Which of the following arguments were used by TARP recipients to justify high executive compensation levels?
- Everyone in their executive suites was above average when compared with peers at other giant banks that didn’t need a bailout.
- They couldn’t pay in company stock because it was actually worthless, though it was actively trading around $40 on the NYSE.
- “But, Mom, all the other kids have one.”
Check your answers.
The seven TARP recipients companies that had not yet paid back the emergency funds were therefore subject to governmental authority when it came to setting salary and bonuses for their top 25 executives. They pleaded their cases to Kenneth Feinberg, the government’s special master for executive compensation.
- Both Citigroup and Bank of America used this reasoning.
- A.I.G made this argument during a behind-the-doors argument.
- This is how Warren Buffet, most definitely not a TARP recipient, scorned the process in which U.S. companies give executives compensation “ridiculously out of line with performance.”
While Feinberg’s final rulings forced lower pay packages, the Banks have ended the year doing quite well. Each Bank of America executive, for example, was awarded an average of $6.5 million. Make that $6.2 million for Citigroup’s management.
The TARP seven are Chrysler Financial, General Motors, Chrysler, General Motors Acceptance Corporation, Citigroup, Bank of America, and A.I.G.
[Hats off to Steven Brill, whose New York Times story, “What’s a Bailed-Out Banker Really Worth?” is the source for our quiz this month.]
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