Return to sender

Ah, executive pay. With everyone out of work and no one exactly pleased with the economic outlook, the notion of Wall Street fat cats spilling the milk and then cutting and running is a fairly unanimous source of frustration for many people.

But now, it’s going one step further – a growing camp is demanding that “clawbacks” be enacted, such that executives whose institutions received taxpayer-based financial bailout money would be forced to return compensation they received just before economic problems emerged.

Why not? If these institutions are demanding taxpayer money to get bailed out, shouldn’t the first source of bailout money come from their Chief Executive Officers’ disproportionately lavish paychecks?

It’s no small chunk of change. In seven major financial firms that either collapsed, were sold for next to nothing, or received taxpayer-funded bailouts, the top executives were paid $464 million in performance pay since 1995.

The same seven firms have lost over $100 billion since 2007. And $740 billion in stock value in these companies has been lost since the companies’ shares reached a high in 2007, right before the housing bubble burst.

The Wall Street chorus replies with lamentations of brain drain. The adequately incented, gilded days of yore are over, they say – and our financial machine won’t be run in the same way without those top minds there to guide it through both bull and bear.

Perhaps that’s not a bad thing. The only folks making the argument that “we’re the only ones who can fly this thing” are the ones currently ejecting out of the pilot’s seat.
“People got spoiled,” said John H. Gutfreund, head of Solomon Brothers during the 1980s.

Gutfreund thinks the handful of executives are just whining and that any accusations of yanking sufficient incentives, thereby causing brain drain, are empty. “There’s always someone else coming up the ladder,” he said.  
If anything, this notion of “the way things used to be” only catalyzed the financial crisis.

“Poorly structured pay packages encouraged the get-rich-quick mentality and overly risky behavior that helped bring financial markets to their knees and wiped out profits at so many companies,” said Amy Borrus, who serves as deputy director at the Council of Institutional Investors. “And yet many of these CEOs have pocketed enormous compensation.”

On a larger note, I’m not sure if “the way things used to be” is a good indicator for much of anything anymore. Alan Greenspan, former chairman of the Federal Reserve, who for years was hailed as the high advocate of laissez-faire capitalism, is now aboard the camp indicating that nationalization of our banks is looking like the way to go.   

We watched the housing market bubble rise up so high that A&E ran a television show called “Flip This House.”  Just because we’ve never administered an executive pay clawback like this certainly doesn’t mean it’s not called for.

When the behavior of these executives behind the controls of our financial giants contributed to the mess we’re in now, it’s downright reasonable to demand that pay be given back if the institution received taxpayer bailout money.