June 14, 2009
U.S. PAY CZAR ?
Americans seem to agree that we are experiencing some sort of financial shakeup – but are wary of calling it a recession. “Economic Readjustment” is the favored term.
What ever.
President Barack Obama has appointed Kenneth Feinberg – a Washington Attorney as “Special Master” to supervise pay for the top 100 salaried executives of those companies bailed out of bankruptcy by the U.S. government:
General Motors, General Motors Acceptance Corporation, Chrysler, Chrysler Financial, Bank of America, Citigroup, and American International Insurance Group.
NOT A CZAR ?
Feinberg pleads that he not be called a “czar.”
“That makes it sound like I’m going to issue some imperial decree on the subject of compensation. There’s nothing further from the truth.
“My goal is to reach out to these seven companies and meet with them, and work out an acceptable compensation program. One acceptable to the business community, acceptable to the administration, and hopefully acceptable to Congress and the public.”
“It’s a challenge, but I think it is do-able!”
SHARED CONCERN
In an interview with ABC News, Feinberg declared: “Historically, the American people frown on the notion of government insinuating itself into the private marketplace.
“My answer to those critics is – I understand that concern and share it. The question is how do you strike a balance between that legitimate concern and the populist outrage at prior industry compensation practices?”
Congress – particularly Republicans -- was bamboozled three months ago when AIG received $180 billion of government aid – and then paid out $165 million in bonuses to top executives.
Congressman Spencer Bachus, ranking Republican on the House Financial Services Committee, says: “We need to get the government out of businesses.”
GOVERNMENT vs. PRIVATE
Feinberg apparently is sensitive to the problems of government aid versus private enterprise:
“What’s jumped out at me is this very real tension between the populist rage at these windfall bonuses versus the historical reluctance of the American people to permit the federal government to insinuate itself and micromanage these companies.
“That tension is very apparent to me. No matter which way I turn, you’re facing criticism either from those who are appalled at what these companies did – versus those who question the value of the government getting involved."
HIGHLY REGARDED
Feinberg also is highly regarded for his chairmanship of the compensation fund for families of the 9/11/01 attacks that destroyed the twin World Trade Towers in New York City.
“We were involved there with horrible, unprecedented, tragedy - the deaths of 3,000 people is no comparison. On the other hand where there is a comparison is the fact that we did develop a compensation methodology to value claims of over 5,000 people.
“I think our success in developing that compensation methodology -- factors, and variables that we considered in adjusting compensation levels -- had a lot to do with the view of the administration that I might be able to bring some substantive skill to this assignment.
“On the surface, it’s a watershed step,” said Feinberg. “But I am hoping that in practice it turns out to be a successful government/private partnership. That’s certainly my objective."
PRIVATE MARKETPLACE
We must slowly but surely extricate the government from a role in the private marketplace, he said. “The administration holds the same view.”
Feinberg declared, “My exit strategy is to work out acceptable levels of compensation for those with whom I am required to do so – then leave the field to others. I have no interest in making this a lifetime job.”
MORE OVERSIGHT
Treasury Secretary Timothy F. Geithner earlier said the administration is not interested in “capping pay or setting forth precise prescriptions for how companies should set compensation.”
Instead, the government wants to rein in pay practices that motivated executives to take excessive risks in pursuit of profit.
The administration proposes two regulations that separately empower shareholders and the Securities and Exchange Commission to exercise more oversight over executive compensation at all publicly traded firms.
The first measure would give shareholders more say on what companies say executives. It would expand the SEC’s power to ensure that the corporate committees responsible for compensation can act independently of the top executives whose pay they set.
“ SAY ON PAY”
The Obama administration announced early last week that most firms receiving federal bailouts would face a limit on bonuses -- but not on salaries.
For companies that accepted less than $500 million, the restriction would apply only to top executives.
The proposal could give large investors – such as mutual funds, pension funds and labor union retirement funds -- greater influence in expressing opinion on compensation.
THE ROAD AHEAD
President Obama proposed such legislation when he was a U.S. Senator in 2002. However, the bill was simply ignored by enabling committees upon opposition by big corporations.
Today, management powers of corporate executives are being whittled down by liberal lawmakers.
Administration officials say they hope their efforts will pressure firms to rein in lavish pay by giving shareholders the right to vote on executives’ overall compensation package. This proposal would be non-binding.
Likewise, giving the GM autoworkers’ union a major stake in management is like putting Dracula in charge of the Blood Bank.
Hold onto your hats. The road ahead is circuitous and rocky.
By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist
