Wednesday, February 4, 2009 2 comments ++[ CLICK TO COMMENT ]++

LOL Government salary cap got a quick response from Goldman Sachs executives

The Obama administration is talking about capping executive pay of firms that receive financial assistance at $500,000. Well, it got a quick response from Goldman Sachs executives, with the CFO proclaiming that the firm will try to pay back the TARP money as soon as possible by issuing preferred or common shares.

Goldman Sachs Chief Financial Officer David Viniar said Wednesday that the firm would like to buy back an investment made in it by the Treasury under the government's Troubled Asset Relief Program as soon as possible, but there are certain restrictions and nuances to doing it. Goldman likely needs to raise Tier 1 capital before it would qualify to buy back the investment, and that could be accomplished via a common or preferred stock offering, Viniar said. The CFO made it clear though that despite rumors in the market; he is not saying that the firm is planning a large common offering in March. He added that Goldman would only pay the money back with the blessing of the Fed and the Treasury.

It's not clear if this suggestion was in response to the government actions but it does seem like it.

If you are a free-market guy, it's tough to support salary caps dictated by the government. If the government owns the firms, it's fine; but the government does not necessarily own many of these firms so dictating a salary cap distorts the compensation scheme. But, on the other hand, if the government is providing funding at seemingly low returns, the public is not going to be happy with high executive compensation. This is especially true given that many that have run these companies into the ground, or are incapable of stopping the bleeding, are at the top of these firms.

The compensation issue is a tough problem without any obvious solution. I am of the opinion that many executives in the financial services industry are overpaid and clearly don't know what they are doing. John Thain, for instance, being paid up to $60 million (but this likely dwindled to a few tens of million in the end) while he clearly didn't know what he was doing at Merrill Lynch begs the question. Or how about Vickram Pandit at Citigroup, who hasn't accomplished anything and likely isn't capable of doing anything meaningful, while being paid a very high salary?

The answer, however, is not obvious. If you don't pay these executives a lot of money, will anyone even take the job? The tens of millions paid to Thain, Pandit, et al, seem questionable but the low millions paid to others present a tougher case. For instance, Ambac ex-CEO, Michael Callen, was awarded a $975k bonus recently while the stock collapsed 90%+ and the company is very close to insolvent (he didn't cause the problems, but was on the board of directors.) Should the CEO be paid around a million even though the company completely distegrated and the CEO couldn't stop it? It's a problem without an easy answer.

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2 Response to LOL Government salary cap got a quick response from Goldman Sachs executives

February 4, 2009 at 5:19 PM

While it should go without saying that even a legitimate President's "ordered" $500,000 pay cap is an unenforceable intrusion into the private sector, as if that weren't enough, Obama LACKS EVEN OSTENSIBLE AUTHORITY to issue the order UNTIL HE OVERCOMES "RES IPSA LOQUITUR" BY SUPPLYING HIS LONG FORM BIRTH CERTIFICATE AND PROVING HIS ELIGIBILITY TO BE PRESIDENT UNDER ARTICLE 2 OF THE US CONSTITUTION.

February 4, 2009 at 7:24 PM

Sorry Ted but I doubt that he would have been elected and gone through all the checks and balances if he wasn't eligible in the first place. I'm not an American but I don't share your view that Barack Obama isn't the legitimate president of the United States.

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