by Frank James
Neel Kashkari, the Treasury official who oversees the Bush Administration's effort to inject money into the financial system, was hammered yesterday by House members over a large bonus payment to executive of AIG, an insurance company 80-percent owned by U.S. taxpayers.
Rep. Brad Sherman, a California Democrat, and Rep. Don Manzullo, an Illinois Republican, lit into Kashkari over a $3 million bonus to an AIG executive, just one of 130 AIG managers getting "retention" payments.
Sherman noted that the legislation that created the Troubled Asset Relief Program requires Treasury to set "appropriate" standards for pay and he repeatedly asked Kashkari if $3 million fit the Treasury official's idea of "appropriate."
Kashkari couldn't really answer the question. And how could he? What expertise does the federal government have at setting the pay for the executives of giant financial firms?
It's understandable why lawmakers placed limits on executive pay, especially when taxpayers have put $60 billion of their money into the company.
But it may have been too much for Congress to expect that Treasury would be able to, or even want to, set a pay limit on AIG executives, especially given the vagueness of the word "appropriate."
And it may have truly been wishful thinking on Congress's part to think that the Bush Administration, of all administrations, would want to place limits on. Even though President Bush has been forced by circumstances to oversee the nationalizing of parts of the financial sector, he still sees himself as a free market conservative who would be loath to set pay for AIG officials.
Then, what does appropriate mean when we're talking about a senior AIG executive? Maybe a $3 million bonus is appropriate given the nature of Wall Street salaries, even now? Maybe the payment is less than what a similarly situated executive would have received before the Wall Street meltdown.
If Congress wanted to limit bonuses to a number that felt right, it could have placed a number in the legislation, perhaps $1 million, $500,000 or less.
But here's the rub. The pay that Sherman and others have complained about could arguably help AIG repay its debt to U.S. taxpayers more quickly.
AIG has said it paid the money to retain executives in parts of its business it's trying to sell. To make those businesses as attractive as possible to prospective buyers, it wanted to keep certain managers. Paying them these incentives helped accomplish that.
If that's true, than maybe it's money well spent. Who can say for sure? But we should at least keep our minds open to the possibility.
Comments
Though it may seem hard to set a pay for these CEOs, it doesn't take a rocket Scientist to know if they do a lousy job they should be fired without a golden parachute.
Posted by: bill r. | December 11, 2008 11:49 AM
Funny in Japan, when things such as this happen, the executives of the companies involved usually resign in shame.
In the US, they think that they should be rewarded.
Posted by: W OBrien | December 11, 2008 11:49 AM
If a private company is doing well, they can pay their executives whatever they want. If they are failing and come crawling to the govt for a handout, they better be ready to accept whatever crow the govt serves them to eat. This AIG is so out of touch. Throwing a $400K+ "retreat" after being given govt money? Made me sick.
Posted by: Herbie H. | December 11, 2008 12:50 PM
In other words, after handing over $700 billion to corporations that manufactured bad loans, overpaid executives, and spent thousands for spa retreats, the Republicans aren't willing to give a fraction of that amount to corporations that employ middle-class Americans and manufacture a product that people use, without taking as much as possible out of its worker's hides and moving further away from energy independence and a cleaner environment. This is all about the Republican party wanting to bust another union...period..end of story.
Posted by: Lorenzen J | December 11, 2008 1:56 PM
I think that it is easy to "FIX" what a CEO pay should be. Take the lowest full time worker @ 10 times their salary, not 10 times to the tenth power. If the lowest employee make $30,000 a year then $300,000 should be enough. If they have a stellar year a bonus of $1000,000 should be enough.
Posted by: Phil B | December 11, 2008 3:19 PM
Congressman Sherman and Dilbert, separated at birth?
Posted by: Kenny Bunkport ✌ | December 11, 2008 3:28 PM
CEO pay rates should be modeled after CostCo's CEO. Interesting to note his contract is only one page long.
Posted by: smitty | December 11, 2008 5:13 PM
I personally do not mind the high pay. What I do not like is that when they are unsuccessful that they make any more than $100000. The severance packages are an outrage, even for those who have been a success.
I thought that Sullivan who headed AIG when all these default swaps were created was out. I think this is new management. They need to prove themselves before they get bonuses. The behavior at AIG is just another example of mismanagement in this bailout. I believe the bailout was needed but so was change in behavior. The greed goes on.
Posted by: Ron M | December 11, 2008 5:29 PM
I called the offices of Boehner, McConnell, Cummings and as well my own representatives and made this simple suggestion:
A Windfall Compensation Tax on ordinary income above $1-million from any company directly or indirectly receiving discretionary government assistance. When employees threaten to leave a company that's already paying them a huge salary, it's likely they're expecting to get something even huger from that other company. If that other company is also on public life-support (or a contractor of same), the entire transaction is rotten.
I believe in free-markets and the right to profit from honest competition. That does not include compensation which is part of the ongoing plunder of the good credit of this nation. The only way to properly limit these exploiteurs is by changing the tax code, and those changes need to be made this year, by this congress.
If you agree, I suggest you call them this very day and let them know.
Posted by: ted in pdx | December 12, 2008 9:59 AM
And they won't give any money to GM.
Posted by: Why are we investigating Blago when the 350 billion given to financial industry is missing? | December 12, 2008 6:00 PM