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"You Try to Live on 500K in this Town":
This is a few days old, but still pretty fascinating.
Paul Karl Lukacs (mail) (www):
It was more fascinating when Tom Wolfe wrote the same thing -- but much better -- twenty-one years ago.
2.11.2009 9:04pm
josil (mail):
It's hard to work up much sympathy, not because they have so much money but because they have so many life choices. While they may not seek alternatives, they are able to do so...which is not a position of many these days.
2.11.2009 9:15pm
ArthurKirkland:
Look at the bright side (in light of the recent revelations about hundreds of curiously timed, taxpayer-funded seven-figure bonuses for managers of a failed firm) . . . if the Bible has any merit, they're all going to hell.
2.11.2009 9:28pm
BGates:
SAT tutors are about $250 an hour.
And if you can swing 2000 billable hours @250, you get right back to $500,000.
2.11.2009 9:41pm
wm13:
I'm guessing that Prof. Kerr may be sufficiently distant from upper middle class New York life--about as distant as the reporter who wrote the piece--not to realize how wrong this article is. I mean, the specific numbers are so far off as to vitiate the whole point.

Of course, it is true a person who has a lifestyle based on a $2 million income would have a big adjustment living on $500,000, just as a Columbia Law professor would have a big adjustment living on $50,000, but that rather elementary point wouldn't be very funny.
2.11.2009 9:41pm
Oren:
Many of things on there have nothing to do with doing the job of a CEO and everything to do with "keeping up appearances that you are a CEO".

There is nothing about the job title that precludes living in Brooklyn, taking the subway, renting a vacation house and going to a regular gym. Shit, most professors that I know put in more works hours doing harder work and have to ddeal with more bullshit than any of these guys and they don't ask for any of these insane perks.

Even without bailouts, I think shareholders should implement the following method for determining executive pay and bonuses -- have your attorney anonymously hire a consulting firm (or two or three) to prepare a report about the management at 10-12 different firms in your sector (including yours), their pay and their relative performance. Now it's simply a matter of matching their relative rank in performance with their relative rank in pay.

Such a scheme would have the effect of keeping compensation from spiraling upwards.
2.11.2009 9:41pm
Harry Eagar (mail):
Roy Little, who created Textron, rode the bus to work. Nobody thought he wasn't a CEO (although in those days that was not the term used).
2.11.2009 9:46pm
bearing (mail) (www):
How bizarre. According to the article, these people apparently are paid lots of money because they spend lots of money, not the other way around.
2.11.2009 9:48pm
Alligator:
Disappointing that the article simply accepts that keeping up appearances is necessary for a CEO to have the confidence to turn in a good performance at work. Then again, Candace Bushnell couldn't be wrong, could she?
2.11.2009 9:51pm
SenatorX (mail):
Of course none of it means anything becuase the real money comes from issuing stock to themselves on conveniently low days. Then they use that rotten fig leaf of saying the practice aligns their interests with the common shareholders.
2.11.2009 9:52pm
Duffy Pratt (mail):
Of course, little is said about the nanny and the chauffeur losing their jobs, the private school going out of business, and the other peripheral effects of these forced pay cuts.

And yes, the executives could live on a lot less. Their employees already do.
2.11.2009 9:52pm
wm13:
Oren, are you under the belief (i) that corporations don't hire compensation consultants, (ii) that the consultants don't do comparability studies, or (iii) that investment bankers don't get hired away from one bank by another, especially if they are underpaid (sort of like law professors)? Because you are wrong on all three counts.
2.11.2009 9:54pm
PC:
most professors that I know put in more works hours doing harder work and have to ddeal with more bullshit than any of these guys and they don't ask for any of these insane perks.

Yes, but most professors don't run multi-billion dollar companies into the ground. Wait, what was I saying?
2.11.2009 9:54pm
Second Amendment Sister (mail):
The point of the article, though, is that those in charge at the moment already have made these high-end salaries, and their lifestyles are already geared to these expenses. It's not like they could just cut out the gym and put the extra money in the bank. Put salaries at $500K, and these people lose status, their marriages, their self-esteem, and more than likely their ability to concentrate and make a difference to their job performance.

Ergo, bye-bye executives who have the institutional knowledge (no great loss, one might think), and hello Mr. I-Can-Live-On-500K-In-NYC. Hopefully they a) know what they are doing, b) stay for the love of the work and admiration of the public (*snerk*), and c) save the world.

Given the size of the tumor, would you want the brain surgeon working for the county hospital because he has to, or the brain surgeon living the seven-figure lifestyle because he gets paid what he's worth to the market and his patients?
2.11.2009 10:03pm
ReaderY:
The article forgot to mention the expenses for the shrink.

Interesting what these folks need just to get up enough self-esteem and confidence to get their butts out of bed and poke their heads in the office.

Perhaps hiring folks who are less needy, more intrinsically self-confident, and have more of a self-motivated work ethic would result in a better performance for the company, in addition to costing less.
2.11.2009 10:24pm
Fedya (www):
Latrell Sprewell couldn't feed his family on $14.6M.
2.11.2009 10:32pm
wm13:
ReaderY, the people in New York who see shrinks are mostly either (i) sensitive, actor/writer, Woody Allen types or (ii) women. Not high-level bankers.
2.11.2009 10:44pm
Christie (mail) (www):
Good grief. I don't have much sympathy when one of the concerns is not wearing the same outrageously priced gown to the three galas they attend per year. Here are some of my other suggestions as well: http://tinyurl.com/bjmsbp
2.11.2009 10:44pm
PC:
ReaderY, the people in New York who see shrinks are mostly either (i) sensitive, actor/writer, Woody Allen types or (ii) women. Not high-level bankers.

High-level bankers buy houses on Long Island for their own 24/7 BDSM mistresses. It's like a shrink, but different.
2.11.2009 10:56pm
Phil Wold (mail):
Why pay the execs anything? They failed. They should be fired immediately. A new group should be hired without any cap on their income, but the income should be tied to the performance of the company.

Boards and stockholders should have demanded this from day one. Capping exec pay makes the folks who are getting laid off feel great and is a balm to the unfortunate getting foreclosed upon, but it will not help the banks, the stock market or the economy.
2.11.2009 11:21pm
A. Zarkov (mail):
"A modest three-bedroom apartment, she said, which was purchased for $1.5 million, not the top of the market at all, carries a monthly mortgage..."

Sure, but Wall Street was securitizing loans like this one.
Despite making only $14,000 a year, strawberry picker Alberto Ramirez managed to buy his own slice of the American Dream. But his Hollister home came with a hefty price tag - $720,000.
Funny thing how these bankers thought it took so little income to purchase real estate. Just use their own arithmetic to see how much they need to live on.
2.11.2009 11:25pm
Brian K (mail):
So am i understand that these high powered bankers have absolutely no savings? if a CEO doesn't understand the basic premise of a bank, they probably shouldn't be CEOs.
2.11.2009 11:25pm
John Armstrong (mail) (www):
BGates: the SAT tutoring service may cost that. I assure you that the tutor himself doesn't get all that money.
2.11.2009 11:33pm
pintler:

Put salaries at $500K, and these people lose status, their marriages, their self-esteem, and more than likely their ability to concentrate and make a difference to their job performance.


(snipped for brevity)

When Joe Small Businessman fails to predict the future, and his business tanks, it puts a strain on his marriage, etc. OTOH, since his next step down is living in his car, his ability to concentrate on his business will be sharpened like a razor.


Ergo, bye-bye executives who have the institutional knowledge ...

Given the size of the tumor, would you want the brain surgeon working for the county hospital because he has to, or the brain surgeon living the seven-figure lifestyle because he gets paid what he's worth to the market and his patients?


The 'brain surgeons' in this case have a lot of patients die on the table recently, and if they were being paid market value, tax dollars wouldn't be funding their salaries.

The market only works when it is brutally Darwinian; if the chaps in charge fail, off with their heads and try a new batch.

The Navy just relieved the Captain of the ship that ran aground off Hawaii. IIUC, your ship runs aground, your career is over, whether you're at fault or not. I'm sure some good captains are tossed, but the system isn't trying to be nice to captains, it is trying to make sure the crew of the ship has the best commander possible.
2.11.2009 11:38pm
Psalm91 (mail):
Wm13:

You need a trip to France First stop is Versailles. Second stop the guillotine. You'll see the connection.
2.12.2009 12:00am
Sagar:
Oren

I do not have a problem with restrictions on exec pay for the execs who didn't perform (whether by govt if govt bailed them out or by their respective boards in normal course), but comparing a professor's job to that of a CEO is really lame.

teaching may be stressful at highschool level since the "kids" can be thugs, but college professors have an easy job compared to most other decent paying professions. (i am not arguing whether they "earned" the job or not - so that is not pertinent here).
2.12.2009 12:30am
RainerK:
Brian K,
"So am i understand that these high powered bankers have absolutely no savings?"

Sure they had savings, but they invested them with Bernie Madoff.
2.12.2009 1:12am
Oren:

Oren, are you under the belief (i) that corporations don't hire compensation consultants, (ii) that the consultants don't do comparability studies, or (iii) that investment bankers don't get hired away from one bank by another, especially if they are underpaid (sort of like law professors)? Because you are wrong on all three counts.

Somehow, I don't trust the CEO of ACO, who sits on the board of BCO, to set BCO's CEO's salary in the interests of the common shareholders. This is especially true when BCO's CEO sits on the board of ACO.

The whole damned thing needs to be decided without reference to anything in the company.
2.12.2009 1:37am
fishbane (mail):
ReaderY, the people in New York who see shrinks are mostly either (i) sensitive, actor/writer, Woody Allen types or (ii) women. Not high-level bankers.

Factually incorrect. I personally know three ibankers who all see the same therapist. I know this because I'm in their group therapy session. (I'm not in banking, but professionally, I'm emphatically not a "Woody Allen type" and am male, but that's beside the point.)
2.12.2009 2:05am
OrinKerr:
I'm guessing that Prof. Kerr may be sufficiently distant from upper middle class New York life--about as distant as the reporter who wrote the piece--not to realize how wrong this article is. I mean, the specific numbers are so far off as to vitiate the whole point.

If you want to give me a few million a year to get used to that lifestyle, I would be happy to report back to the blog on whether the story was accurate. (As long as I don't actually have to be a banker, that is.)
2.12.2009 2:21am
AJK:
The Navy just relieved the Captain of the ship that ran aground off Hawaii. IIUC, your ship runs aground, your career is over, whether you're at fault or not. I'm sure some good captains are tossed, but the system isn't trying to be nice to captains, it is trying to make sure the crew of the ship has the best commander possible

Well, Chester W. Nimitz ran his first command aground, and it's probably a good thing that we hung onto him, but I see your point.
2.12.2009 3:19am
A. Zarkov (mail):
"Factually incorrect. I personally know three ibankers who all see the same therapist. I know this because I'm in their group therapy session. (I'm not in banking, but professionally, I'm emphatically not a "Woody Allen type" and am male, but that's beside the point.)"

I suspect most if not all the members of your therapy group are Jewish. They can save money by converting to Catholicism and using a priest as a confessor instead of an expensive psychotherapist. What's the going rate these day? I'm going to guess at $250-$400 per session. I also suspect that the 50-minute-hour is down to 40 by now.
2.12.2009 3:25am
Vermando (mail) (www):
The line at the end about the "appurtenance of what defines that culture" really spoke to me: "So if you are in a culture where spending a lot of money is a sign of success, it's like the same thing that goes back to high school peer pressure. It's about fitting in."

I have to think that we would scoff at this idea if someone from a ghetto was explaining why he spent all his money on bling, or a "welfare queen" explaining why she had to have nice clothes. Amazing how the heartless proponents of the Protestant ethic are finding that the rules should not apply to them, sort of like how we are disregarding all of the stringent advice we always gave to other country on how to handle a financial crisis...
2.12.2009 3:58am
Ricardo (mail):
Factually incorrect. I personally know three ibankers who all see the same therapist. I know this because I'm in their group therapy session. (I'm not in banking, but professionally, I'm emphatically not a "Woody Allen type" and am male, but that's beside the point.)

I can't find the link, but there was an NY Times article about -- you guessed it -- psychiatrists in NYC who specialize in CEO and i-banker patients. Not surprisingly, it reports they are difficult patients since they don't really like getting advice from others and demand last-minute schedule changes. If I remember, one decided to take off for the Hamptons instead of going to his appointment and offered to send a chauffeur to bring the psychiatrist there to conduct the session.
2.12.2009 4:00am
wm13:
"I don't trust the CEO of ACO, who sits on the board of BCO, to set BCO's CEO's salary in the interests of the common shareholders"

When hiring and tenure decisions at universities start being made by the students and alumni (or by the taxpayers, in the case of state universities), rather than by the faculty, you call me. Until then, I don't find this comment very persuasive.
2.12.2009 8:23am
autolykos:

Yes, but most professors don't run multi-billion dollar companies into the ground. Wait, what was I saying?


Long Term Capital Management says hi (and if you're going to rely on "most" - well, most CEOs don't fail either.


The whole damned thing needs to be decided without reference to anything in the company.


What does this even mean? CEOs are like anybody else. They decide where to work based on how much they're getting paid relative to what others in the same job are doing. If PubCo decides to pay its CEO half of what PrivCo pays their CEO, PubCo's CEO is going to go to PrivCo if he has the chance. That's what everyone does (whether they be lawyers, professors or Wal Mart greeters).
2.12.2009 8:40am
Sk (mail):
"Shit, most professors that I know put in more works hours doing harder work and have to ddeal with more bullshit than any of these guys and they don't ask for any of these insane perks."

I don't know CEOs. But I know professors, and I know senior military officers. If they are a guide to CEO behavior, this quote is nonsense. In my experience, people above a certain level in any organization work their tails off (relative to people below that level), and people at the very top generally work hardest. Professors have a very pleasant life. I agree that the article is nonsense, but that doesn't make populist myths any less mythical.

Sk
2.12.2009 9:46am
wm13:
Prof. Kerr: I don't know if you read Above the Law, but the recent article on Sonnenschein and Thacher Proffitt shows that you don't have to be an investment banker to have a seven figure income. At $1.4 MM per annum (this income probably reflects portable billings of $5 million), you can certainly have a $2 million apartment (the maintenance will be more like $2000 per month, not $8000) and a $1 million beach house (no one I know has a beach house that costs more than their city house), plus some of the other items mentioned in the article.
2.12.2009 9:58am
SurferdudeLA:
One thing you all might want to consider is the ripple effects that a CEO pay reduction would have both in their companies and the service providers who work for their companies. You will inevitably see commensurate reductions in the pay of law firm partners and associates and a commensurate reduction in the demand for a law school education at current tuition rates. Tuition at the Top 10 law school I went to was about $5000 in the early 80s. Adjusted for inflation, that tuition should be about $13,000 now, rather than the approximately $40,000 that it is. Imagine how law professors would be affected if tuitions returned to where they were 25 years ago.
2.12.2009 10:02am
Ben P:

But in New York, where a new study from the Center for an Urban Future, a nonprofit research group in Manhattan, estimates it takes $123,322 to enjoy the same middle-class life as someone earning $50,000 in Houston, extricating oneself from steep bills can be difficult.



I have to say, this makes me feel much better about my starting salary as an associate in a small market compared to certain individuals who gloat about $160k a year in new york.
2.12.2009 10:03am
PC:
Long Term Capital Management says hi (and if you're going to rely on "most" - well, most CEOs don't fail either.

Most investment bank CEOs did run their companies into the ground. Or have you not looked at Wall Street lately?
2.12.2009 10:06am
GD:
"Mortgage: $96,000 a year.

Co-op maintenance fee: $96,000 a year."

This doesn't add up at all. Maintenance of $8K per year on an approx $1.5M apt? This could only be true in one of the old school full-service coops with full hotel services (including dining service to your home, etc.). Highly atypical.
2.12.2009 10:20am
Houston Lawyer:
The decisions that ran these companies into the ground were made by a relatively small number of people. Most of these financial institutions have a good number of professionals who earn a lot more than $500,000 per year for doing their jobs well. If they can't make that money working for their current employer, they can make it working for someone else. Not every financial institution will be on the dole. If I can make five times as much money working for Barclays as I can working for Merrill Lynch, guess who I'm going to work for. So expect a brain drain out of the companies that the government is trying to keep solvent.

If I ran a foreign investment bank, I would lobby to have the compensation restrictions apply to as many people as possible.
2.12.2009 10:31am
Stacy (mail) (www):
"One thing you all might want to consider is the ripple effects that a CEO pay reduction would have"

No, it makes no sense whatsoever to throw millions at a demonstrably incompetent executive just to keep his gardener employed. If it came to it, I'm rather give 1% of the money directly to the gardener, who is probably a lot more responsible with his job and income.
2.12.2009 11:48am
pintler:

Well, Chester W. Nimitz ran his first command aground,


I had to look that up, and indeed he did - and was court martialed, convicted, and issued a letter of reprimand. This
was in 1907. I don't know if it was common for careers to survive those kind of things then, or if there were exceptionally extenuating circumstances, or his potential was obvious even then.

Anyway, thanks for pointing it out!
2.12.2009 11:59am
PC:
If they can't make that money working for their current employer, they can make it working for someone else. Not every financial institution will be on the dole.

Back during the dotcom daze I knew plenty of well paid consultants that were making more the $500k/year. They were good at their jobs, but they were not worth that amount of money, as they soon found out when the entire industry crashed.

I'm sure those guys would have loved to have people defending their salaries and how there would be a "brain drain," especially if government money had been used to prop up their insolvent companies.
2.12.2009 12:14pm
Harry Eagar (mail):
'Given the size of the tumor, would you want the brain surgeon working for the county hospital because he has to, or the brain surgeon living the seven-figure lifestyle because he gets paid what he's worth to the market and his patients?'

Really, you would allow the market, which did such a good job on the credit default swaps, determine the standard of your personal care?

You really want to check outcomes. It is not certain, without checking, that the surgeon at the county hospital would have the worse outcomes.
2.12.2009 1:01pm
Thorley Mythtaken (mail):
And so why is it important that we, on the one hand, impose "buy American" provisions so that we can create $30/hr construction jobs; but we should incessantly excoriate any proposal that results in the creation or maintenance of $30/hr jobs as chauffeurs and SAT prep teachers?
2.12.2009 2:13pm
autolykos:

Most investment bank CEOs did run their companies into the ground. Or have you not looked at Wall Street lately?


Either you have a pretty strange definition of "most" or you don't know what you're talking about. Even if we limit the universe of CEOs solely to investment bank CEOs (for some odd reason), the universe of failures is basically Bear, Lehman and Merrill. Golman, Morgan, Lazard and all of the middle market banks have seen better days, but they certainly haven't failed and their current struggles have little to nothing to do with their CEOs.
2.12.2009 2:20pm
autolykos:

So expect a brain drain out of the companies that the government is trying to keep solvent.


"We're from the government, we're here to help."
2.12.2009 2:22pm
Smallholder (mail) (www):
I'm puzzled.

The people who are against limiting the salaries of bailed-out executives worry about "the market" leading those executives to leave their jobs.

But I thought salaries were based on supply and demand. If the companies weren't being bailed out, thousands of those high paid jobs would go poof - and the oversupply of banking executives would lead - a la the market - to lower salaries. And unemployment for many.

It seems that folks who demand bailouts to avoid the consequences of the market ought not to then turn around and use a government-bailed market to demand continued high salaries.
2.12.2009 2:43pm
PC:
Even if we limit the universe of CEOs solely to investment bank CEOs (for some odd reason), the universe of failures is basically Bear, Lehman and Merrill.

That's probably because the original article was about...bank execs. Last time I checked taxpayers aren't propping up IBM with trillions of dollars, so no one is talking about limiting IBM executive compensation because of cash injections. As far as the universe of failures being limited, you just named 3 of the former top 5 investment banks. Wall Street IBs have been decimated.

Golman, Morgan, Lazard and all of the middle market banks have seen better days, but they certainly haven't failed and their current struggles have little to nothing to do with their CEOs.

Speaking of Goldman, they are no longer an investment bank, they are a bank holding company. Would you like to guess why? And you seem to have a strange definition of "better days." Let's just take the CEOs that represent the firms testifying in front of congress the other day. How many of those firms would be solvent if they were forced to open their books and account for all of their level 3 mark-to-model assets and off-balance sheet conduits?

A report was leaked in the EU in the last couple days showing $16.3 trillion in exposure to "toxic assets." What do you think the US bank exposure is? Better days indeed.
2.12.2009 3:07pm
theobromophile (www):
I'm not a fan of capping salaries, but that article makes a better argument for it than any I've ever seen. (The fact that it tried to do the exact opposite shows a certain myopia on the part of the author.)

Call me crazy, but of all the expenses that come with owning a business, and all of the trickle-down employment opportunities, buying $15,000 ball gowns for charity galas and going to the Bahamas for a $20,000 vacation just aren't on that list.
"People inherently understand that if they are going to get ahead in whatever corporate culture they are involved in, they need to take on the appurtenances of what defines that culture," she said. "So if you are in a culture where spending a lot of money is a sign of success, it's like the same thing that goes back to high school peer pressure. It's about fitting in."

So the existence of the culture justifies itself? Maybe it's just the Bostonian in me, but that seems so.... icky nouveau riche.
2.12.2009 3:57pm
PC:
So the existence of the culture justifies itself?

Being a welfare queen is fine as long as you make seven figures a year.
2.12.2009 4:12pm
Putting Two and Two...:

Given the size of the tumor, would you want the brain surgeon working for the county hospital because he has to, or the brain surgeon living the seven-figure lifestyle because he gets paid what he's worth to the market and his patients?


What happened to the old choice of a brain surgeon who was dedicated to helping people and furthering the science of medicine?
2.12.2009 5:19pm
Putting Two and Two...:

Somehow, I don't trust the CEO of ACO, who sits on the board of BCO, to set BCO's CEO's salary in the interests of the common shareholders. This is especially true when BCO's CEO sits on the board of ACO.


I've never been able to understand why so many "conservatives" support the sky-high salaries so many top executives make. They talk about "market forces" and "competition" but don't seem to realize WHO is setting the market.

It's very strange. The same people who, out of princple, reject collective bargaining for factory workers accept the judgement of executive compensation committees. Heck, in collective bargaining, at least there's an opposition...
2.12.2009 5:26pm
road2serfdom:
Small-
"It seems that folks who demand bailouts to avoid the consequences of the market ought not to then turn around and use a government-bailed market to demand continued high salaries."

It seems to me you are mixing up two groups. It is those demanding bailouts and other government activism who are the ones demanding salary controls. Those advocating the free market are opposed to both bailouts and salary controls.
2.12.2009 5:54pm
Randy R. (mail):
"Put salaries at $500K, and these people lose status, their marriages, their self-esteem, and more than likely their ability to concentrate and make a difference to their job performance. "

If I'm a shareholder or an employee or a taxpayer with a bailout in a company with a CEO, I dont' give a damn about his self-esteem, or his status or his marriage. I care only about whether he is doing a good job. If he can't, then kick his ass to the street and find someone else.

Also, I'm sure he will still be earning more than half a million, because he has savings, and he gets dividends from his stock. he probably has some income generating assets, and if he doesn't, that's his own damn fault. Most people try to save for a rainy day, and are able to do it on much less an income.

The CEOs lived perfectly well when their salaries were only 30 times higher than the national average in the 80s, or what ever it was back then.
2.12.2009 7:03pm
wm13:
"I've never been able to understand why so many "conservatives" support the sky-high salaries so many top executives make."

OK, imagine you are on the board of Bank of America, you notice that the head of risk management at JP Morgan seems to have been doing a better job than the guy you have, and you want to hire him (or her)? What's your plan? Call him up and tell him that you'll pay him less than he's now making? I think you'll find that the only way for a bank on the ropes to hire someone with a proven track record is to offer him more, maybe a lot more, than he is currently getting.

Alternatively, we could have the government determine what each person should make, based on a "scientific" assessment of his value. In our case, we already know that being head of risk management at a major financial institution can't be worth more than $500,000. If the person won't work at that price, the president can publicly denounce his lack of patriotism. Maybe even put pressure his current employer to fire him, so he has to take the new, government-assigned job. So the question is, why do conservatives find this latter alternative unappealing?
2.12.2009 7:15pm
Harry Eagar (mail):
The key word in that last post was 'seems.'
2.12.2009 7:33pm
courtwatcher:
wm13, if both banks have the salary capped, the companies don't have to offer more to attract good talent. They will all be capped. And I'm not sure that in the current market, very many executives have much opportunity for mobility. It is a very company-friendly labor market given the downsizing of the financial sector. And if executives do still have the ability to attract that salary, it may result from a labor market that has been artificially propped up by government (taxpayer) $. You seem to be saying that labor costs at the top can only go up, never down, even when companies are operating at a loss and the size of the overall labor force in the sector are way down. That can't be true. I think a better answer is that executive compensation consultants need to justify their existence, and the boards that set compensation are made up largely of individuals who have a self-interest in keeping salaries of top executives high.
2.13.2009 2:44am
wm13:
courtwatcher, did you check the Above the Law post I mentioned? If a third-tier firm like Sonnenschein is paying people $1.5 million, how could Bank of America ever hire a general counsel for $500,000?

As for the self-interested individuals, just as soon as the taxpayers get to vote on professors' hiring and tenure at state universities, you call me. Talk about lack of accountability and transparency!
2.13.2009 8:18am
Anon1111:




Given the size of the tumor, would you want the brain surgeon working for the county hospital because he has to, or the brain surgeon living the seven-figure lifestyle because he gets paid what he's worth to the market and his patients?




What happened to the old choice of a brain surgeon who was dedicated to helping people and furthering the science of medicine?


I'll take the guy who is in it for the money every day of the week and twice on Sunday. If he sucks, he won't get paid, and will leave the profession and find something else to do where he can make more money. If the guy who is in it to help humanity/for the love of science sucks, he'll stick around and keep trying to help people, even as he's killing them. Money draws talent, and I want talent, not love, operating on me. I don't care if the well paid cutter thinks that ice cream makes computers work better, then UFOs are the result of sun spots interacting with ARod's roids, or that chicken eggs are laid by horses, so long as he can do the job better than the scientist operating for the love of science.
2.13.2009 9:51am
Lily (mail):
Executive compensation has gotten ridiculous. However, I have always assumed this is the stockholders' problem. Why the government would want to transfer the stockmarket / business risk to taxpayers in general (as opposed to those individuals who freely bought the stock) is a mystery to me. But I (as a taxpayer) don't want financial risk where I have no choice.

Get government out of business and let business succeed or fail on its own merits. It will be painful (very) in the beginning, but better off for all of us in the long run.
2.13.2009 9:59am
Anon1111:
If the caps are salary caps, then I would posit that _total_ comp will go up in the long (or even short run). If I were to take a job that, pre-cap, would have paid $1 million/year in cash, but now only pays $500,000/year in cash, I would ask for equity awards to cover the difference.

Given that:

(1) equity awards pay off based on the company's performance, and
(2) I am risk averse (I would rather have $500,000/year in cash than an equity grant that pays off, on average, $500,000/year; but, it may pay nothing, or may pay $1 million/year)

Then, I would demand a risk premium on the equity component of my compensation, say enough to make the equity award pay, on average, $600,000/year (obviously, the risk premium would differ for the individual and company involved, but the basic point holds).

Spread this dynamic across 20 companies, 10 subject to the salary cap, and 10 not, and it is clear that a salary cap could (would?) increase total comp in the "capped" companies.

If you capped _all_ companies, but only the "top 5" salaried employees, then you'd create a situation where more talented people would be lower down on the chain and have less input into running the company, leaving less talented people to run things, not a good situation. It is easy to find instances where, say, a talented investment manager would rather be the number 6 paid person in a company and work a lot less than do the hard work necessary to rise to the top of the company. We see this all the time in sales organizations that have commission caps - I know a number of sales people that work their butts off Jan - May or Jan - August, max their "allowed" commissions, then do nothing for the rest of the year - not good for the company or the economy.
2.13.2009 10:05am
Clayton E. Cramer (mail) (www):
Why am I having trouble sympathizing with people having to live on $500,000 a year in NYC? I agree: Wolfe did a much better job in Bonfire of the Vanities capturing the insanity of spending absurd amounts of money for a lifestyle that is, at best, showy, extravagant, and empty. And that's on a good day.

Most of this crowd could live extraordinarily well in Real America for $200,000 a year. If what they do is so darn valuable, I would expect their employers would recognize that you can pay for a lot of broadband connections and Next Day Air mail for the difference in salaries.
2.13.2009 10:51am
Clayton E. Cramer (mail) (www):
Let me point out that previous attempts to cap salaries have been less than wonderful in their consequence. Back in 1993, the Democrats did their faux populism of making salaries above $1 million not deductible as business expenses--with the result that corporations started doing a lot more stock options to make up for the poor salaries.

And the result? Much more short-term views of how to run a company. "Let's see, I have a bunch of options that I would like to exercise at the end of 4Q, but the stock price isn't very high. What's the best way to raise the stock price short-term? Layoffs!" I think it is no coincidence that within two years of the 1993 law--Congress passed a law requiring 60 days notice of big layoffs.
2.13.2009 11:07am
wm13:
"Most of this crowd could live extraordinarily well in Real America for $200,000 a year."

But I don't want to live in Idaho (though I don't object to others doing so). I want to live here, in the center of the world, where the Statue of Liberty and "Washington Crossing the Delaware" and the Empire State Building and the New York Stock Exchange are. Where Whitman wrote and the Algonquin Round Table met. The air-bridged harbor that twin cities frame. Where Tim Keller preaches. Where I grew up.
2.13.2009 12:07pm
CJColucci:
I don't care what other people make if: (a) it's not my money and (b) it's the result of actual success. Where those conditions do not hold, then all bets are off.
2.13.2009 12:55pm
Duncan Frissell (mail):
Course that $500k is only $260K after taxes. That's rougher in NYC.

CEOs (of real companies) average many more hours a week than perseffors. Their tenures are shorter too.

The good ones could switch to self-employment (founding their own business) and make much more than $260K net and are likely to.

And in the discussions of taking TARP money, let's exempt firms that were extorted to do so by Paulson. Wells Fargo for example.

The job of a CEO is meeting lots of other people and getting them to do things for the company. There are a lot of mandatory social contacts.

OTOH, Bill Gates did it for a salary of $100k/year...
2.13.2009 2:17pm
Harry Eagar (mail):
'Money draws talent'

That would explain why you get more money than Paris Hilton.

You do, don't you?
2.13.2009 8:00pm
Mark in Texas (mail):
Between the salary caps and the very real possibility of prison time due to Sarbanes-Oxley liability, I am starting to wonder if the position of CEO might become too uninviting to attract the most talented people to fill that position. That does not mean that there is not a need for somebody competent to run a large company, only that they probably won't be called the CEO.

There is plenty of precedence for this. Neither the Queen of England or the Emperor of Japan actually rules their country, even though that is the legal fiction that their governments operate under.

The position of CEO might become a place to park a retarded son in law as a favor to some important person. He gets to come in once a week and sign papers and he gets a half a million dollars a year. He also goes to prison if there are any Sarbanes-Oxley problems.

Meanwhile somebody with the title of Senior Janitor makes decisions and pulls in a multimillion dollar salary.
2.13.2009 8:14pm
Mark in Texas (mail):
wm13 - When hiring and tenure decisions at universities start being made by the students and alumni (or by the taxpayers, in the case of state universities), rather than by the faculty, you call me. Until then, I don't find this comment very persuasive.

Ouch. That one is going to leave a mark. Not that Professor Kerr's criticism of compensation policies in the organizations that have caused trillions of dollars of wealth to evaporate in the last few moths is not valid. But that is one of the best rejoinders that I have seen in a while.
2.13.2009 8:57pm
Randy R. (mail):
wm13: "OK, imagine you are on the board of Bank of America, you notice that the head of risk management at JP Morgan seems to have been doing a better job than the guy you have, and you want to hire him (or her)? "

That's a lot of assumptions. you assume that jp morgan is doing better. Well, we just came off 10 years when the banks seemed to be doing great, only to find out it's a chimera. The banks in Canada, for instance, did rather poorly the last few years vis a vis US banks, but in the end they are in much better shape.

Maybe he is doing better because his underlings are better? How would you know that? And are you willing to hire his entire team, or just the head of risk management. What part does luck play in this -- if jp morgan was just lucky, then why lure him and pay him more?

it's just this sort of thinking that got us into this mess.
2.13.2009 10:55pm
Mark in Texas (mail):
wm13

I can understand why you would prefer to live and work in Manhattan and be paid several million dollars a year to do your part of managing the national and world economy. Back when we thought that you guys were doing a good job it seemed like a reasonable deal.

However, now that we understand that we would have gotten about the same results if your job was being done by the mentally handicapped folks at the Goodwill sheltered workshop in Boise, Idaho it only makes sense to start looking for less expensive ways to operate the financial industry.
2.14.2009 10:57am
PC:
And in the discussions of taking TARP money, let's exempt firms that were extorted to do so by Paulson. Wells Fargo for example.

If Wells Fargo doesn't want to abide by the restrictions, they can cut a check for $25,000,000,000 to the United States Department of the Treasury and take back the garbage they dumped on the tax payer. As soon as that happens, everyone knows Wells Fargo is holding at least $25 billion in toxic assets (with a market cap of $66 billion) and you can watch their stock drop into the $1 range within a week or two.

If you want some real laughs, have banks move all of their off-balance sheet assets onto their balance sheets. In the ensuing collapse of the global financial system -- as people realize the world's largest banks are insolvent -- we can discuss how those insolvent banks can attract "top talent."
2.14.2009 1:09pm
wm13:
PC, I don't think you understand how the TARP equity infusions were structured.
2.15.2009 1:02pm

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