White House News

In a recent announcement out of the White House President Obama has set forth restrictions on executives pay from companies that are receiving TARP (Troubled Asset Relief Program) money. The ceiling is set at $500k, companies that have previously negotiated such as Citibank and Bank of America will not be regulated by that rule, as it was not in the terms of their agreement, but from henceforth any other company probing for assistance will. The ceiling will only exist until they repay the government funding. Additional guidelines should ensue next week.

Obama says "This is America. We don't disparage wealth. We don't begrudge anybody for achieving success," Obama said. "But what gets people upset - and rightfully so - are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers."

Some business owners cited that this may discourage others from taking post at troubling companies and could prevent them from hiring successful and exceptional leadership. Also, "compensation experts in the private sector have warned that intrusions into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector's recovery. They also argue that it could set a precedent for government regulation that undermines performance-based pay." I don't think that this would impede the recovery, i think it would coerce institutions to do more diligent candidate searches and seek quality individuals, keeping in mind that this will not always be the cap, just until their government loan is repaid. I would rebuttal that there is plenty of opportunity out there along with individuals willing to command the work load.

Obama's staff member addressed resistance inquiries and stated these are special circumstances and the government does not plan on extending the limitations beyond this circumstance. I do not know how the firms were rationalizing their disdainful argument when they are looking to be subsidized by TARP, taxpayers, and federal money. One executive of a firm out of Chicago said "500k is a very tight limit", i think i would have to agree with that assessment but you could lose everything without this assistance. The article also states there was lamenting on Capitol Hill for lower compensation of 400k which is what the president makes (you didn't know that did you!).

Also the number of executives ballooned from 5 to 20, who would face reduced bonuses and incentives if they are found to have knowingly provided inaccurate information related to company financial statements or performance measurements.

With everything there is an exception, so here is the black swan: generally healthy companies looking for TARP money will be allowed to waive the 500k limit with full public disclosure and a nonbinding shareholder vote, essentially all those holding premium stock (which can be bought by anyone) would have a say on the salary. I do not see why a "generally healthy" company would be looking for assistance money but maybe i don't have all the details.

I, myself am attempting to do a better job of staying abreast of the happenings in the political arena, hopefully you are as well.