the $500,000. This is Stock Salary, not Cash Salary. Like Mr. Benmosche gets Cash Salary of $3 million and Stock Salary of $4 million. But it doesn’t actually say it is anywhere, except it implies it when it says: “Rather than just cash….”
Then the news that the Wall Street Journal has calculated the change in base salaries for the employees under Feinberg’s review and most of them have got an increase in cash salary just caps it all for confusion.
I’m quoted as being flabbergasted. I used the word flabbergasted because gobsmacked, which immediately came to mind, is too English. But it’s stronger and it’s what I meant. Because I heard that NPR interview and I put the Journal on to it. Now that it’s out, the ostensible justification for increasing base salaries needs to be examined. Everyone seems to agree that the ban on cash bonuses is leaving employees cash-strapped and the stock is tied up for too long. Isn’t that the point?
Cash-strapped?
What if they didn’t earn the bonus one year because of poor performance – except of course that never seems to happen – but in theory it might. Wouldn’t it be responsible of these employees to keep their household budgets within their fixed income? That’s what everyone else has to do.
I mean this just takes the biscuit. That’s tantamount to saying: “I always get a bonus so It’s in my budget.” And that’s the whole problem right there. How is it an incentive if you always get it? These have ceased to be at risk and are now expected. And if that’s what the market dictates, the market’s gone mad.
