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What Happened? Government Forces Ken Lewis to Work for Free
By Brian | October 17, 2009 | Share on Facebook
Throughout the past year, I’ve written a few posts about various aspects of the financial crisis, but I’ve purposely stayed away from writing specifically about my employer – Bank of America.
I don’t speak for Bank of America. My words on this blog are mine and mine alone. No one at work reads them, approves them or, for all I know, even agrees with them. Still, I’ve made it a self-imposed, personal policy to steer clear of stories that involve the company, just to be safe. This morning, though, when I read about Kenneth Feinberg, the “Special Master for Compensation” (a.k.a., “The Pay Czar”), I felt compelled to speak out.
Just to be clear, though: these are my opinions. They don’t necessarily reflect the views of anyone else on the planet, whether they’re affiliated with Bank of America or not. Are we clear? OK, good.
First, for those who don’t know, here’s what happened (source: Bloomberg.com):
Oct. 16 (Bloomberg) — Bank of America Corp. Chief Executive Officer Kenneth Lewis won
Topics: Money Talk, Political Rantings | 9 Comments »
9 Responses to “What Happened? Government Forces Ken Lewis to Work for Free”
Interesting, that in the name of…wait, was is it in the name of? Well, anyway, with some supposedly good intention that we are trashing the constitution and justice system in this country.
Who in heaven’s name decided that Mr. Feinberg is to have the privelege of deciding how much money anyone should make or receive in retirement?
Hey Brian, NOW what do you think about the Obama admnistration??
It could be worse, Brian. While all this is happening, one of us could be worried sick because we have a daughter or son in Afghanistan waiting for the White House to figure out how to process the general’s urgent request for immediate help.
No one’s trashing the constitution or the justice system here. President Obama has appointed someone to review and approve executive pay in banks that took TARP money. I disagree with that decision. The person he appointed, in my opinion, misused his authority to impose a personal, ad-hoc penalty on a hard-working and (as of now) innocent man. I disagree with that decision as well.
“Socialist” is, as we learned earlier on this blog, a loaded term. We are still a representative republic, and as far as I can tell, President Obama and Kenneth Feinberg haven’t run afoul of the law. They are, however, exerting more control over the private sector than any administration in my memory – possibly in our nation’s history. They will answer to that in the voting booth in 2010 and 2012.
In the meantime, I’ll continue to judge each & every action that President Obama, Ken Feinberg, and others make as they come. Expanding my complaint about this to a general condemnation of the entire administration weakens my argument. I’m ticked off about this, so this is what I’m talking about.
@Joe – schadenfreude aside, plenty of people are upset about this. Check out the quotes in the Bloomberg and Wall Street Journal articles. Other than one union group speaking in general terms about “bankers gone bad,” everyone else is using words like “punitive,” “over-reaching” and “bad precedent.” I think there will be political fallout over this, as well there should be.
As to Afgahnistan – yes, that would be far worse. This is, after all, only money we’re talking about. But to my point above, my feelings on Obama’s foreign policy are not what is coloring my opinion on Ken Feinberg’s deal with Ken Lewis. That’s a whole other blog post…
It is not an ideal of capitalism to limit compensation. So, if you don’t want to call it socialism, what do you want to call it? And next will be GM…their executives will have to have their pay packages okayed by the government. And soon, your doctors will be government employees too. FDR could have learned a thing or two about government interference from Obama…too bad they never had a chance to meet.
Wall Street bonuses aren’t cash prizes for specific achievements; they’re the portion of one’s salary that is subject to adjustment based on the performance of the indivdiual, the bank as a whole, and even the economy itself. Remember that Wall Street lowered bonuses by 40% without any government mandate at all in 2008 – they don’t pay any more than they have to to retain their people (just like any other company). Suggesting that NO ONE deserves a bonus is akin to suggesting that no one deserves 50% (or more) of their salary, which is almost as crazy as what Ken Feinberg did. Bonuses, like any other compensation, should be determined on a case-by-case basis, using a repeatable, defendable model that is based on definable metrics. Then, if we want to argue about the model, fine. Broad statements like yours and Mr. Feinberg’s are just shoot-from-the-hip solutions to a complex issue. Of course, you’re just posting on my blog. Mr. Feinberg’s ideas are binding…
And no, the government has not taken over the banking system. Their investment in BofA comes to less than 2% of the firm, and levels are similar in other banks as well. The only exceptions are AIG and Citigroup. AIG, at roughly $120B in aid, has received far more than any bank, and Citigroup agreed earlier this year to turn their TARP preferred shares into common equity, giving the government a much bigger (voting) share.
If we were a socialist state, the government would exert control over the companies without making an investment. As it stands, the government is acting like socialists in a capitalist framework – intervening in the day-to-day operations of private companies in unprecedented ways.
If you’re looking for the stifling of innovation, keep an eye on the auto and health care industries – time will tell if the government has the stomach for long-term investment in new technology, or if various Senators and/or Congressmen will shout down such programs as “pork barrel spending,” especially during bad economic times, or when the investment comes in someone else’s state or district.
In the finanical services industry, the effect of TARP so far has been an exodus of key executive talent to non-US banks and smaller, less regulated hedge funds. My fear there isn’t lack of innovation – it’s innovation (and investment) by others who are not under such resrictions. If you think you’re hearing a lot about how much of our debt China owns right now, wait until they have major equity stakes in our highest growth companies.
FDR likely could never have imagined such a world…
I think where we may be starting to see eye to eye is in the fact that this administration (and yes, I’m painting with that BROAD brush again) is going to ultimately be responsible for squelching whatever possibility we had of returning to a healthy free-market economy. As a very good liberal friend of mine said to me a short time ago, it is puzzling that someone who could be an inspirational leader seems bent on leading by dictate rather than by inspiring. In creating so many of these “czars” it seems that our president himself has created the appearance of a monarchy here in the great United States. One of the principles of our founding fathers was the system of checks and balances which Obama neatly circumevents by creating these czars who do not answer to anyone but him. We’re in a whole heap of trouble and it still seems like no one really “gets” it.
But salary can’t be tied to productivity and accomplishment? Are tips part of the salary for restaurant servers who otherwise make less than minimum wage? If not, we’ve got to arrest a whole bunch of restauranteurs. How about salespeople who earn commissions? For some of them, commission is 100% of their pay. Does that mean they have no salary?
I realize the scale isn’t the same here. The average Wall Street employee makes way above the average American worker. Then again, they have way above the average education and skill set. And their base salary (the amount they make in their regular paycheck) is way below what they could earn just about anywhere else.
The performance of a Wall Street firm is measured every quarter, which is why bonuses are accrued every quarter. They’re paid out annually (as opposed to in a regular paycheck) so that the company can adjust for short-term gains or losses during the year. This is why you’ve been reading about Wall Street bonuses every quarter of 2009, even though not a single dime of them have been paid yet.
In a year when the government had to intervene to keep banks from closing, I find it hard to understand how company performance dictates that bonuses are merited, and even if you can argue that they are merited, how do you argue that they should be anywhere near the levels they were at previously?
Bonuses are merited because if you don’t pay your employees, they’ll go work somewhere else. The American firms are already seeing a mass exodus to the likes of Barclays, Credit Suisse and DeutscheBank. With that talent goes the clients and the big deals. Don’t like the percentage of U.S. public debt that China currently holds? Don’t like the percentage of equity the U.S. government owns in the private sector? Wait until those big equity investments are held by offshore investment banks. Not only will our job market take a hit, but our regulatory control will diminish as will our ability to control corporate behavior through tax policy.
I don
Liberal and Conservative minds thinking alike! Cats & Dogs living together! Pigs flying! (or at least, Swine Flew! – HA!) It’s Armageddon, I tell ya…!
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