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# Exec Comp Restrictions Get Tougher

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Director
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Exec Comp Restrictions Get Tougher [#permalink]

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13 Feb 2009, 15:41
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The new "stimulus" bill includes even tougher restrictions on executive compensation then President Obama proposed a couple weeks ago. The new restrictions are RETROACTIVE and apply to every single company that took TARP money (including firms that didn't want the money but were forced to take it such as Wells Fargo and JP Morgan). Among other restrictions, the top 20 executives can no longer have a bonus that exceeds one third of their total compensation and all TARP companies will be required to have an annual "say on pay" shareholder vote approving executive compensation.

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Re: Exec Comp Restrictions Get Tougher [#permalink]

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19 Feb 2009, 13:36
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I encourage every one of you who gets indignant about "public outrage" to spend a day with a local Sheriff who has to evict families out of foreclosed homes.

Yes, daddy and mommy screwed up by taking on more money from Countrywide to redo their kitchen. Now, daddy doesn't have a job or has his hours cut back to part-time. Daddy is trying to find a job after getting laid off. He feels ashamed in front of his children. The family has no where to go. They might go live at his brother's, or maybe in the basement of their parent's place so the kids. Every day, the kids ask why daddy isn't at the office.

They continue to "squat" in their own home until one day the Sheriff comes. The kids answer it.

Now, I want some of you MBA-types to look these kids in the eye, and tell them that they have to leave the house because their daddy and mommy got a little happy and tried to redo the kitchen. I also want you to look the mother in the eye and tell them they have to leave.

And most importantly, I want you to tell them that their anger at hearing Wall Street execs getting huge compensation to be silly.

Or tell a plant worker in his 40s with an associates degree that tough is tough -- this worker did the best he could, and is about to get laid off. His wife has diabetes (yes, their eating habits may have contributed to it) and they have two young kids. He has absolutely no idea what he can do in the town that he's lived in all his life.

Now, I want you highly educated types to tell them that they are fat, lazy and stupid. And that if they would stop eating at McDonald's and start living with some more pride, maybe the father can go to a state school and get his bachelors. I want you to look them in the eye, and blame them for all their suffering. More importantly, I want you to tell that to their kids about how their parents are such losers. I want you to look him in the eye and tell him that he can just pick up and move, just like us MBA-types. It's hard, but so what? If we can do it, so can he. And also, I want you to completely dismiss his outrage and anger as "irrational" and not "in line with economic theory of incentives".

I don't want to get overly accusatory here, but having heard enough of these discussions from MBA-types and other highly educated professionals wax poetic in an academic way about the "crisis", remember that not everyone in this world is a young, upwardly mobile, educated and cerebral professional with a 700 GMAT who is expecting an upper middle class lifestyle.

When folks in the upper 15% screw up (i.e. those who make more than $100K per year according to the US Census), they may see a blow to their ego, pride and lifestyle temporarily - they may freak out emotionally just as badly as someone with much less, but overall they will get through it. But when regular folks screw up (or things screw up around them), they don't have many options and the harsh truth is not all will get through it. Regular folk aren't angry because they're jealous. They're angry because many folks in the upper 15% are living in a self-referential bubble. They are angry because they feel they are suffering the brunt of it and most importantly, they are angry because there is a perception that the upper 15% have very little compassion or even a willingness to really understand what the "rest of the country" is really going through emotionally, mentally, physically. When an MBA-type or executive gets laid off, their kids can't go to private school. But when regular folks get laid off, their kids can barely eat. And no, I'm not talking about the "poor". I really encourage all of you to spend some time volunteering or working with people outside the "yuppie" MBA crowd. Have some compassion -- because it WILL color how you see this whole policy discussion about the banking crisis, executive compensation, economy, etc. It's no longer just a dry, academic argument of cold logic. Remember: taxpayers are footing the bill. It's coming out of the pockets of the regular folk who are about to lose their jobs and health insurance and homes. No matter what the academic argument is, executives (and their Wall Street ilk) aren't really in a position to b*tch and moan. In fact, b*tching and moaning about it only exacerbates the anger and outrage. Regardless of whether it's right or wrong, they have to suck it up. _________________ Alex Chu alex@mbaapply.com http://www.mbaapply.com VP Joined: 09 Dec 2008 Posts: 1221 Schools: Kellogg Class of 2011 Followers: 21 Kudos [?]: 242 [7] , given: 17 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 19 Feb 2009, 14:31 7 This post received KUDOS . Attachments arguing.jpg [ 36.72 KiB | Viewed 1362 times ] _________________ Manager Joined: 15 Dec 2008 Posts: 52 Schools: HBS(08) - Ding. HBS, Stanford, Kellogg, Tuck, Stern, all dings. Yale - Withdrew App. Emory Executive -- Accepted, Matriculated, Withdrewed (yes, I spelled it wrong on purpose). ROSS -- GO BLUE 2011. Followers: 1 Kudos [?]: 83 [3] , given: 1 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 19 Feb 2009, 14:37 3 This post received KUDOS AlexMBAApply wrote: Now, I want some of you MBA-types to look these kids in the eye, and tell them that they have to leave the house because their daddy and mommy got a little happy and tried to redo the kitchen. I also want you to look the mother in the eye and tell them they have to leave. Hey kids, your mommy and daddy were stupid and lived beyond their means. Pack your stuff, move into a small apartment, listen to Dave Ramsey, take some baby steps, and get your life back in order. Current Student Joined: 09 Nov 2008 Posts: 216 Location: Evanston, IL Schools: Kellogg '11 (MMM) Followers: 1 Kudos [?]: 29 [2] , given: 2 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 18 Feb 2009, 11:35 2 This post received KUDOS I blame the Beltway politicians for this whole Wall Street mess. While ultimately, homebuyers, local banks, and investment banks also played their part in this mess, to pin this entirely on the executives on Wall Street is ridiculous. If we look at the toxic mortgage securities that have pretty much crippled Wall Street we must trace this trail back to Freddie Mac and Fannie Mae. Freddie and Fannie were established as a mechanism for a quasi-governmental organization to buy mortgages from banks in order to free up bank capital to lend to more prospective home owners and then sell these mortgages on the secondary market. Fannie (chartered as a GSE in 1968) and Freddie (chartered in 1970) had a perfectly viable (though somewhat controversial) business model that worked well for 20+ years. The reason I say controversial is because from the outset, Fannie and Freddie answered to two (sometimes competing) masters: the federal government and shareholders. So for 20+ years, banks exhibited good lending practices, homebuyers had to front large down payments and had to cover closing costs etc, and investors in the secondary mortgage back securities market (IBs, etc) could feel confident that the assets they were buying had been vetted both by the banks originating the loans, and also by Freddie and Fannie who purchased these mortgages from the banks. In my opinion, where things began to unravel was in 1994 when Clinton directed HUD to come up with a strategy to get more people into homes. HUDs response was the "National Homeownership Strategy" (which by the way HUD proudly displayed on there website until the end of 07 when things started to get ugly). To get an idea of the intent of this strategy, here is a brief excerpt: "For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership." Um..."lack of cash to cover downpayments and closing costs", "households do not have sufficient available income to make monthly payments" if I was a bank why on earth would I ever lend to someone like this? The answer "financing strategies, fueled by the creativity and resources of the private and public sectors." So why would Washington back something like this? VOTES. Getting every American, regardless of if they can afford it or not, into a home gets politicians elected. So Washington puts pressure on Freddie and Fannie to ease its standards on the quality of the mortgages that it purchases from banks. While I'm sure many of the top folks at Freddie and Fannie probably realized the risks involved, at the end of the day they knew that the government had a stake in keeping them solvent if things were to get turned upside down (stockholders didn't mind either because business is booming - I use to be a stock holder in Freddie when business was booming). Banks, realizing that pretty much any mortgage that they create (regardless of how "creative" the terms on the loan were) would be gobbled up on the secondary market, start making increasingly risky loans. Throw into the mix that in the late nineties and early 2000s there was a world wide$7 trillion surplus on investment money looking for a home, IBs jumped at the opportunity to increase there investment in the mortgage backed securities market. Should Wall Street have known that the quality of these securities was tainted? Probably, but again, think from whom they were buying these securties, Freddie and Fannie, a agent of the federal government right? Should IBs done the due diligence on every single mortgage bundled in the security? Could they have even done so if they wanted to?

This sequence of events also has an effect on the real estate market. As the pool of potential homebuyers (many unqualified) demand for homes grows artificially. Prices also grow artificially. Thus the bubble grows.

Then the bubble bursts are we find ourselves in our current condition. Homeowners default on their loans, banks go under, Freddie and Fannie cannot back their securities and secondary market investors get screwed. The credit market freezes, and IBs start going under.

So, tying this back to the orginal post, now the federal government, the very same one that sowed the seeds of this mess to begin with, are going to ride in on their white horses to save the day. Are they coming in saying, "wow, we really had a large part to play in this mess to begin with, let us help you?" No, they are coming is saying "Wall Street, you guys f'ed up and it's all your fault." Why? VOTES!!! It would be interesting to go back and see how many of the democratic congressmen that are now reaming Freddie/Fannie and IBs used the 1994 National Homeownership Strategy as crowning example of how they were doing good for their consticuencies.

Washington is using Wall Street as a scapegoat for their own failed strategy. Capping executive pay is just another example of the hypocracy that exists here in our nations capital. Its makes great press, shows how Washington is looking out for America, and gets vote but in the end it doesn't even start to address the deeper problems. I was not a huge fan of John McCain, however I agree with him that we all have individual responsibilities. To say that the individual homeowner that took out a bigger loan than they could manage, and the banks that originate these loans are blameless is just down right rediculous.

There is plenty of blame to go around, and clearly, many on Wall Street are in it for the money. But isn't that the point of Wall Street, to make as much possible for investors? Perhaps we would all be better off sharing a bit of the blame.
Director
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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19 Mar 2009, 12:55
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DK wrote:
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.

So the DJ Financial Index is down ~6.2% today. http://www.google.com/finance?q=INDEXDJX:.DJUSFN

TARP Affected Firms:
B of A = -8.7%
JPM = -7.7%
GS = -4.6%
US Bancorp = -9.1%
Morgan Stanley = -12.5%
Citigroup = -12.3%
Wells fargo = -10.5%
PNC Financial = -8.6%

Non-Tarp Banks:
UBS = -0.6%
Deutsche Bank = +4.1%
Barclays = +2.2%
Credit Suisse = -6.3%
HSBC = -1.0%

So, what is the difference between these two lists of firms? Seems the market has spoken.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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13 Feb 2009, 17:42
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I can think of one other organization that caps executive pay.....the Federal Government. Clearly they attract the best and the brightest as well.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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15 Feb 2009, 17:20
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I'm going to generalize. I can see how in theory, the market setting exec salaries is best, but in practice, it doesn't seem to play out that well. When a company is doing well, they want huge salaries. When a company has nowhere to go but up, they justify it as a CEO leading them out of bankruptcy (I'm talking to you Rick Wagoner). In the end it's only an issue because it's easy for politicians to rally crowds about it, financially it doesn't make all that much difference. But on the flip side, why should it matter all that much to a CxO that's already making more money than he or his children could spend in their lifetimes.

Some CEOs are worth what they make and some aren't, I think it's just a fact of life. I'll say that Eric Schmidt is worth of penny of his $1 salary . Certainly some would claim that Nardelli's$1 salary at Chrysler is more in line than what he made out with at Home Depot.

By the way, David Axelrod was making the rounds this morning and said the White House didn't like this piece, but then quietly added that they hope to enact something more strict...
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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16 Feb 2009, 14:15
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Re: "unintended consequences" - I have a hard time believing the incoming administration just doesn't understand how executive compensation works. Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk. Even at "only" half-a-million-dollar per year salaries, I think any firm will be able to attract a ton of quite capable talent.

I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them. While I clearly don't think the federal government should begin micromanaging an industry like banking, the executive compensation caps make sense as a way to prevent unscrupulous folks (of which there are obviously more than a few on Wall Street) from milking the federal cow for all it's worth before (golden) parachuting away.

Again - no sympathies here for anyone crying about a $500,000/year salary cap, or not getting a bonus this year. The sense of entitlement makes me gag. Current Student Joined: 26 Jan 2009 Posts: 143 Schools: Stanford, Wharton, Booth, Kellogg Followers: 2 Kudos [?]: 2 [1] , given: 0 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 16 Feb 2009, 18:47 1 This post received KUDOS Toubab wrote: Re: "unintended consequences" - I have a hard time believing the incoming administration just doesn't understand how executive compensation works. Paulson, Geithner, Summers - those guys know how corporate America works, and they clearly don't think that an exodus of talent is really that much of a risk. Even at "only" half-a-million-dollar per year salaries, I think any firm will be able to attract a ton of quite capable talent. I'm not in banking, but I also have a hard time believing the federal government "forced" any banks to take TARP funds. Rather, they bailed them out with my taxes to prevent a massive round of bank collapses that would've shaken the foundations of the whole economy, and found banks more than ready to accept them. While I clearly don't think the federal government should begin micromanaging an industry like banking, the executive compensation caps make sense as a way to prevent unscrupulous folks (of which there are obviously more than a few on Wall Street) from milking the federal cow for all it's worth before (golden) parachuting away. Again - no sympathies here for anyone crying about a$500,000/year salary cap, or not getting a bonus this year. The
sense of entitlement makes me gag.

Agreed 100%.

Plus, it might be a good idea for all this "talent" to go elsewhere - most of the current executives oversaw this collapse in the first place and I don't have a lot of confidence in them anyhow. They will not be missed.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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18 Feb 2009, 12:49
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I apologize, but I'm just sick of the populism in the media, Washington, and everywhere else. It just doesn't belong in an intelligent discussion on executive compensation. If you can give me a good reason why we should lower Wall Street comp without speaking about wealth envy and making generalizations about everyone being a crook, then I'm happy to listen and I'll value your opinion, but I'm just tired of the jealousy and envy crowd standing on the moral horse of righteousness and blaming compensation and greed on Wall Street. Were there things they could have done better, sure, but in the end it doesn't do any good in solving the problem to start with crucifying Wall Street.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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19 Feb 2009, 14:16
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Alex, I will preface this with that I really respect many of the posts you write, and while I absolutely believe kids are completely innocent in this whole thing and have spent many hours volunteering with under priveleged kids - I completely disagree with you what you wrote. We can agree to disagree, but I wanted to express my view just the same.

I beleive it's called wealth envy and what's sad is that there was a time in this country where people didn't 'expect' things. They worked hard and knew that life wasn't fair, but figured if they tried their hardest things might work out for the best. It was called the American Dream - work hard and you can expect to earn the fruits of your labor. People were humble and proud of what they did, now the entitlement generation believes everything should be handed to them. And if things don't go well, they sue someone or blame rich people.

Now, it's not, work hard and enjoy what you produce. Now, it's this mythical dehumanized top 1% of people that is to blame for everyone's problems. It's their fault, not yours. It wasn't your fault that you quit high school and got your girlfriend pregnant at 17. It's not your fault that you really, really wanted a new kitchen with stainless steel appliances, when you haven't even saved for your kid's college education, but it's those fat cats on Wall Street who caused this whole mess. They are the reason you're losing your house. Those rich guys up in New York and out on the West Coast in San Francisco who only got those high paying jobs because of their daddy's connections.

No, Alex I really feel for the innocent kids that are caught up in all of this, but I have no sympathy for people that tried to live a lifestyle they couldn't afford. I'm sorry, but I'm just not going to take stupidity as an excuse. Not when we live in a country where a person can do anything they want if they want it bad enough. In a 3rd world country, it is much, much, much harder to rise out of poverty, but in America I'm not going to forgive stupidity, laziness, greed, or envy. They don't get a pass anymore. They have in the past few decades and I'm not going to do it. And I'm not going to be a hippocrit about it, as I take responsibility for EVERY decision I make in my life. It's not someone elses fault if I lose my job and have been so content that I never made my self better over the course of 5 years of employment. Sometimes you get a tough break in life, it happens to EVERYONE, but it is what you make of these tough breaks that defines your character. If you get angry at people and things you can't control, then what have you accomplished? How is their suffering going to make your situation any better? Just get over it. You'll be a much happier person when you only worry about what you can control - and that is YOU!!

So, just forget about this mythical 'top 1%', and just worry about yourself. Worry about how you are going to make life better for you and your family. Work hard and save your money in case something terrible happens. Always prepare for the worst financially, but hope for the best. Take responsibility for your own choices. If that were to hapen, it might mark America's next great renaissance, but we'll see.

Quote:
Remember: taxpayers are footing the bill. It's coming out of the pockets of the regular folk who are about to lose their jobs and health insurance and homes.

Actually, if politicians have their way, it's the top 1% and all the MBA-types that will be footing the bill. Only the top 50% of people in this country pay any taxes anyway. It's going to be those same kids that suffer.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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19 Feb 2009, 15:28
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The flip side of all of this is communism. Everyone is equal and everyone is working for the good of the collective. Clearly, this model doesn't work out so well either. It is human nature to want to better or place in society. We work hard so that our kids can have a better and easier life than we did.

There is no "right" answer in all of this. But, to think that the federal government has a responsibility to bail out every single person/family that over extended themselves is not the right answer. The very same people that are saying that failed industies (IB, Auto) should be forced to live the with consequences of there actions, are the same ones that don't want to live with the consequences of taking out mortgages that they could never repay.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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19 Feb 2009, 16:32
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http://online.wsj.com/article/SB123491033872703471.html
Quote:
The stimulus bill, which was signed into law Tuesday by President Barack Obama, contains a provision that limits bonus payments to no more than one-third of annual total compensation at banks and other companies that have taken federal bailout money. For the biggest such institutions, the limit affects the five top officers, plus the 20 next most highly compensated employees -- effectively the 25 highest-paid people at an institution.

But the law doesn't define how those 25 are to be identified. It leaves the details to the Treasury Department, which is supposed to announce interpretive rules in the coming weeks.

One possible interpretation, according to lawyers, results in an oddly circular effect that could cap pay for everybody. If a bank identifies the 25 people it intends to pay the most this year, then restricts their pay, that group no longer would be this year's 25 highest paid. Then 25 new people would become the highest paid, and their bonuses will have to be capped, and so forth.

Another possibility is that a bank could cap the pay of the 25 who earned the most in 2008. Those people likely would no longer be the highest paid in 2009. But that means a different group would have that distinction, and this second group's pay would then be capped the following year, while the first group's pay would be uncapped.

The result could be a "weird game of leapfrog" in which groups of 25 executives trade places as the highest paid every year, said Christian Chandler, an executive-compensation attorney at Hogan & Hartson LLP in Washington.

Quote:
Some experts and industry insiders predicted unintended consequences nonetheless. Typically, big banks and Wall Street firms have paid their top earners a small salary, but offered the potential to earn a large bonus depending on performance. By being forced to cap bonuses, banks will have no choice but to ratchet up salaries, some predict.

"To be put in a situation where you're limiting performance-based compensation is the dumbest thing you can do," said the senior executive at the investment bank. "Everything that shareholder advocates have been seeking for years is thrown out the window."

This executive offered a hypothetical example of a head of commodities trading paid $10 million in 2008, only$250,000 of which represented salary. "If you want to keep this commodities trader, you have to increase his salary to $8 million," he said. But the trader collects that substantial sum even though "you have no idea about his total performance for the year" -- and the firm can't recoup his salary if his performance falls short, the executive said. Alan Johnson, managing director of Johnson Associates Inc., a New York compensation consultancy that advises Wall Street firms, predicted that the legislation as written would result in a mass exodus of top earners. "Who would stay for a 90% pay cut?" Mr. Johnson asked. MBA Admissions Consultant Joined: 26 Dec 2008 Posts: 2453 Location: Los Angeles, CA Followers: 82 Kudos [?]: 560 [1] , given: 0 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 19 Feb 2009, 20:01 1 This post received KUDOS The "tough sh*t" attitude I get from some of you posters here frankly sickens me. All I'm saying is have some compassion and empathy. I'm not talking about who's right and wrong. Or even who's to blame. Or providing a clinical analysis of why "regular folk" should own up to their responsibilities. Empathy isn't about telling people why they screwed up. It's simply connecting on an emotional level with people who are going through very tough times - AND without judgment for how they got there. And it's starting from that very basic human level to frame the discussion. In other words, your ability to empathize with someone isn't conditional on whether that person made poor decisions or not. Once you are willing to understand on an emotional and human level what someone else is going through (and without judgment), the discussion becomes much more complicated. That's all I'm saying. That when you bring in the human dimension to any discussion - whether it's social, political, economic, religious, etc. - your opinion may or may not change, but how you frame the discussion will. And yet the response is yet more flippant and smug posts from people like RahlowJenkins. If you want to know why people hate MBAs and business types, well you have your answer with some of the posts on this thread (and deservedly so). And jerz, I know you were trying to be funny, but what if I told you that I have family who has Down Syndrome? Especially when my intent was to get people to be a little more compassionate and to have some more heart. I know it's the internet and all, and there's always a chance for some juvenile behavior and trolls, but I thought the GMAT Club was full of adults (and hopefully adults with some iota of humanity and heart - I know, words you would never hear in an MBA classroom...). I don't expect any of you in b-school to even discuss this on this level because frankly if you do you'll likely get laughed at by your understandably nervous classmates in this kind of economy. But I really hope that through life you will be able to see and frame problems from a less dispassionate perspective. We're not talking about widgets, but problems that impact people's lives here. There's not much more I can say. Let's just hope that should (god forbid) some of you get into dire straits (even if it was your fault), there are people out there who are willing to open up to you without judgment. _________________ Alex Chu alex@mbaapply.com http://www.mbaapply.com Last edited by AlexMBAApply on 19 Feb 2009, 20:13, edited 1 time in total. Director Joined: 20 Feb 2008 Posts: 797 Location: Texas Schools: Kellogg Class of 2011 Followers: 6 Kudos [?]: 146 [1] , given: 9 Re: Exec Comp Restrictions Get Tougher [#permalink] ### Show Tags 19 Feb 2009, 21:24 1 This post received KUDOS adcxaway wrote: I'm just curious, to those that support the exec comp caps, how much do you want to be paid if you ever become a top exec in an organization? Whatever is the market rate at the time. I'll earn more or less based on my performance. That's all I can ask for. refurb wrote: Jb32, if you were a woman, that post would make me want to make love to you. Thanks, I think. Alex, no problem disagreeing. I both empathize and sympathize with those people. It sucks to lose your house. The mother of my son lives in the Inland Empire in California and did home mortgages for 6 years. She lost her job last October two months before my son was born. It sucks because she still can't find a job. Of course on the other side of the fence, you probably didn't realize that she was making close to$300K a year in 2004-05. Luckily for her, she saved over $150K, sold her home in 2006 near the top of the market, and rented for the last 2.5 years. She was both prudent and lucky. She had many coworkers that took the other approach and bought$1 million homes on their salaries and thought the streak would last forever. All of them lost their homes last year as soon as the market started to slow. Does it suck, yeah it does. However, one of my favorite quotes from Proverbs sums it up nicely: Proverbs 14:18 The simple inherit folly: but the prudent are crowned with knowledge. Sorry to bring up religion, but it hits at the heart of the arguement.

Finally, I ask that everyone do one thing. If you are going to humanize the people who are losing their homes, then you must do the same for the other side of the coin, the Wall Street Executives. It's not a fair point to bring up stories of kids' parents losing their homes and then refer to Wall Street Executives as some faceless symbol of money and power. They are just as human as any of the rest of us. I would think there are many that feel both guilt and shame for what happened. Some, maybe not, but I would bet many feel disgraced for their failures and would give up their riches if they could do it over again. I mean how would you feel if because of you 10,000 people were out of a job and that was what your legacy on earth would be? You would be remembered and hated as one of the men that caused a global recession. People would mention you in books as one of the worst managers on earth, even if you were right 99 out of 100 times. I mean at our age, we are all wild eyed and thinking everything will go grandly, but in 25 years, you might be head of trading at a major Wall Street firm. One of your employees might be the one that causes your firm to go bankrupt and you'll have to live with that forever. I'm just saying that a coin has two sides...that is all I'll write on this thread.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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20 Feb 2009, 09:10
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jb32 wrote:
I beleive it's called wealth envy and what's sad is that there was a time in this country where people didn't 'expect' things. They worked hard and knew that life wasn't fair, but figured if they tried their hardest things might work out for the best. It was called the American Dream - work hard and you can expect to earn the fruits of your labor. People were humble and proud of what they did, now the entitlement generation believes everything should be handed to them. And if things don't go well, they sue someone or blame rich people.

In a 3rd world country, it is much, much, much harder to rise out of poverty, but in America I'm not going to forgive stupidity, laziness, greed, or envy. They don't get a pass anymore. They have in the past few decades and I'm not going to do it. And I'm not going to be a hippocrit about it, as I take responsibility for EVERY decision I make in my life. It's not someone elses fault if I lose my job and have been so content that I never made my self better over the course of 5 years of employment. Sometimes you get a tough break in life, it happens to EVERYONE, but it is what you make of these tough breaks that defines your character.

I just don't understand how people can say that now we are in the midst of an entitlement generation in support of the argument that executives have every right to complain about their compensation being capped at half a million dollars a year, especially after they failed miserably at their jobs. Yes, borrowers and lenders screwed up, but so did the banks. You say that you always take responsibility for every decision you make in life, and you have no sympathy for irresponsible borrowers, but where is the bankers' culpability? It seems that most people arguing against pay caps quickly point the finger at the borrowers and lenders, but the Investment Banks were all too happy to purchase those mortgages in bulk. So you have no sympathy for borrowers or banks, but somehow the Investment Banks that played a major role in this crisis are somehow different? I'm not trying to start an argument, I just see some major hypocrisy in a lot of the arguments that blast the borrowers and defend the banks.

I agree there were many people who chose to live beyond their means, but let's not cast them all off as stupid or irresponsible. The truth is that many of the borrowers were elderly, poorly educated people who were preyed upon by lending institutions. If you missed 60 Minutes this past Sunday, I highly recommend watching this: http://www.cbsnews.com/video/watch/?id=4803928n.

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Re: Exec Comp Restrictions Get Tougher [#permalink]

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20 Feb 2009, 10:58
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JB, taxes make a government, and thus society, run. That's why we care that people pay their fair share.

Domitri, I think you and I are basically on the same page. We're in different fields because different things interest us, at the end of the day. I think that finance and consulting are dreadfully boring, for example, and I'm not willing to trade the lifestyle that's required to become super wealthy working in those fields for the big returns. Others are. Hey, live and let live.

I would point out that envisioning helping others as some more distant goal, only achievable once you've already made your fortune, is a bit misleading for two reasons. First, it depends on this notion of when you have "enough" to start giving so generously philanthropically. Your idea of what's "enough" will probably be quite different in ten or twenty or thirty years, once you've become accustomed to a very different lifestyle than you have now. You have plenty of millionaires these days who don't see themselves as "rich." (Like John McCain, for example.) Most people would think that's preposterous, but still... and I think that as you climb the income chain, there's always going to be new stuff you can do with your money to "improve" your lifestyle in such a way that you won't quite have "enough" yet.

Secondly, helping others is a daily thing. It's a way you should orient your ethical compass, which affects every decision you make - personally, professionally and financially. And I don't think it depends at all on what field you work in. An I-banker or consultant who buys local and organic food, has an energy-efficient lifestyle and tries to incorporate social and ethical values in their business rather than solely profitmaking ones can have an enormous impact, and one we really can't do without.

And naturally, there's a division of labor. Bill and Melinda Gates couldn't make their organization function without trained and experienced professionals in international development (i.e. me) to help them do it. Thus, why I am now assisting on a Gates Foundation project in India called Vistaar. So see, it takes all kinds.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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13 Feb 2009, 16:29
While I can imagine banks will find some way around it, but in the mean time this has to be the ABSOLUTE DUMBEST thing I've ever heard in my life. If the compensation is so outrageous, then why don't the SHAREHOLDERS do something about it. It's called corporate governance. Let's use an example of EXCESS compensation:

Quote:
The Dynamic Investment Bank is having a rough time. Projections are that DIB will lose about $5 billion dollars this year and will have to lay off as many as 2000 employees. You have a well-earned reputation as a financial turn-around artist. Many companies are trying to hire you. You tell DIB that there is no way you can avoid any losses this year, and some layoffs are inevitable. But you do think that you can save the company a lot of money and a lot of good employees. Here's the deal you want. In addition to a good salary, at the end of the year you want one-quarter of one percent of the amount by which you reduce that projected$5 billion loss. DIB agrees. At the end of the year the company has lost not $5 billion, but$2 billion and is on its way to profitability next year. What's more, you only had to lay off about 400 employees. Now ... you have earned a bonus of \$7,500,000. Should you get it? Do you deserve it?

Well...now that won't be a problem because no one in their right mind with any talent would ever take a job that limits your compensation. I can imagine if you have ANY talent whatsoever, the minute the job market begins to recover, you are gone. Start your own firm, go to Evercore, Lazard, Hedge Fund, PE, or whatever, but I can guarantee they leave the banks that had to take TARP money.
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Re: Exec Comp Restrictions Get Tougher [#permalink]

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13 Feb 2009, 23:43
domtri33 wrote:
I can think of one other organization that caps executive pay.....the Federal Government. Clearly they attract the best and the brightest as well.

Well put
Re: Exec Comp Restrictions Get Tougher   [#permalink] 13 Feb 2009, 23:43

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