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Pay Czar’s Plan Getting Low Marks

Yesterday, the Treasury Department's "special master of compensation" Kenneth Feinberg announced plans to halve the average compensation for the top 25 executives at seven firms that have received "extraordinary assistance" from the government since the financial crisis began last fall. Is this an effective smackdown, or a case of too little, too late?


• To the argument that the pay cuts will open places like Citi, Bank of America, and AIG to talent-poaching, Fortune's Colin Barr takes a populist stance. "Who cares?" he writes, possibly alienating his base. "If lower pay lures some of Wall Street's finest away, so be it. It's not as if the best and brightest were doing a good job to begin with."

Megan McArdle at The Atlantic is less convinced. "I know , it's fashionable to believe that traders are all a bunch of lucky, arrogant idiots, but there is some skill involved, and firms that lose their top people will probably underperform," she writes.

• Kenneth Langone, a co-founder of Home Depot Inc. and a former New York Stock Exchange board member, vehemently disagrees. The move, he tells Bloomberg, is “a graphic example of why government will never succeed in business. If I had a $50 billion investment in a company, I would want to make damn certain I had the very finest managers I could get, no matter what I have to pay. This is sheer stupidity. Just think about the investment that our government has got in all these companies. This is not a government job. The taxpayers have an enormous financial risk in these companies, and very simply stated, I want the best person. If I needed neurosurgery, I would want the finest doctor I could get, no matter what I had to pay for it.

• The larger idea behind the Treasury's plan and the complimentary Fed plan — that they will change the way pay is doled out on Wall Street — is a canard, say Time's Stephen Gandel and Barbara Kiviat, who argue that big banking outfits that took government money, like Goldman Sachs and JPMorgan Chase, won't be affected, and note that even after the cuts, executives at Citi and Bank of America will still net millions — just not millions that will be paid out this year. "What's more, Feinberg's pay determinations do nothing to shrink the huge divide between Wall Street pay and that in the rest of the economy. For instance, Chrysler's highest-paid executive — with a total compensation of just under $700,000 — will get less in 2009 than the lowest paid top executive at Citi."

Yves Smith of Naked Capitalism calls the whole scheme "an overdue, token measure to appease the public over the AIG retention bonuses" that will ultimately have no effect on how the Street does business. "Does this really mean anything? The press will noise it up as significant (and some outlets will no doubt finger wag at this “interference”) but the short answer is no … the collection of these scalps will do nothing to comp levels ex these firms. The companies that also enjoy implicit government guarantees are free to do the “heads I win, tails you lose” game of privatized gains and socialized losses."

• Former Labor secretary Robert Reich thinks that while Feinberg's efforts are "admirable," they're ineffective and distract from the fact that the government has done little in the way of improving financial regulation, such as "oversight of derivative trading, pay linked to long-term performance, much higher capital requirements, an end to conflicts of interest (i.e. credit rating agencies being paid by the very companies whose securities they're rating), and even resurrection of the Glass-Steagall Act separating commercial from investment banking."

• The Times' Joe Nocera agrees, and presents a solution. "The most straightforward way to shrink the oversize pay of Wall Street executives — and, more generally, curb the excesses of executive pay — would be to make directors more accountable to the company’s shareholders."

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