While Timothy Geithner gets deservedly raked over the coals for handling the America International Group (AIG) "negotiations" with kid gloves, federal officials are pressuring executive pay czar Kenneth Feinberg to ease pay restrictions on the company for the year 2010.
The concern is that tight pay restrictions, while politically popular, might hurt AIG's ability to attract and retain competent people -- thereby putting the taxpayers' long-term investment in the company at even greater risk.
This is a great example of how dangerous the pay czar is: compensation should be set based on what policies will produce the greatest returns for investors (bondholders and stockholders), not based on a desire to appease the peasants-with-pitchforks crowd of righteously indignant voters.
"AIG is the best example of why the government should never get itself in the position of even having to make these tradeoffs," Anil Kashyap, an economics professor at the University of Chicago Booth School of Business, told the Wall Street Journal (subscription required). "It's why you don't want the government involved in the private sector in the first place."
What's the solution? The solution is to install an independent and competent board of directors at AIG with an independent and competent compensation committee that can make executive pay decisions based on economic factors -- not based on political factors or inappropriately chummy relationships with senior management.
It should be possible to separate the politics of our involvement with AIG from our desire to generate the most value for our stake in the company. But it's unlikely that that will happen.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
Reader Comments (Page 1 of 1)
11-24-2009 @ 1:54PM
Ricky said...
Obama has created more czar's than all the history of Russia , VOTE HIM AND ALL OF HIS CONGRESS OUT IN 2010 AND TAKE OUR COUNTRY BACK this is not Russia it's America
11-24-2009 @ 2:15PM
wdmurphy said...
My question is who says these men are any better than the idiots who put AIG in the mess they created. Certainly not some dumb college professor who taught them these bad decisions. Time to start revamping the teachings of our college teachers. At what point do we consider morals in business. I would venture to say that 80 to 90% of business decisions are made based on bottom lines not on ethics. Ads are written by lawyers who have no morals and word the ads so we come in the door only to find out we did'nt understand the ad. Too bad dummy either pay our price or get lost.
11-25-2009 @ 8:10AM
Virgil Bierschwale said...
I totally disagree with having Czar's in America, but don't give in because the people at AIG that put together all of these derivatives should be in jail, not being rewarded or whining because they can't rape and pillage the shareholders and give themselves more money.
Steady the course (on AIG) and Full Speed Ahead.
After that, make sure you add the good ole boys choir of ex goldman sachs employees that hold key positions in the fed and in the federal government as they need to go for America to have a chance to stand on its own two feet.
Virgil
http://www.KeepAmericaAtWork.com
11-25-2009 @ 10:31AM
aurora_capital said...
to whom it may concern;
i have a suggestion for the pay czar
why is it banks and other financial institutions are even considering taking cash out of their own coffers that the public placed there would not the most appropriate thing to do in this circumstance to be to hand out toxic assetts as bonuses.
if you where to say to the banks okay we agree you should be able to hire and keep good employees via the bonus program thats contractual and capitalistic in nature but here is the deal you pay yourself out in the worst of the toxic assetts on your books the highest level executive receiving the most worthless assetts and you take them at the level by which you value them on your balance sheet
this will accomplish a number of desireable outcomes.
1) it will dissuade those chefs that seek to be creative not to put shit in a sandwich they may someday have to eat themselves
2) these ingenious bankers will figure a market out and that will allow us to understand the true value of these companies and the real toxicity of the assett pool.
3)it over time removes the assetts from the balance sheets.
4) same thing goes with dividends pay em out in toxic assetts and force the bankers to market.
how is it we are drawn into a financial catastrophe by financial institutions to big and complex to fail yet the solution appears to be allowing them to get larger and more complex....
anybody find it interesting that at the very time the state of israel most needs our military support, we have become so far indebted to the jewish community in this country that we would be in a lot of trouble if we said no "we think you need to reconstitute the kingdom of david with your own dollars and soldiers"
seems to me even those jackasses of hamas where being pretty well behaved till our little zionistically minded terrorist idiot benjamin netanyahue decided to build 900 more homes on stolen land... who is the provocator over there whish we had a real media to publish the truth about palestine for surely christ would not condone the actions of the zionists and herodians that rule from tel aviv. how does america justify supporting repression apartheid ethnic cleansing and all of the other double standards associated with the israeli government arent we supposed to be on the side of the rioughtous and justice???
can we ever get a christian to run the federal reserve how is it that in a nation with a three percent jewish population the chairman of the fed is always jewish smacks of elitism or judeo facism where they the only ones ordained by god to be bankers??
i know it says in the old testament that the house of israel is never to be a nation of debtors and that all nations shall be indebted to them, is that what loyd blankfein meant when he said he was just doing god's work in europe.........creating a world full of nations indebted to israel??
scares the shit out of me when i hear someone with that religious ideology say something like that
be well kvp