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My Two Cents, by Chris Farrell

« Wall Street pay? | Main | Paul Newman, RIP »

Executive pay, again

Posted by Chris Farrell on Thursday, September 25, 2008

This post by Nanette Brynes of Business Week certainly grabbed my attention, especially since I've gotten a number of emails from management consultants saying why executive pay shouldn't be limited, despite the bailout.

But what justification is there for a $2 billion pay day for failure? How about $27 billion. Where is the relationship between risk and return?

The top executives at AIG, Freddie Mac, Fannie Mae, Lehman and Goldman Sachs pulled down more than $2 billion in pay over the past five years according to a new analysis by a professor at San Diego State University's Charles W. Lamden School of Accountancy, Dr. David DeBoskey. ...

Applying the same analysis to a broader universe of banks, financial firms, insurers, mortgage brokers and others who DeBoskey identifies as the companies likely to benefit from the proposed bailout and the total executive pay comes to $27 billion......

But even though DeBoskey describes himself as a "cynic" when it comes to moves to limit executive pay, he sees this as an inflection point. Moving forward boards of directors will have to find some better way to link executive pay to actual results, he says. "If the middle class is going to pay for this bailout through tax dollars, what they're reimbursing these companies for is all this excess compensation. In my minds eye this is a classic redistribution of wealth from middle class tax payer to the rich who have received all this excess compensation," he says.....

$2 billion in five years to 57 individuals ought to give that cause some momentum. It certainly gives a whole new meaning to the concept of the price of failure.


Comments (1)

Nice thoughts and considerations....and what about reversing the trend ....how about this following hypothesys?
Can anyone give serious meaning to the thought and articulate the idea in such a way that could be correctly posted and maybe accepted not only by "main street men" in this unbelievable but unfortunately real world of greedy and arrogant CEOs ?

Here is my five cents worth to a possible partial and fair “social solution” to the financial mess the USA gradually has incurred during the last 8 years thanks to a terribly misleading US Republican Administration .

1)  Retrieve ( from Fortune 500 ) all the names of the CEOs  who received more than 2,0M bonuses leaving their Company in the past 8 years (the figure of 2,0M allows anyone one who has the fortune of having accumulated such a sum, to live a comfortable with an interest between 5% and 10 %/year ( 200K to 100K ) specially if they invest in future alternative energy resources fields. 

2)  Verify with the IRS the existence of their assetts and their accounts (also the illegal offshore ones which they most likely have and the IRS definitely knows how to reach that far now days)

3)  Freeze and seize all the assetts and accounts of these people and transfer them into a one major account deposited in the safest, serious International Bank that has clear records and is not envolved in this mess (It could be a European Bank). The account has to be handled by a pool of major International Economists not involved in the Wall Street scene and open to public scrutiny.

4) Re-destribute through the International account the funds proportionally to all the people who have been caught in the Sub prime Mortgage scandal and who are loosing their homes now because they cannot keep up mortgage payments he re-distribution of funds will help paying for their mortgages by refinancing the loans at a favorable and honest interest rate.

5) Re-invest the interest paid by the newly re-finaced loans into Community resources to rebuild adequate means of public and private transportation, minimally envolved with oil consumption and based on alternative energy resources, creating at the same time, jobs in these fields.

The question now arises....who has the power of promoting and adequately pursuing this ? It has to be an international group of dedicated and honest economic experts not involved with Wall street...this could be a problem of huge proportions but solvable by verifying the professional records of each member of the group.

Maybe, to avoid a “riot” (word that I heard recently from a US Senator during the earings in the US Congress) among the 200 and some mlillions of average americans who are fed up with the system, we could all learn a lesson from the French Revolution which started in 1789 with the well  known events  ....heads rolled then .....and they should roll now, specially of those inept and greedy capitalists CEO's who led this country to this point of Human disgrace leaving  Main street people in their misery, who are brainwashed and scared by the current Administration and its cronies (Bernanke and Paulson) so they can be convinced to accept a financial step to bail out those same people who caused all this. It is obvious that now, under the present circumstances, there is no clear ending for the future of the United States and the World financial markets unless some steps in the direction I have described can be seriously taken in consideration. It will not solve the problem entirely but it would help to re-distribute questionable and unjustifiable large amount of money to people who can regain their confidence in a system that now is totally abandoning them. 


I would be curious to know if anyone has ever thought about the above described possibilty....

Thank you for your attention and I will welcome any kind of feedback from anyone who is more familiar with the problem.


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