Another Sneaky Provision in Stimulus

The NYT is reporting that buried deep in the cavernous bill that is the economic relief bill is a provision restricting CEO compensation for the companies who take tarp money. For those who wanted restrictions on CEO compensation and thought that Sec. Geithner was too conciliatory this was a big victory.

Perhaps because he may be facing a reelection challenge, Sen. Dodd (d) Connecticut inserted the provision.

The restriction with the most bite would bar top executives from receiving bonuses exceeding one-third of their annual pay. Any bonus would have to be in the form of long-term incentives, like restricted stock, which could not be cashed out until the TARP money was repaid in full.
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The biggest difference between Mr. Dodd’s provision and the Treasury rules is that the new stimulus provision would apply to any company that either has received money or will receive money in the future under the Treasury’s financial rescue program. By contrast, the plan announced by Mr. Geithner would apply only to companies that receive federal money in the future.

The revised rules do not impose a formal cap on executive compensation, unlike the Treasury proposal. Under that plan, banks were barred from paying more than $500,000 in salary until they repaid the TARP funds to the government. (Banks were permitted to offer bonuses in restricted stock.) Senator Dodd’s rules, however, go a step further, prohibiting banks from awarding restricted stock to 25 top executives equal to more than one-third of their annual cash compensation until the banks have repaid all the money owed.

As usual there are defenders of the compensation who are aghast at this provision.

But some experts on executive compensation warned that the restrictions could unleash unintended consequences, like encouraging banks to increase salaries to make up for diminished incentive pay. Even then, they warned, banks were likely to lose top talent.

“These rules will not work,” James F. Reda, an independent compensation consultant, said on Friday. “Any smart executive will (a) pay back TARP money ASAP or (b) get another job.”

Let's examine these claims. First the paying back of tarp money. If a company can pay back tarp money and remain solvent that sounds fine.= to me. The entire point is to have the money repaid. If you dont need it give it back. Are we supposed to assume that companies who actually need the money will give it back? What sense does that make? the company goes under without the money then the ceo is out of a job and is single handily responsible for sinking the company because he didnt want to limit his own pay. That person should never be in charge of another company and should be out of a job.

Second the idea that they will get another job. Fine. These banks need money because they are insolvent and not able to exist without it. That means these executives are failures. they are bad at their jobs and should look for new ones. I am very doubtful you cant find someone to take the job for the big salary offered. Its not like the smartest and best people are working at the failed banks. So who cares if they get another job unless Mr. Reda means we dont want them to sink another company.

The third claim is one made at several points in the article, that banks will just pay their executives more because there is no hard cap. I think dodd is just daring the heads of these companies to increase the actual salary to the equivalent of the current compensation. The optics for that are terrible and any ceo who tried is likely to be flayed alive by shareholders. In addition there are likely to be tax issues with doing that. The current system exists for a reason and Dodd's provision looks like it does a decent job of cutting down on the compensation.

Several of the restriction opponents discuss the lack of "pay for performance" this provision would create. This of course overlooks the fact that these people receive the money whether they suck or not. Strictly speaking there is pay for performance but it just cant exceed a third of the salary.

The opponents seem to suggest that what this restriction does is create a farm team where people could go and after proving themselves get called up to the majors where they can make the big bucks. Again, all of this must be considered in the light that this applies only to companies who take tarp money. If they repay the money, no more restrictions. So turn the company around and it all goes away.

So a this point im wiling to give dodd some props.

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Would It Take Soup Lines?

There are some people out there who just dont seem to understand exactly whats going on. These people are readily identifiable, they call themselves cable news reporters, centrists, and often republicans. These people exist in a reality all their own where nothing catastrophic could ever hurt america for any length of time. Time heals all wounds and eventually things will go on as they always have. or something. for these people i simply have to ask what would it take for them to understand that things are really really bad for a large and growing swath of the american people? Do we need soup lines on the streets of every neighborhood? do we need shanty towns occupying the parks across this country?

First, the context.

When that amount of slack in employment is taken into account, Mr. Rosenberg found that the ‘real’ unemployment rate has actually climbed to 13.9%, an all-time high for the period he studied, and up from 13.5% in December and 11.2% a year ago.

I think the people i loathe the most in this debate are actually the centrist democrats. They dont even benefit if the package fails like the republicans do. these people simply lack a basic grounding in the plight of the people the legislation effects. case and point is Sen. Ben Nelson (D-Neb.), the leader of the centrists,



I watched the interview live and it was readily apparent that Sen. Nelson simply lacked the intellectual capacity to understand the magnitude of the problem. When Rachel Maddow presses him on the fact that he made the package less stimulative he claims he didnt. this is a complete and total lie unless we believe that the money he cut was not actually going to be used. By definition if the government does anything with the money it has a stimulative effect. there may be a diminishing returns problem but no one has asserted that yet.

He simply said it was a lot of money. Yes we know that but we have a big problem. If he wants to take the thune approach and stack it all up he should also consider retirement. His claim that no one would be losing a job because of this is clearly false as those state employees who are laid off because of budget cuts will soon attest. massive budget shortfalls will be met with spending cuts and spending cuts end up meaning salary cuts.

So Sen. Nelsons conception of the problem seems to be that it is not really as serious as 900 billion or a trillion dollars. This is despite the fact that the projected productivity shortfall is upwards of two trillion dollars. The question for senator nelson is at what point he would be ok with a stimulus package that is more than the one he created? under what conditions would he have allowed that extra education funding to go through? my guess is that he needs to see soup lines outside his house and people camping on his lawn before he gets the magnitude of the economic problems were facing.

yea its a little ranty but really what the hell was he talking about with the curriculum stuff and special education? the money is already there, they were trying to give them money talking about unfunded mandates is a total nonsequiter.

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