Free Markets, Free People

Unsurprisingly, Top Performers Leaving Companies Under Pay Czar’s Rule

It floors me when people who have an inkling of how markets work warn what will happen if pay restrictions are imposed on some of the companies in an industry, but not all, and those warnings are disregarded. And no, I’m not campaigning for all companies to come under the “pay czar’s” control. Instead, what is clear is the “pay czar’s” unilateral pay cuts are now hurting the very companies you and I (and our grandchildren’s grandchildren) unwillingly bailed out. And while I mostly agree with MichaelW’s thoughts on the subject, I also understand that the way it is being done does not help make their profitability (that’s how they’re going to pay back the bailout money) better. In fact, it stands a much better chance of hurting profitability:

Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.

“There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”

It would be a bit like the government getting its hands on an NFL franchise for whatever reason that was failing. After “saving” it with your tax dollars, the powers to be decide that one of the things they need to do is severely limit the salary of players, because, you know, in relation to Joe Six-Pack, what the players make is obscene. So they unilaterally put salary caps on what players can make that are well below industry standards.

Any guess what happens when free agency rolls around? Any idea of how many drafted players are going to say “no” and remain unsigned when their salary demands aren’t met? Why?

To quote the executive, “It’s a highly competitive market out there”, and there are teams more than willing to pay the price for that talent. Why? Because the talent has proven themselves or have tremendous potential (as in the case of high draft choices).

So if it is blindingly obvious what would happen with an NFL franchise if the same thing was done there, how do these people who are doing a very populist political thing endemic to identity politics, think what they’re doing will be the exception?

They’re unilaterally limiting the talent pool in financial institutions we’ve paid to bail out which puts in jeopardy the ability of those companies to pay back the bailout money.

That doesn’t hit me as very bright. But then, a lot of things that have been done recently fall into that category, don’t they?



11 Responses to Unsurprisingly, Top Performers Leaving Companies Under Pay Czar’s Rule

  • I’m not persuaded that very many of those guys are actually worth what they’re paid, but that’s not the scary part. The scary part is that when the terms of employment make it look like a political-appointee job, the people who’ll take the job will have a political appointee mentality. I’d rather pay ten million a year for a mediocre banker to run my bank poorly for his own benefit, than pay $200,000 a year for an apparatchik to run it for the benefit of his political patron.

  • You mean that people who are forced to take a 90% pay cut might (gasp!) look for a job elsewhere????

    Say it ain’t so, Joe, say it ain’t so!

    I tend to agree with Retardo in that I don’t know that many of these big-shot execs are worth their huge salaries, but that decision should not be left to politicians (who most assuredly are not worth their salaries).

  • But the solution to this slight problem with a little bit of government control is soooo obvious: Government must also set the compensation at all banks. Then there will be no incentive to leave.

    When they leave the entire industry, repeat with increased scope. It’s government, the solution to every problem it creates is more government.

  • The obvious solution will be that if you work for a govt ruled company, you won’t be allowed to leave

  • If only we were all interested in Service to Obama our country instead of profit. Then we’d never leave our jobs because we’d have the sense of duty and obligation we require.
    It’s shocking that these people are allowed to consider job changes! They owe us! Don’t they understand we saved their jobs, and besides they’re obviously rich, and make too much money in the first place.

  • Bunch of John Galts!!!

  • I don’t know about you, but when I “invested” in AIG and Citibank et al, it was for one reason only: to prevent a financial meltdown, control systemic risk, wait for the plans to make these companies not too big to fail, and then to skedaddle. I did not invest to make a profit. I certainly did not invest to make a profit possibly by having taxpayers pay for it.
    So, I am confused why the profitable portions of these large companies have not been hived off, like that successful oil speculation unit at Citi where the guy makes 100 million on profits of 400 million. Personally, 25% commission on profits seems excessive for someone without personal equity in the company but I am sure he could self-finance the spin-off of his unit or find a buyer for it. Naturally, I am sure the Federal Government implemented such a policy when they took over these “too big to fail” companies.  No?
    AIG is another great example. I thought we kept on certain employees because only the insiders could wrap up the business. So, is it wrapped up yet? Its only been one year. I guess it will take 20 years to “wrap up” the business. Is AIG still selling those products that caused such a meltdown? I don’t know. I am guessing they are, otherwise they could already be done “wrapping up” that section of the company and selling it off or closing it.
    If the high earning employees of these companies are so terribly smart, how come they all needed TARP funds? How come Goldman Sachs had to become a bank holding company? Now of course, they were claimed they were forced to take TARP funds. (Next time, don’t do that, government, because would anyone care if the best employees were hired by Bank X who did not need any TARP funds at all?) But lets assume these guys are actually just the sales team (which they probably are) and not setting policy etc. Fine. let them leave. I think as a taxpayer (and not a willing investor) I would like to have Citi’s sales shrink. I would also like any “exciting businesses” based on oil speculation, etc. hived off. Then they should take federal worker pay grades until Citi is gone.
    See, unlike my own investments where I want thriving growth, I really want starvation diets for the too big to fail companies.

    • You’re right. The sooner the government runs those banks into the ground, the better.
      The trouble is, they’re the government. When a government enterprise loses all its money, it doesn’t go away. It just digs in and loses even more money.

  • The reason they don’t recognize that it’s the same thing is that they don’t generalize.
    I had a landlord once who pooled the water bills and charged everyone a low flat fee because the individual properties didn’t have separate meters.  Every tenant was responsible for watering their own lawn, which we did.  In June he sent out a nastygram to every tenant castigating us for having brown lawns.  When I talked to him next, I warned him what was about to happen, but he didn’t listen to me.  Sure enough, in August we all got another nastygram for using too much water.  (This one included a copy of the water bill, for extra stupidity.)  This was a guy who’d managed to get enough money together to buy a good sized chunk of real estate and own his own business, but for some reason the basic laws of economics just didn’t generalize to water bills in his mind.

  • If it’s good enough for Wall Street, it should be good enough for Freddie Mac

    The pay package given to Freddie Mac’s new chief financial officer should have sent a message from Washington to corporate America about how executive compensation standards must change. Instead, it did just the opposite. The government-controlled mortgage finance company is giving CFO Ross Kari compensation worth as much as $5.5 million. That includes an almost $2 million cash signing bonus and a generous salary that could top $2.3 million.

    Just call Kenneth Feinberg the “pay bizarre”

  • How do all of those other companies “stealing” these overpaid execs have the money to afford them? They’ll just go bankrupt soon and be in the same position. Doesn’t make sense why these guys are getting paid so much in the first place.