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Exec Comp Restrictions Get Tougher

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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 10:02
refurb wrote:
JayPX1 wrote:
Is it a salesperson's responsibility to worry about the long-term planning of an organization? That task is generally left to senior management, strategic planning/development groups, management consultants, etc. and salespeople are told to stay out of it.


Also, there is nothing inherent about bonuses that make them a poor form of compensation if you want long-term planning.

What is the old saying "You get what you pay for?". If upper management awards bonuses based on long-term thinking, that's what they'll get.

RF


Agreed. It is clear that you come from a business/corporate background and "get it".
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 10:52
Who is John Galt?

The world will change when you are ready to pronounce this oath:
I swear by my Life and my love of it that I will never live for the sake of another man,
nor ask another man to live for the sake of mine.

"Don’t set out to raze all shrines—you’ll frighten men. Enshrine mediocrity, and the shrines are razed." Ellsworth Toohey
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 13:30
Let's go socialism!!! Another wonderful day for the markets.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 23 Feb 2009, 17:25
To counter the new exec comp restrictions on all companies that received TARP money or any type of gov't bailout/assistance, JP Morgan cut their dividend by 87% to partly finance $25 billion of capital received from the government in last October. They intend to return $25 billion in capital in full to free themselves of any restriction from government.

http://www.nytimes.com/2009/02/24/busin ... f=business

Their shares went up 5.5% in after hours trading from this news.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 24 Feb 2009, 05:46
http://www.indystar.com/article/2009022 ... /902240368

The government witch hunt continues. Everyone is b****ing because tax payer money is going towards paying bonuses to wall street execs, yet how much is it costing to perpetuate this hunt that will result in absolutely nothing. If Washington really gave a crap about tightening up the boot strings, and wanted to lead by example it would take a hard look at all the fraud, waste and abuse that occurs inside the Beltway.

I totally agree that there needs to be fiscal responsibility and accountability for TARP funds. I just have a really hard time swallowing this "moral highground" attitude that is oozing out of DC, when so much of the same, self obsorbed behavior goes on here everyday.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 18 Mar 2009, 21:30
As a result of the heated battle to be the politician showing the most outrage over AIG's bonuses the geniuses in DC decided to come up with this even handed solution:

http://www.bloomberg.com/apps/news?pid= ... refer=home

Quote:
U.S. House Democratic leaders have set a vote for today on a proposed 90 percent tax on executive bonus payments by companies receiving more than $5 billion in federal bailout funds. The 90 percent tax would apply to people with overall income exceeding $250,000, including bonuses.
(note: the other 10% goes to other taxes, it's actually a 100% tax, this is explained elsewhere in the article).

That's right at ALL TARP COMPANIES (assuming you have all in comp of at least 250K) you are no longer allowed to be paid a bonus. At all. Zip. Nada. It's like having one kid act up in class and then having the teacher suspend the entire class.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 01:33
IHateTheGMAT wrote:

That's right at ALL TARP COMPANIES (assuming you have all in comp of at least 250K) you are no longer allowed to be paid a bonus. At all. Zip. Nada. It's like having one kid act up in class and then having the teacher suspend the entire class.


Maybe this is the key thing about a western mindset. When an individual is sucessful, everyone in the department is rewarded for the departments success, but if the department fails, then individuals who did not do as bad as everyone else should be rewarded?
Indivuduals are willing to take credit and s share of the bonus when a team is succesful, but not willing to share responisbility when things go wrong?
Individual vs Team or Team = shared responsibility?
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 02:46
togafoot wrote:
IHateTheGMAT wrote:

That's right at ALL TARP COMPANIES (assuming you have all in comp of at least 250K) you are no longer allowed to be paid a bonus. At all. Zip. Nada. It's like having one kid act up in class and then having the teacher suspend the entire class.


Maybe this is the key thing about a western mindset. When an individual is sucessful, everyone in the department is rewarded for the departments success, but if the department fails, then individuals who did not do as bad as everyone else should be rewarded?
Indivuduals are willing to take credit and s share of the bonus when a team is succesful, but not willing to share responisbility when things go wrong?
Individual vs Team or Team = shared responsibility?


Even when the department is successful, not everyone shares equally in the award. The award pie is bigger, but individual pieces of that pie are determined based on individual performance. Also, this bill will not just punish the departments who caused this mess, but the entire organization, including those groups that remained profitable throughout all this, would now face an arbitrary cap on compensation at $250,000. Yes, I agree the AIG bonuses are distasteful. But the government's response will affect people not only at AIG, but also JPMorganChase, Goldman, BofA, Citi, Wells Fargo, Bank of New York, etc. So now if you're an equities trader at Citi, who generally had total compensation of say $400,000 and arguably had nothing to do with the mess Citi finds itself in, you're now capped at $250,000. If you're good at what you do, how long do you think it'll be until Deutsche Bank comes calling to tell you that you can avoid the new punative tax if you come join their trading desk?

Bottom line? Econ 101: price controls are a bad idea.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 05:32
The government has completely lost it. And you wonder why people don't want the government involved in running private firms? Because they just can't help but drive it into the ground. If you think about the background of the people in congress, they are all lawyers - and who is the last group of people you want running a company? In my opinion, it would be lawyers.

I'll say it today - THIS WILL BANKRUPT ALL OF THE TARP FIRMS IF THEY CAN'T RAISE PRIVATE CAPITAL. For example, if I'm an M&A banker, maybe a VP or Managing Director, at Citigroup and the most money I can make this year is $250K, I'm gone in a second. As soon as this thing passes, I'm handing in my resignation letter. Essentially, the federal government just pulled a Circuit City at the largest US financial firms and drove out all of the revenue producers. It's just a sinking ship now.

And what is so laughable is that this is all over $173 million worth of bonuses at AIG. That is a rounding error to Congress. They waste that much money on copying services. They spent $8 billion on earmarks and said that was no big deal, but they completely lose a gasket over $173 million? Wow, the chutzpah on those guys and girls.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 05:42
agreed. The knee-jerk reaction in the goverment is sickening. Charlie Rangel said he was against a retroactive tax and the next day he changed his mind on that. Can we have representatives that actually stick to their principles and not follow which way the wind is blowing?
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 05:54
I disagree that this is all a lot of pandering to a confused and ignorant public. People - and their representatives - are angry because the very jokers in AIG's financial products division who drove their company into the ground and precipitated a good deal of this mess are now being paid millions in bonuses essentially out of my pocket. No one seemed to have much trouble demanding that blue-collar GM workers renegotiate their "contractually obligated" benefit packages after the fact - so why not a bunch of financiers and managers too?

Also, interesting article - is retention pay really that necessary?

Link: http://www.nytimes.com/2009/03/18/busin ... ei=5087%0A

Toss the bums out. I'm sure you can get some plenty talented people in there who will work for a much more reasonable salary and do a better job than those jokers.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 06:01
Toubab wrote:
I disagree that this is all a lot of pandering to a confused and ignorant public. People - and their representatives - are angry because the very jokers in AIG's financial products division who drove their company into the ground and precipitated a good deal of this mess are now being paid millions in bonuses essentially out of my pocket. No one seemed to have much trouble demanding that blue-collar GM workers renegotiate their "contractually obligated" benefit packages after the fact - so why not a bunch of financiers and managers too?

Also, interesting article - is retention pay really that necessary?

Link: http://www.nytimes.com/2009/03/18/busin ... ei=5087%0A

Toss the bums out. I'm sure you can get some plenty talented people in there who will work for a much more reasonable salary and do a better job than those jokers.

You completely don't get it. We're not talking about the bums in AIG's financial products group anymore (and I'm sure not all of them were bums - most likely they have already quit or have been fired). We're talking about EVERYONE that produces revenue in every major bank in this country. Everyone who's worth their weight at an IB or Commercial bank will fall under this $250K cap. This has gone way to far.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 06:28
jb32 wrote:
For example, if I'm an M&A banker, maybe a VP or Managing Director, at Citigroup and the most money I can make this year is $250K, I'm gone in a second. As soon as this thing passes, I'm handing in my resignation letter.


Just to play devil's advocate - competition seems pretty steep to get a job at the boutiques right now. I also believe the boutiques have a model closer to "Eat what you kill" - e.g. you have the opportunity to make a ton of money if you bring in a lot of deals, but very little guaranteed comp or stability (There is no guaranteed $1-2M at the end of the year if the IBD does well). In a market like this, it's not exactly easy to bring in deals, no matter how great your relationships with industry are.

If you've been at Citi or Merrill for 15 years, ever since you graduated business school, do you really want to throw that away for short-term financial gain? Reputation is everything on Wall Street, and it's something you need to guard preciously. The TARP money may be repaid within about 2 years, and things may go back to normal. The government's intentions are only to make this temporary (until the money is repaid).

Lastly, people and politicians lie. The market doesn't. C is up 100% over the past 5 days. BAC is up 32% over the past 5 days. Yes, they've been slaughtered, but seem to be on the right track.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 06:44
What about Credit Suisse, Deutsche Bank, UBS, and Lazard? They wouldn't be considered mid-market or boutique, but aren't limited by TARP restrictions. Deutsche Bank has been poaching groups from Merrill for weeks now. Also, if the relationships are yours, i.e. you and the Merck CEO are tight and then the Merck-Wyeth deal goes with you when you leave. It's happened before and as soon as there are signs of light in the deal market, which will pick up heavily here soon, bankers will be leaving in droves.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 07:05
Toubab - I don't think anyone here would try to defend the bonus payments made by AIG. I think what has people unhappy is the disproportionate response by the government, and the potential adverse repercussions from it. The analogy would be a doctor amputating a patient's entire arm in order to remove a mole on their pinkie finger.

As bad as the AIG bonuses are, they represent only 0.02% of the TARP money. Earmarks in the recent spending bill spent 4700% more of the taxpayers money than the AIG bonuses. If people want to be upset about how their tax dollars are being spent, there are plenty of more worthy targets for their ire than this.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 07:08
jb32 wrote:
It's happened before and as soon as there are signs of light in the deal market, which will pick up heavily here soon, bankers will be leaving in droves.


Eh, I'll believe it when I see it. I think the oft-touted impending migration of "talent" is just so much hullabahoo about nothing. No one's going to be ditching their secure job in this economy. If they did, as I said, I am positive you could find perfectly capable people who could do those jobs better than their predecessors for "only" $250k a year.

I also can't help but gag when I hear people complain about that much money.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 07:22
Toubab wrote:
I am positive you could find perfectly capable people who could do those jobs better than their predecessors for "only" $250k a year.


Where are all these talented $250k a year people? Don't you think if people existed that were just as talented as the $1m+ bankers but were willing to work for $250k they would have been hired already? Companies don't pay people high salaries and bonuses because they enjoy giving large sums of money to their employees. They pay them that well because if they didn't, someone else would. That's how the market works. To put an artificial cap on compensation for some employers and not others will just result in a shortage of talent at the TARP companies.

Toubab, if you found yourself contemplating two jobs offers - similar roles at similar companies but one company offered you $250k and the other offered you $1m, which would you choose? Would you choose the $250k job because that's enough money for you? How would you explain to your family why you turned down another $750k a year?
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 07:34
Let's take it a step farther. Let's say the NBA decided tomorrow to cap all salaries for Western Conference teams at $250K a year. However, Eastern conference teams are allowed to pay their players whatever the market price is? What do you think would happen? Would Kobe continue to play for the Lakers or would he want to go to an East coast team? How about any of the other stars that play in the west? They would all leave as soon as they could. Either that or they would strike until the cap was lifted.

Anyway, my point is that as soon as there are viable options for these bankers to leave, they are gone. The tax Congress is pursuing applies to salaries in 2009, so December is a long time for these bankers to find an exit strategy. Many are already millionaires and could probably open their own boutique tomorrow and be fine if they didn't bring in a deal until the end of the year. If the economy sees light at the end of the tunnel in the next few months, watch out because there is going to be a mass exodus on Wall Street of the best and brightest. The ones who couldn't cut it were already laid off over the past two years. The ones that are left are the people firms don't want to lose, but they will if they can't pay them.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 09:20
Look, I was an econ major too, and I get how "the market" is supposed to regulate wages. But obviously those $1m-base-salary-plus-bonus compensation packages did not, in fact, attract the "best and brightest," because those guys ran their firm straight into the ground. As in most areas of economic life, I think classical economic theory actually has very little to do with what's really going on.

In the last 10-15 years, we've seen a dramatic inflation in the size of executive compensation packages relative to average salaries. Have executives just gotten a lot smarter in that time? I doubt it. I think executive pay, particularly in banking, is essentially a market bubble that, well, just burst. Everyone's already talking about how the bulge-bracket Wall Street investment firm model is dead, or at least well on its way. Firms that earlier demanded the credentials and experience of someone who would've expected that $1m package are going to start widening the net. That's what these banks (who, again, would not be in business right now if Uncle Sam hadn't propped them up) are going to have to do. Letting the $250k guy in the door to run things will (clearly) scandalize a lot of people who have become convinced that anyone capable of that work is "worth" four times as much.

But $250k guys are clearly a lot easier to find and I'm sure that most of them can do the work just as well. Just ask the graduating MBA class of 2009 - I'm sure many of them would leap at the chance to even get in the door. Just wait and see - the sky will not fall.
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Re: Exec Comp Restrictions Get Tougher [#permalink] New post 19 Mar 2009, 10:28
Toubab wrote:
Look, I was an econ major too, and I get how "the market" is supposed to regulate wages. But obviously those $1m-base-salary-plus-bonus compensation packages did not, in fact, attract the "best and brightest," because those guys ran their firm straight into the ground. As in most areas of economic life, I think classical economic theory actually has very little to do with what's really going on.

In the last 10-15 years, we've seen a dramatic inflation in the size of executive compensation packages relative to average salaries. Have executives just gotten a lot smarter in that time? I doubt it. I think executive pay, particularly in banking, is essentially a market bubble that, well, just burst. Everyone's already talking about how the bulge-bracket Wall Street investment firm model is dead, or at least well on its way. Firms that earlier demanded the credentials and experience of someone who would've expected that $1m package are going to start widening the net. That's what these banks (who, again, would not be in business right now if Uncle Sam hadn't propped them up) are going to have to do. Letting the $250k guy in the door to run things will (clearly) scandalize a lot of people who have become convinced that anyone capable of that work is "worth" four times as much.

But $250k guys are clearly a lot easier to find and I'm sure that most of them can do the work just as well. Just ask the graduating MBA class of 2009 - I'm sure many of them would leap at the chance to even get in the door. Just wait and see - the sky will not fall.

Pardon my french, but what f*** are you talking about? We are not discussing executive pay packages here. That is not what this bill is about. The bill now encompasses every employee that works for a TARP company. We are talking about 10s of thousands of people that make over $250,000 a year that happen to only work for American companies (not foreign owned companies that operate here in America), and probably 90% of those employees had absolutely nothing to do with MBSs or CDOs, or any other toxic asset. These are associates, VPs, directors, and MDs in every line of business in an IB. Most are the ones keeping the company in business right now since their coworkers in Prop Trading lost so much dang money. So, the Democrats and Charles Grassley say 'Let's screw them too!!!' That will be the vindication for all liberals!!! Yeah, screw the successful. That sure is change you can believe in.
Re: Exec Comp Restrictions Get Tougher   [#permalink] 19 Mar 2009, 10:28
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