The bailouts that never end
What’s worse? The existence of a government “pay czar” who dictates the salary of private-sector citizens or the corporate welfare queens who complain about having to deal with a “pay czar” after being rescued with taxpayer funds?
Fortunately, we don’t have to choose.
As it turns out, executives at companies that took the biggest bailouts — A.I.G., GM. and Ally Financial Inc. — had little to worry about as many of them enjoyed “excessive” compensation according to a report by the Special Inspector General for the Troubled Asset Relief Program. Executives “continue to rake in Treasury-approved multimillion-dollar pay packages that often exceed guidelines,” was what Special Inspector General Christy Romero’s office found.
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This, even though Treasury officials were monitoring executive pay and had the authority to limit those packages if they felt like it. This, even though, President Obama made a huge populist stink over A.I.G. bonuses in the past:
I want to comment on the news about executive bonuses at A.I.G. This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it’s hard to understand how derivative traders at A.I.G. warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?
It always seemed that the president’s sensibilities were more hurt by the idea of big bonuses rather than the idea of taxpayer-funded big bonuses. After all, these pay scales never made sense. First, some of us have a philosophical problem with allowing government to interfere with the private sector every time Washington scares us with tales of doom.
But besides that, though the president knows a thing or two about credit downgrades and liquidity crises, he’s in no position to understand who at A.I.G. or G.M. deserves a bonus or why. And if, presumably, the point of these bailouts were to turn companies around, why would the Treasury limit the compensation of future employees who had gotten the job done? Even if the bailouts were necessary — and, obviously there are many people who argue that they were not — “fairness” regulations exist for one reason. Washington knew that bailouts were deeply unpopular (they still are) and limiting executive pay was a feel-good, progressive-pleasing, retributive measure that gave voters some comfort and politicians some cover. But as AIG — which has paid back its $182.3 billion — argued, companies would have a tough time attracting and retaining top-notch employees with restrictions on pay. They were right.
All of this makes the bailouts even more unseemly. “Special Master” Kenneth Feinberg — the “pay czar” (later a post taken over by Patricia Geoghegan) – was tasked with setting compensation level for the top 25 executives receiving over a certain amount of taxpayer funds. Feinberg is the author of a recent book titled “Who Gets What: Fair Compensation After Tragedy and Financial Upheaval.” Here are some tidbits of fairness via the Special Inspector General:
AIG CEO Robert Benmosche, who has raked in the most compensation of any employee under OSM – $42 million in four years, with a cash salary exceeding by 200% the median salary of his peers – was quoted in New York Magazine as stating that neither Treasury nor the Federal Reserve Board has thanked him for repaying AIG’s rescue package.
GM CEO Dan Akerson asked Treasury Secretary Geithner to relieve GM from OSM’s pay restrictions, a move Akerson said would ultimately benefit taxpayers, and issued a proxy statement complaining about the pay restrictions. Ally executives sought pay raises for the president of its subsidiary, Residential Capital, LLC (“ResCap”), despite the fact that ResCap filed bankruptcy in 2012 and sought extra pay for ResCap employees from the bankruptcy court.
Sounds fair, right?
The Treasury Department claimed that it was trying to strike a “balance between limiting compensation for executives at taxpayer-rescued companies and allowing the companies to remain competitive.” But the companies couldn’t remain competitive or they wouldn’t need to be bailed out in the first place. This report makes it clear that some were treated differently from others. Obama’s man Dan Akerson, for instance, gets what he wants, even though GM stock would have to triple for taxpayers to be made whole. The Congressional Budget Office estimates that the bailout would ultimately cost taxpayers $24 billion. Until next time, that is.