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mosholu · 02-04-2009, 02:57 PM

As I understand it the comp restrictions would apply to the auto companies that took federal funds. The concern about government getting out of their jurisdiction is understandable but they are acting no differently than a bank would if it was making a loan to a distressed entity. No bank would make such a loan to a company that was bankrupt without imposing stringent conditions and covenants on the company going forward until the debt was paid off.
I do however disagree with the admin on the restrictions they are placing on the banks because they are meaningless and do not address the underlying problem. The problem has two aspects. The first is that compensation at investment banks is too big a percentage of earnings. Currently I believe most of the banks pay over 40% of their earnings as comp (base and bonus). This was fine when they were private partnerships and it was their own money at risk. In a corporation their liability is limited. The second point is that the boards of these companies have no adequate way to supervise either their activities or their comp numbers since they are picked by management and they are solely dependent on management for information. This has resulted in the management of these entities having all the benefits of the upside and the downside has been sold to the shareholders. This is not a model that rewards prudent risk taking. What the president should do is to set a sliding scale to bring pay down by having a requirement that any entity licensed by the Feds as a B/D, CPO, IA or CTA etc., and any affiliated entities of their corporate family can not pay more than 40% (currently around 46-48%) of earnings as compensation. This would go down by 1.5% a year until it was at 35%. Shares received as comp would be held for a period of time say 3 years and then paid in tranches thereafter. There should also be a limitation on the top 25 people in any organization that their pay could not go above 20% over the previous year's comp. The money not paid out in comp could go back to the shareholders as dividends which would make the banks a more attractive investment while keeping the value of the workers deferred comp high.
Different point but I do not hear much about it is the number of jobs the banks sent overseas to be outsourced during the 15 years. These bankers were paid a bonus of component of which was based on the saving (earnings) of moving jobs from Americans and sending them overseas. At the very least as part of this bailout this practice should stop.

02-04-2009, 02:57 PM	#41
mosholu Mosholu Join Date: Feb 2007 Location: NYC Posts: 440	As I understand it the comp restrictions would apply to the auto companies that took federal funds. The concern about government getting out of their jurisdiction is understandable but they are acting no differently than a bank would if it was making a loan to a distressed entity. No bank would make such a loan to a company that was bankrupt without imposing stringent conditions and covenants on the company going forward until the debt was paid off. I do however disagree with the admin on the restrictions they are placing on the banks because they are meaningless and do not address the underlying problem. The problem has two aspects. The first is that compensation at investment banks is too big a percentage of earnings. Currently I believe most of the banks pay over 40% of their earnings as comp (base and bonus). This was fine when they were private partnerships and it was their own money at risk. In a corporation their liability is limited. The second point is that the boards of these companies have no adequate way to supervise either their activities or their comp numbers since they are picked by management and they are solely dependent on management for information. This has resulted in the management of these entities having all the benefits of the upside and the downside has been sold to the shareholders. This is not a model that rewards prudent risk taking. What the president should do is to set a sliding scale to bring pay down by having a requirement that any entity licensed by the Feds as a B/D, CPO, IA or CTA etc., and any affiliated entities of their corporate family can not pay more than 40% (currently around 46-48%) of earnings as compensation. This would go down by 1.5% a year until it was at 35%. Shares received as comp would be held for a period of time say 3 years and then paid in tranches thereafter. There should also be a limitation on the top 25 people in any organization that their pay could not go above 20% over the previous year's comp. The money not paid out in comp could go back to the shareholders as dividends which would make the banks a more attractive investment while keeping the value of the workers deferred comp high. Different point but I do not hear much about it is the number of jobs the banks sent overseas to be outsourced during the 15 years. These bankers were paid a bonus of component of which was based on the saving (earnings) of moving jobs from Americans and sending them overseas. At the very least as part of this bailout this practice should stop.