Take an 8,500 word New York Times Magazine cover story, title it "What's a Bailed-Out Banker Really Worth?," and add a hint of sympathy for high Wall Street compensation, and you've got a ready-made business blogger debate. Here's the basic rundown of the article: after talking to scores of unnamed bankers and Treasury officials, author Steven Brill develops a portrait of "pay czar" Kenneth Feinberg as a man who has an uncanny ability to "[thread] the
needle between competing interests." He managed to play the TARP firms,
the White House, and the pitchfork-wielding public off each other,
producing a solution that simultaneously pleased and offended no one.
The key component of this solution, Brill explains, is "salarized stock": regular payments of company stock that executives are prohibited from selling for a number of years. Brill winds down his article with the waning of Feinberg's power as more of the TARP companies look poised to repay their loans. In the absence of a compensation czar, he argues, "boardroom upheaval"is the only way to make lasting, significant change in "a system that everyone except those cashing the checks seems to think is a mess." Now for the debate:
- Brill is Blinded by His Own Wealth, writes Felix Salmon at Reuters: "In Brill’s world, the only downside to an enormous salary is the optics of the thing: how it looks to the rest of us. 'Business common sense,' he writes, 'dictates that because the government owned them, these were the last companies the government should want to undercut with unilateral pay disarmament.' Does he give a single example of a company underperforming because it can’t pay well enough? Of course not: it’s just obvious to Brill that banks which pay modest salaries (like, say, most credit unions) will do worse than banks which pay enormous bonuses (like, say, Lehman Brothers or Bear Stearns)."
- Higher Pay May in Fact Lead to Lower Performance, suggests Pat Garofalo at Wonk Room: "Of course, both AIG and its government allies argued that huge pay packages are necessary for AIG to rebound to profitability and pay back the government," Garofalo writes before presenting the work of researchers at Purdue and the University of Utah who have found that,between 1994 and 2006, “'the 10 percent of companies with the most highly paid CEOs earned unusually low returns in both the near- and long-term.'” Garofalo explains that "highly-compensated CEOs tend to become overconfident, engaging in 'wasteful capital expenditures and empire building.'"
- Bring on the Boardroom Upheaval, The Atlantic's Clive Crook urges: "The principal responsibility here lies with boards—and they need their spines stiffening and their own incentives got right if much is to happen. At a minimum, legislation to open executive pay to public scrutiny is required." Crook also responds to Salmon's riposte, batting down Salmon's assertion that "salarized stock" amounts to guaranteed bonuses with a cavalier, "But what exactly is wrong with that? You could designate some fraction of anybody's salary as a 'guaranteed bonus,' and what difference would it make? The point is that badly designed 'performance related' bonuses can encourage excessive risk-taking. Compared with that, a guaranteed bonus—or just straight salary—has a lot to be said for it."
- Only the Government Can Take Down Bonus Culture, argues Chris Lehmann at The Awl: Forget the boardroom, he shrugs—"What could have countered Wall Street’s 'culture of entitlement' was a culture of, well, bank nationalization—the kind of federal intervention that permitted FDR to stabilize the nation’s Depression-trashed banking system under the Reconstruction Finance Corporation, or that allowed Britain to consolidate its financial sector in the wake of the 2008 crash. Or failing outright nationalization, federal regulators could have voted their stock in TARP financed institutions, as any other shareholder does, and spared Feinberg his shadow-boxing confabs with our nation’s profoundly unembarrassable executive class."