Bailout bungee cords
Today President Obama set restriction on executive compensation for companies receiving federal government bailout money, (read your money.) The limit was set at $500,000 per year. As expected I read the Wall Street executives decrying this as a disincentive and will lead to the departure of business geniuses from corporations across the nation. David Kotok, CIO of Cumberland, remarked, “If the limit has bite, it will be counterproductive and the unintended consequences will hurt the U.S. as skilled and bright senior managers make choices.”
Now I think most of the “bailout” money is pretty much a waste of money and political payout money, but if the government is going to waste my tax dollars handing it out to failing corporations, should there not be strings attached? Do these companies actually expect to receive public money and then continue business as usual? Remember these people are driving their companies into the ground. Oh and did Mr. Kotok imply, “bright senior managers” will leave these companies? Ah, if they are so bright, why are their companies failing and now begging for public money?
I find myself agreeing with the President on this one. (Dang, am I becoming a Democrat? I don’t think so. ) I think this is common sense here. Companies desiring public money, ( and we’re not talking about a small loan,) should have to submit to the contingencies the interested stakeholders (that would be us, the citizens of the United States of America) require. When a business in crisis approaches a lending institution or a major investor for money, the lender (or investor) may stipulate conditions the business will have to meet in order to qualify for the loan. Such conditions might require the CEO be replaced or the Board of Directors be reorganized, perhaps even more invasive meddling in the inner working of the firm. Jack Welch, the former CEO of GE, complained, “These people didn’t choose to do public service work…These people chose to make money.” Then, sir, why are they begging the Federal government for a bailout?
The fact is these business people know private lenders/investors make business demands to protect their investments, but they assume the average working joe, who is more conservative than liberal, is unaware of this and is scared to death their own company might close up. One CEO referred to the cap as “draconian.” Draconian might have been to demand the firing of the CEO, although perhaps a better stipulation. Draconian would have been to nationalize the business or insist government regulators take the helm. We must remember the caps go away once the loan has been repaid, the same rules a bank or investor would impose. I am just thankful Obama did not insist on government regulators at the board meetings and government approval on major business decisions. At least I hope I did not miss that part.
We are all in uncharted waters, the Great Depression offers warnings against raising taxes and shows the perils of doing nothing. These are truly scary times. President Bush started us down a dark path through the clumsy manner in which he handled the bank failures. Does anyone recall how AIG squadered $440,000 of our tax-payer dollars on a party only a week after winning public bailout money. Are these companies entitled to public money without strings attached. Perhaps you would give your children money in such an irresponsible manner but these are hardly children. Interestingly though, many CEOs are reflecting that sense of entitlement we see commonly in teens.
It has been simply a bad business practice to guarantee CEOs bonuses in the face of poor performance and failing companies. If I perform badly my company will ask me to leave and I will receive no parting gift. However, if the CEO of my company performs poorly and even runs my company into bankruptcy he will leave the company and receive a parting bonus of millions. As a stock investor, I do not approve of such contracts, yet we stockholders sit quietly and make no demands for compensation reform. Why? Because we are afraid that the stipulation of tying performance to bonuses would cause the “best and brightest” corporate leaders to seek employment elsewhere. CEOs and mangers want to motivate employees to perform better, yet they desire to be rewarded in spite of the quality of their own performance. Is this not the very sense of entitlement we scorn in our youth and societal freeloaders? It was only after an $85B government bailout and public outcry over executive bonuses that AIG CEO, Edward Libby agreed to accept a single dollar as compensation for the next two years. At least he did it, Merrill Lynch decided to accelerate bonuses! Likely to beat any caps when they return for more public monies later this year. I’d like to see stockholders stand up and demand more accountability from their CEOs.