WSJ: Obama Administration Wants Lower Comp for ALL Bankers
Started by farquhar
about 17 years ago
Posts: 124
Member since: Jun 2008
Discussion about
U.S. Eyes Bank Pay Overhaul: Administration in Early Talks on Ways to Curb Compensation Across Finance http://online.wsj.com/article/SB124215896684211987.html#mod=testMod WASHINGTON -- The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to... [more]
U.S. Eyes Bank Pay Overhaul: Administration in Early Talks on Ways to Curb Compensation Across Finance
http://online.wsj.com/article/SB124215896684211987.html#mod=testMod
WASHINGTON -- The Obama administration has begun serious talks about how it can change compensation practices across the financial-services industry, including at companies that did not receive federal bailout money, according to people familiar with the matter.
The initiative, which is in its early stages, is part of an ambitious and likely controversial effort to broadly address the way financial companies pay employees and executives, including an attempt to more closely align pay with long-term performance.
Administration and regulatory officials are looking at various options, including using the Federal Reserve's supervisory powers, the power of the Securities and Exchange Commission and moral suasion. Officials are also looking at what could be done legislatively.
Among ideas being discussed are Fed rules that would curb banks' ability to pay employees in a way that would threaten the "safety and soundness" of the bank -- such as paying loan officers for the volume of business they do, not the quality. The administration is also discussing issuing "best practices" to guide firms in structuring pay.
At the same time, House Financial Services Committee Chairman Barney Frank (D., Mass.) is working on legislation that could strengthen the government's ability both to monitor compensation and to curb incentives that threaten a company's viability or pose a systemic risk to the economy.
It is unclear how such a bill would fit with what the Fed and others are already considering. But any legislation passed would make it harder for policy makers to dial back limits once the financial crisis subsides.
Any new compensation rules would likely be rolled out alongside a broader revamp of financial-markets regulation that the Treasury is pushing. The compensation effort is the latest example of the government's increasing focus on aspects of the financial sector that once were untouched.
Regulators have long had the power to sanction a bank for excessive pay structures, but have rarely used it. The Office of the Comptroller of the Currency last year quietly pressed an unidentified large bank to make changes "pertaining to compensation incentives for bank personnel responsible for assigning risk ratings," a spokesman said. Since 2007, it has privately directed 15 banks to change their executive compensation practices.
Government officials said their effort, which is just beginning, isn't aimed at setting pay or establishing detailed rules. "This is not going to be about capping compensation or micro-management," said an administration official. "It will be about understanding what is the best way to align compensation with sound risk management and long-term value creation."
Despite the banking industry's weakened state, it would likely try to push back against curbs on how financial firms can compensate people. Bank executives have complained to federal officials that strict rules could prompt some of their best employees to move to parts of the financial industry that aren't regulated, such as hedge funds, private-equity firms and foreign banks. They've also argued that paying substantial bonuses is integral to how the industry works.
[Cash Flow]
"Our companies have already enhanced, strengthened and expanded the number of compensation programs that are tied to long-term incentives," said Scott Talbott, a senior vice president at the Financial Services Roundtable, a trade group.
Edward Yingling, chief executive of the American Bankers Association, said banks might be able to accept new rules "as long as they are general in nature and could be enforced on a case-by-case basis. What would never work is detailed regulation of compensation."
President Barack Obama and Treasury Secretary Timothy Geithner have both blamed the way banks structured compensation plans for contributing to the financial mess. In February, Mr. Obama said executive pay helped lead to a "reckless culture and a quarter-by-quarter mentality that in turn helped to wreak havoc in our financial system."
Mr. Geithner recently instructed his staff to begin discussions with the Fed, the SEC and others about ways to address compensation practices.
During a recent congressional hearing, Chairman Ben Bernanke said the Fed was working on rules that will "ask or tell banks to structure their compensation, not just at the very top level but down much further, in a way that is consistent with safety and soundness -- which means that payments, bonuses and so on should be tied to performance and should not induce excessive risk."
In an indication of how broad the effort may become, Federal Deposit Insurance Corp. Chairman Sheila Bair said regulators need to examine compensation practices in the mortgage industry, suggesting new limits could stretch beyond banks.
"We need to make sure that incentives are aligned among all parties by making compensation contingent on the long-run performance of the underlying loans," Ms. Bair said on Tuesday.
The discussions follow a narrower effort by the administration to clip pay at firms that get federal aid. Earlier this year, it issued guidelines limiting salaries for top executives at firms that received funds under the Troubled Asset Relief Program.
Congress chimed in with even tougher rules curbing bonuses for top earners at the same firms, among other things. One rule bars firms receiving federal funds from paying top earners bonuses that equal more than a third of their total compensation.
The administration is still wrestling with how to marry those two efforts, which in combination are more punitive than officials intended. The Treasury is expected to issue new rules sometime in the next few weeks.
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Response by mets2009
about 17 years ago
Posts: 87
Member since: Oct 2008
I'm more upset that a) he wants to tax my health benefits and b) he totally diregarded the rule of law in the Chrysler "settlement".
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Response by farquhar
about 17 years ago
Posts: 124
Member since: Jun 2008
Being in the industry, I have read comments by a couple of posters (uppereast?) suggesting that comp this year will be up significantly.
I can categorically say that nobody I've spoken to (all MDs, all at investment banks, not just TARP recipients) expects bonuses to be anything but abysmal, again, this year.
The vote of confidence from Obama does not help.
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Response by farquhar
about 17 years ago
Posts: 124
Member since: Jun 2008
mets - agreed. The Chrysler situation will play out in court, where it belongs.
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Response by crescent22
about 17 years ago
Posts: 953
Member since: Apr 2008
This is just a wealth transfer between bank shareholders and bank employees then. If you want to change comp, change the ability of banks to charge 2% for M&A transactions and 7% for IPOs.
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Response by iamlooking
about 17 years ago
Posts: 140
Member since: Nov 2008
farquhar,
Bonuses were NOT abysmal last year, and probably will not be again this year. If you look at the total bonus money paid out, it was a top 5 year. This was when the industry went through a twice in a century kind of stress.
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Response by stevejhx
about 17 years ago
Posts: 12656
Member since: Feb 2008
This is nothing new. Nobody's going to hedge fund's because they'll also be regulated. You can't pay people enormously for taking enormous risks, and then bail them out when the risks go bad.
This is part of the theory that banks can't go bankrupt because of the counterparty risk. I think Lehman proved that theory correct.
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Response by qqq
about 17 years ago
Posts: 66
Member since: Jan 2007
When Lehman went under the employees lost tons of money in unvested stock. The higher up you were the greater % of comp was stock that took 5 years to vest. Top traders and MD's lost the most in unvested stock when the stock went to 0. Isn't this exactly what the administration says they want? If your short term horizon causes harm to the company you won't get paid.
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Response by malthus
about 17 years ago
Posts: 1333
Member since: Feb 2009
Ok I am challenging all this talk about the US disregarding the "rule of law" in the Chrysler situation. I have heard a lot of harping about this but interestingly none of it coming from bankruptcy experts (unless they are representing the lenders). I am no expert in bankruptcy, but the big story since September has been that ailing firms cannot find DIP financing. Chrysler is forced to go to the only lender capable of providing that and the lender advances a plan that the existing lenders don't like. How is that new? The only new part is that the lender has different interests than the typical one (i.e. company stakeholders).
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Response by NYCMatt
about 17 years ago
Posts: 7523
Member since: May 2009
This is a surprise? You people voted in this socialist. Salary caps in private industry are just the start, folks. It's going to be a long, downhill ride.
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Response by malthus
about 17 years ago
Posts: 1333
Member since: Feb 2009
"If your short term horizon causes harm to the company you won't get paid." Ha. Tell that to Brian Hunter who made $85M one year and blew up his hedge fund the next.
You may be right about some of the people at Lehman but my guess is many of them are not the ones that took the huge risks -- many of them were pushed out before the situation came to a head and could have sold whatever stock they had at that time. I.e. the model be broken.
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Response by anonymous
about 17 years ago
"Chrysler is forced to go to the only lender capable of providing that and the lender advances a plan that the existing lenders don't like."
The problem is when they file for Bankruptcy, Chrysler technically is no longer in charge as the Bondholders (Creditors) are suppose to take over. As senior debt holders they are suppose to get paid first before anyone else. If they could, they would push the damn place into liquidation and get as much as they can back, but when 70% of the bondholders are TARP banks, you can read between the lines...
Quote from Market Ticker discussing it
Holding GM Debt? Gubbermint Is Robbing You!
Do you hold GM bonds? Perhaps some so-called "unsubordinated" debt?
A lot of people - individuals - do.
These bonds were quite popular for college savings and other long-term plans - including retirement.
Why?
Because the coupon was pretty good, they were unsubordinated (meaning senior, or first) preference in the event of bankruptcy, and GM has been around for a very, very long time.
If you hold this debt you are about to be wiped out by our government, who has decreed by fiat, without even a vote in Congress, that:
1. You don't matter.
2. You don't have a right to rely on anything in the prospectus printed when these bonds issued, or even common and statutory law.
3. Your rights do not exist. Your government has literally declared economic war on you.
Let me be clear: The government, specifically President Obama's Treasury, is acting exactly as did George Bush's Treasury - they are behaving as gangsters who are about to rob you blind, returning only 10 cents - if that - on the dollar for your investment and they are going to force you to take it at gunpoint.
This despite the fact that the UAW is going to get somewhere between 80 cents and the full buck for every dollar they are owed for their VEBA.
VEBA obligations are unsecured and subordinate to yours under the law.
That means that under the law the UAW is entitled to exactly nothing until you get every dollar you are owed.
President Obama and Geithner have declared that it does not matter what the law says - they are going to do whatever the hell they want - and what they want to do is SCREW YOU.
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Response by scoots
about 17 years ago
Posts: 327
Member since: Jan 2009
iamlooking - do you actually work on wall street? bonuses were awful last year. no one in the industry would say otherwise.
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Response by columbiacounty
about 17 years ago
Posts: 12708
Member since: Jan 2009
ah matt...out from under your vice presidential rock?
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Response by malthus
about 17 years ago
Posts: 1333
Member since: Feb 2009
Again it would be nice to have someone who knows about bankruptcy comment on this. What position do you think "market ticker" and all the talking heads on CNBC are going to take? This is simply wrong:
" If they could, they would push the damn place into liquidation and get as much as they can back, but when 70% of the bondholders are TARP banks, you can read between the lines...
It was the government threatening to put it into liquidation by NOT GIVING IT MORE MONEY. And it was the lenders who blinked. I recognize they were pulling other levers and people may think this is unfair but i have yet to see anybody give a good reason why this is subverting the laws of bankruptcy, conspiracy theorists aside.
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Response by anonymous
about 17 years ago
The government was threatening to put them into BANKRUPTCY, not LIQUIDATION...in fact, the governement is doing all it can to avoid liquidation to protect the jobs and unions so it kind of contradicts what you said...
Once you understand the difference then you'll be able to answer your own question....
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Response by mets2009
about 17 years ago
Posts: 87
Member since: Oct 2008
The fact that subordinated creditors, that is the UAW, which is a big contributor to Obama and the Democratic party jumped over the senior creditors speaks volumes. Obama and his ilk are out to redistribute wealth and power as they see fit. I'm more concerned now about losing my liberties than I ever was under W (and while I did vote, I did NOT vote for him either time).
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Response by iamlooking
about 17 years ago
Posts: 140
Member since: Nov 2008
scoots,
yes i do work in the industry and know a lot who do. For people who still have jobs, while the compensation was down last year i would not call it 'abysmal' as put by farquhar. Most people i know got positively surprised by their bonuses, as compared to the expectations. It was certainly not one of the worst years in peoples' lives like it should have been.
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Response by nyc10022
about 17 years ago
Posts: 9868
Member since: Aug 2008
"It was certainly not one of the worst years in peoples' lives like it should have been."
Can't make sweeping generalizations that that. It was certainly the worst year of certain people's lives.
Hell, Goldman had to bail out some of its own bankers!
Don't think their bonuses were surprises to the upside.
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Response by nyc10022
about 17 years ago
Posts: 9868
Member since: Aug 2008
Wow, I did not realize that UAW was getting 55%
I knew Obama owed the unions, but WOW is he in debt..
I'm more upset that a) he wants to tax my health benefits and b) he totally diregarded the rule of law in the Chrysler "settlement".
Being in the industry, I have read comments by a couple of posters (uppereast?) suggesting that comp this year will be up significantly.
I can categorically say that nobody I've spoken to (all MDs, all at investment banks, not just TARP recipients) expects bonuses to be anything but abysmal, again, this year.
The vote of confidence from Obama does not help.
mets - agreed. The Chrysler situation will play out in court, where it belongs.
This is just a wealth transfer between bank shareholders and bank employees then. If you want to change comp, change the ability of banks to charge 2% for M&A transactions and 7% for IPOs.
farquhar,
Bonuses were NOT abysmal last year, and probably will not be again this year. If you look at the total bonus money paid out, it was a top 5 year. This was when the industry went through a twice in a century kind of stress.
This is nothing new. Nobody's going to hedge fund's because they'll also be regulated. You can't pay people enormously for taking enormous risks, and then bail them out when the risks go bad.
This is part of the theory that banks can't go bankrupt because of the counterparty risk. I think Lehman proved that theory correct.
When Lehman went under the employees lost tons of money in unvested stock. The higher up you were the greater % of comp was stock that took 5 years to vest. Top traders and MD's lost the most in unvested stock when the stock went to 0. Isn't this exactly what the administration says they want? If your short term horizon causes harm to the company you won't get paid.
Ok I am challenging all this talk about the US disregarding the "rule of law" in the Chrysler situation. I have heard a lot of harping about this but interestingly none of it coming from bankruptcy experts (unless they are representing the lenders). I am no expert in bankruptcy, but the big story since September has been that ailing firms cannot find DIP financing. Chrysler is forced to go to the only lender capable of providing that and the lender advances a plan that the existing lenders don't like. How is that new? The only new part is that the lender has different interests than the typical one (i.e. company stakeholders).
This is a surprise? You people voted in this socialist. Salary caps in private industry are just the start, folks. It's going to be a long, downhill ride.
"If your short term horizon causes harm to the company you won't get paid." Ha. Tell that to Brian Hunter who made $85M one year and blew up his hedge fund the next.
You may be right about some of the people at Lehman but my guess is many of them are not the ones that took the huge risks -- many of them were pushed out before the situation came to a head and could have sold whatever stock they had at that time. I.e. the model be broken.
"Chrysler is forced to go to the only lender capable of providing that and the lender advances a plan that the existing lenders don't like."
The problem is when they file for Bankruptcy, Chrysler technically is no longer in charge as the Bondholders (Creditors) are suppose to take over. As senior debt holders they are suppose to get paid first before anyone else. If they could, they would push the damn place into liquidation and get as much as they can back, but when 70% of the bondholders are TARP banks, you can read between the lines...
Quote from Market Ticker discussing it
Holding GM Debt? Gubbermint Is Robbing You!
Do you hold GM bonds? Perhaps some so-called "unsubordinated" debt?
A lot of people - individuals - do.
These bonds were quite popular for college savings and other long-term plans - including retirement.
Why?
Because the coupon was pretty good, they were unsubordinated (meaning senior, or first) preference in the event of bankruptcy, and GM has been around for a very, very long time.
If you hold this debt you are about to be wiped out by our government, who has decreed by fiat, without even a vote in Congress, that:
1. You don't matter.
2. You don't have a right to rely on anything in the prospectus printed when these bonds issued, or even common and statutory law.
3. Your rights do not exist. Your government has literally declared economic war on you.
Let me be clear: The government, specifically President Obama's Treasury, is acting exactly as did George Bush's Treasury - they are behaving as gangsters who are about to rob you blind, returning only 10 cents - if that - on the dollar for your investment and they are going to force you to take it at gunpoint.
This despite the fact that the UAW is going to get somewhere between 80 cents and the full buck for every dollar they are owed for their VEBA.
VEBA obligations are unsecured and subordinate to yours under the law.
That means that under the law the UAW is entitled to exactly nothing until you get every dollar you are owed.
President Obama and Geithner have declared that it does not matter what the law says - they are going to do whatever the hell they want - and what they want to do is SCREW YOU.
iamlooking - do you actually work on wall street? bonuses were awful last year. no one in the industry would say otherwise.
ah matt...out from under your vice presidential rock?
Again it would be nice to have someone who knows about bankruptcy comment on this. What position do you think "market ticker" and all the talking heads on CNBC are going to take? This is simply wrong:
" If they could, they would push the damn place into liquidation and get as much as they can back, but when 70% of the bondholders are TARP banks, you can read between the lines...
It was the government threatening to put it into liquidation by NOT GIVING IT MORE MONEY. And it was the lenders who blinked. I recognize they were pulling other levers and people may think this is unfair but i have yet to see anybody give a good reason why this is subverting the laws of bankruptcy, conspiracy theorists aside.
The government was threatening to put them into BANKRUPTCY, not LIQUIDATION...in fact, the governement is doing all it can to avoid liquidation to protect the jobs and unions so it kind of contradicts what you said...
Once you understand the difference then you'll be able to answer your own question....
The fact that subordinated creditors, that is the UAW, which is a big contributor to Obama and the Democratic party jumped over the senior creditors speaks volumes. Obama and his ilk are out to redistribute wealth and power as they see fit. I'm more concerned now about losing my liberties than I ever was under W (and while I did vote, I did NOT vote for him either time).
scoots,
yes i do work in the industry and know a lot who do. For people who still have jobs, while the compensation was down last year i would not call it 'abysmal' as put by farquhar. Most people i know got positively surprised by their bonuses, as compared to the expectations. It was certainly not one of the worst years in peoples' lives like it should have been.
"It was certainly not one of the worst years in peoples' lives like it should have been."
Can't make sweeping generalizations that that. It was certainly the worst year of certain people's lives.
Hell, Goldman had to bail out some of its own bankers!
Don't think their bonuses were surprises to the upside.
Wow, I did not realize that UAW was getting 55%
I knew Obama owed the unions, but WOW is he in debt..