Pay czar saying the right things

Ken Feinberg, the Obama Administration’s pay czar, is talking about what he feels is necessary to reform pay at firms that have received huge chunks of tax payer monies. The companies in question are: AIG, Bank of America, Chrysler Financial, Chrysler LLC, Citigroup, GM and GMAC Financial Services. His focus is on the 175 most highly compensated executives at these firms.

In general he wants to trim salaries significantly and shift compensation to stock awards that cannot be accessed for several years. The discussion does not cover bonuses. However, Congress last year enacted rules that prevent cash bonuses being paid at these firms. Any bonus award is capped at 1/3 of salary. Of the salary that is to be diverted to restricted stock, the discussion is revolving around 50% of pay.

The overall goal of course is to get employees to focus on the long-term health of the businesses for which they work. This is a discussion that has occupied the pages of this blog for a year. Poorly designed executive compensation plans are the primary reason that this entire financial mess happened. Why? Because the incentives emphasized short-term, big risk-taking. And LO that is exactly what happened. Short-term thinking that obsessed about big risk-taking. Shocking that people actually respond to incentives, isn’t it?

So guess where yours truly sits with this discussion? I am strongly in favor of it.

Business pundits and conservatives are aghast. The belief is that by restricting the pay at these institutions that these companies are going to have trouble retaining and attracting talent. I say that is total BS. Why? It’s kind of like when the police interview a suspect in a murder case. If you have not committed a crime then you have nothing to fear by talking. In the case of compensation at these firms, if you do a good job then you will make a great deal of money. So the types of executives scared off by the lack of easy money are exactly the sort of executive you wouldn’t want to attract to the firm in the first place. That is a win:win situation for everyone, especially the public.

Encouragingly, it looked as if the national compensation discussion had fallen off the radar – now it is back. Fantastic!

Jason