The Bonus Tax - Opinion

[ChrisC]

It is not Washington's duty to regulate bonuses and executive pay, despite the fact that we now all own AIG. If we don't like what they are getting, then we can attend a shareholders meeting, and I will of course have the concession on old eggs and tomahtoes, and vote accordingly.

I think executive compensation and the compensation system for Wall Street scriveners has gotten so far out of hand that the free market and unrestrained capitalism has been dysfunctional in this area. This area needs thoughtful and insightful regulation, if taxpayer funds are involved.

Washington and some of its financial regulators have been attempting to regulate one distorted aspect of executive compensation for the last few years: "golden parachutes" in government-sponsored enterprises like Fannie and Freddie, and these arrangements essentially get wiped out for banking executives in "failing depository institutions" where the taxpayer is indirectly on the hook.

 

[newporttony]

I think executive compensation and the compensation system for Wall Street scriveners has gotten so far out of hand that the free market and unrestrained capitalism has been dysfunctional in this area. This area needs thoughtful and insightful regulation, if taxpayer funds are involved.

Washington and some of its financial regulators have been attempting to regulate one distorted aspect of executive compensation for the last few years: "golden parachutes" in government-sponsored enterprises like Fannie and Freddie, and these arrangements essentially get wiped out for banking executives in "failing depository institutions" where the taxpayer is indirectly on the hook.

I think compensation for athletes, TV personalities, and hollywood actors and actresses has gotten out of hand; shouldn't the government do something about that?

 

[Gone4Good]

And beyond the taxing of the AIG bonuses and the obvious hypocracy thereof, these people now ant to take it further and regulate compensation for all financial services companies (irrespective of whether they have taken bailout money).

There is a good (or at least necessary) reason for doing this which is a bit counter intuitive. What I think you will see is that this extension of regulation is an attempt to quell the populist rage without undermining Treasury's attempt to fix the economy. In this way, it might actually be kind of smart given the current "off with their heads" political environment.

If you remember a few months ago when TARP was originally rolled out, the government WANTED banks to take the money. Some were even required to take the money. Paulson and crew went out of their way to make sure the program was attractive to banks and that it didn't have punitive strings attached . . . which is why compensation restrictions were stripped out and watered down.

Why did they do this? Because the financial system needed capital and the government wanted to help. Typically you don't help someone and kick them in the shin at the same time.

Now the government is rolling out other programs, including TALF and Geithner's new proposal to buy "toxic" assets, that rely on private participation. So just like TARP, the government is trying to make it attractive to participate. If, instead, they pass a bill that specifically punishes TARP participants, who will sign up for the new programs? No one! So they don't want to cut off their nose to spite their face.

But at the same time, they can't simply ignore the populist outrage over bonuses even though it focuses on matters that are relatively trivial when compared with what is actually at stake. So they have to do something.

What, I believe, they are trying to do is convert the narrowly focused punitive tax proposals into a broader (and most likely more flexible) set of regulations. If TARP participants aren't singled out, the damage to Treasury's existing and future programs is reduced. While at the same time government can announce a plan that "does something" about "outrageous" Wall Street compensation.

 

[TromboneAl]

WASHINGTON (CNN) – President Obama's economic advisers on Sunday refused to endorse a House bill that would levy a 90 percent tax on bonuses paid out by companies that receive bailout money, with one administration official describing the plan as potentially "dangerous."
...
Jared Bernstein, Vice President Joe Biden's top economic adviser, told ABC's "This Week" that the bill "may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group. That may be a dangerous way to go."

 

[Zathras]

I think compensation for athletes, TV personalities, and hollywood actors and actresses has gotten out of hand; shouldn't the government do something about that?

Are they getting a bailout? If so, then yes.
That aside though, these bonuses are NOT performance bonuses. They are bonuses to people to stay with the company even though they are working to eliminate their own job.
Agreement or disagreement over this should have surfaced back when the retention bonuses were first conceived of.
The politicians are grand standing, and the public is unaware of the facts. Seems about par for the course

 

[newporttony]

Are they getting a bailout? If so, then yes.
That aside though, these bonuses are NOT performance bonuses. They are bonuses to people to stay with the company even though they are working to eliminate their own job.
Agreement or disagreement over this should have surfaced back when the retention bonuses were first conceived of.
The politicians are grand standing, and the public is unaware of the facts. Seems about par for the course

Agreed. However, the new proposals apparently will apply to all banks and financial services companies irrespective of whether they received TARP money. I am looking forward to a compensation cap for NBC and CNBC personalities as the result of GE receiving TARP money (although I won't hold my breath).

 

[ChrisC]

I think compensation for athletes, TV personalities, and hollywood actors and actresses has gotten out of hand; shouldn't the government do something about that?

Yep, if these others are getting a handout from the Government -- are they?

 

[ChrisC]

Agreed. However, the new proposals apparently will apply to all banks and financial services companies irrespective of whether they received TARP money. I am looking forward to a compensation cap for NBC and CNBC personalities as the result of GE receiving TARP money (although I won't hold my breath).

Kindly direct me to these proposals -- that's interesting news to me. Never mind, I found a recent NY Times article about this. But the Fed, SEC, and other regulators probably have existing authority to regulate compensation matters at Bank Holding Companies, Hedge Funds, and banks -- they probably already do that for perverse compensation arrangements like golden parachutes.

 

[ziggy29]

Thanks for that...

You know, of course, there are plenty of other places to go for off-topic politics. If you'd rather make thinly veiled complaints about the closing of the Soap Box, have fun.

 

[Westernskies]

You know, of course, there are plenty of other places to go for off-topic politics. If you'd rather make thinly veiled complaints about the closing of the Soap Box, have fun.

Not complaining, just enjoying the game...

 

[armor99]

Kindly direct me to these proposals -- that's interesting news to me. Never mind, I found a recent NY Times article about this. But the Fed, SEC, and other regulators probably have existing authority to regulate compensation matters at Bank Holding Companies, Hedge Funds, and banks -- they probably already do that for perverse compensation arrangements like golden parachutes.

And this in a nutshell is the problem with govt interference in private business in the first place. Define "perverse compensation".... define "rich".. Most people including myself have a hard time doing that. Why? Because these are subjective terms with no actual meaning. To someone who makes 30k/ year I am rich. To someone who makes 30 million/year, I am poor. Who is right or wrong?

Once the govt start tageting people that are "too rich" (whatever that term means), they can set their "rich" bar anywhere they want to. What happens if you find yourself on the wrong side of that bar some day. I am sure there are many here in the forum that already do. If you get over a certain threshold and the govt taxes all of your assets away who in their right mind would work past that limit? And in doing so, does that increase or decrease the productivity of the US? It is almost like saying that in the US you are only allowed to be successful up to a certain point. Why bother trying if the sky is NOT the limit?

What most people still refuse to see is what these "rich" folks had to do to get their "rich" status in the first place. Read the forbes 100 richest people in the world and the thing that will stand out is how few of them inherited their money. The rest made it themselves. And what we see today is their success. But that success did not come overnight. NO! It took years of hard work, sleepless nights, 100hr work weeks, months away from their families, and the list goes on. But people tend to ignore all of the hard work that went into it, believing that they somehow arrived at their fortunes accidently. As though they were just walking down the street one day and divine intervention scooped them up and made them wealthy. Just not true.

 

[Westernskies]

And this in a nutshell is the problem with govt interference in private business in the first place. Define "perverse compensation".... define "rich".. Most people including myself have a hard time doing that. Why? Because these are subjective terms with no actual meaning. To someone who makes 30k/ year I am rich. To someone who makes 30 million/year, I am poor. Who is right or wrong?

Once the govt start tageting people that are "too rich" (whatever that term means), they can set their "rich" bar anywhere they want to. What happens if you find yourself on the wrong side of that bar some day. I am sure there are many here in the forum that already do. If you get over a certain threshold and the govt taxes all of your assets away who in their right mind would work past that limit? And in doing so, does that increase or decrease the productivity of the US? It is almost like saying that in the US you are only allowed to be successful up to a certain point. Why bother trying if the sky is NOT the limit?

What most people still refuse to see is what these "rich" folks had to do to get their "rich" status in the first place. Read the forbes 100 richest people in the world and the thing that will stand out is how few of them inherited their money. The rest made it themselves. And what we see today is their success. But that success did not come overnight. NO! It took years of hard work, sleepless nights, 100hr work weeks, months away from their families, and the list goes on. But people tend to ignore all of the hard work that went into it, believing that they somehow arrived at their fortunes accidently. As though they were just walking down the street one day and divine intervention scooped them up and made them wealthy. Just not true.

Well-stated. When I was first starting out in my career in industry, working in engineering/estimating I noticed something about those who were the most financially successful- they all worked extremely hard, put in long hours, lived below their means, and were either in an equity position with the company or were in outside sales. It didn't take me long to realize that I could get into a commissioned sales position a lot quicker than an equity position. So, after 20+ years of 120+days/year on the road and 60+ hour work weeks, guess what? I 'm now "rich" at 50 (by both Obama's and Biden's definitions! ) and will retire a lot earlier and easier than 95+% of the 8-5 crowd who just put in their 35-40 hours and went home to their spouses, kids, and TV's every night. Not passing judgement, just making an observation. Unfortunately, many of these are the same folks whom are now getting bailed out of their mortgages because they thought they could live above their 8-5 incomes on their HELOCS ) Amazing how that works.

I don't have a problem with the AIG bonuses as long as AIG had the financial strength to pay them. I have a big problem when the taxpayers are footing the bill.

 

[youbet]

I think compensation for athletes, TV personalities, and hollywood actors and actresses has gotten out of hand; shouldn't the government do something about that?

Absolutely! And I think Congress should be involved in developing a format for NCAA football playoffs, criteria for Academy Award nominations and voting and should mandate to businesses what they produce, how much they can charge, who they can hire and whether single or 2-ply tp is provided in the potty.

They know better than plebian private citizens and need to speak up for all our benefit.

 

[ziggy29]

Absolutely! And I think Congress should be involved in developing a format for NCAA football playoffs

They've already blustered about this. In particular Congresscritters from Texas and Utah, thinking their teams got shafted in the BCS, threatened to sue the BCS over "false advertising" if they continued to call it a "national championship" game when there is no playoff.

 

[ChrisC]

And this in a nutshell is the problem with govt interference in private business in the first place. Define "perverse compensation".... define "rich".. Most people including myself have a hard time doing that. Why? Because these are subjective terms with no actual meaning. To someone who makes 30k/ year I am rich. To someone who makes 30 million/year, I am poor. Who is right or wrong?

Once the govt start tageting people that are "too rich" (whatever that term means), they can set their "rich" bar anywhere they want to. What happens if you find yourself on the wrong side of that bar some day. I am sure there are many here in the forum that already do. If you get over a certain threshold and the govt taxes all of your assets away who in their right mind would work past that limit? And in doing so, does that increase or decrease the productivity of the US? It is almost like saying that in the US you are only allowed to be successful up to a certain point. Why bother trying if the sky is NOT the limit?

What most people still refuse to see is what these "rich" folks had to do to get their "rich" status in the first place. Read the forbes 100 richest people in the world and the thing that will stand out is how few of them inherited their money. The rest made it themselves. And what we see today is their success. But that success did not come overnight. NO! It took years of hard work, sleepless nights, 100hr work weeks, months away from their families, and the list goes on. But people tend to ignore all of the hard work that went into it, believing that they somehow arrived at their fortunes accidently. As though they were just walking down the street one day and divine intervention scooped them up and made them wealthy. Just not true.

So, you think it's perfectly fine for a CEO to legitimately loot his company and abuse his fiduciary responsibilities by engaging in "perverse compensation" practices like paying himself "exorbitant" levels of compensation that bear no relationship to long term growth and long term business practices of the company he's mismanaging -- where there is really no effective way of policing this, other than counter-productive shareholder derivative suits? You want the Government to stand on the sidelines and not ensure greater transparency for shareholders or ensure a greater level playing field. This is why "golden parachutes" are generally prohibited; Let's just stick with that "perverse compensation" feature instead of raising the red herring of "rich" or "generous" levels of pay.

I don't really understand your concept of capitalism that appears to permit unmitigated and unrestrained greed that would result in "perverse" societal outcomes. You can't give the snake oil salesman free reign over everything!

Ah fagedaboutit, we've been down this path before.

 

[samclem]

So, you think it's perfectly fine for a CEO to legitimately loot his company and abuse his fiduciary responsibilities by engaging in "perverse compensation" practices like paying himself "exorbitant" levels of compensation that bear no relationship to long term growth and long term business practices of the company he's mismanaging -- where there is really no effective way of policing this, other than counter-productive shareholder derivative suits?

A few words:
-- Board of Directors.
-- Contract
-- Informed and consenting adults
-- Private parties engaged in private business
-- Lack of fraud or force
-- Civil court

There is certainly room for improvements in the mechanisms whereby the BoD responds to the shareholders and whereby the CEO's self-interests are more properly aligned with those of the company. These improvements would help the free market (that is, the market for the services and compensation of CEOs) function more effectively. That's very different from the legislative or executie branch making judgements about how much a person should get paid.

 

[armor99]

So, you think it's perfectly fine for a CEO to legitimately loot his company and abuse his fiduciary responsibilities by engaging in "perverse compensation" practices like paying himself "exorbitant" levels of compensation that bear no relationship to long term growth and long term business practices of the company he's mismanaging -- where there is really no effective way of policing this, other than counter-productive shareholder derivative suits? You want the Government to stand on the sidelines and not ensure greater transparency for shareholders or ensure a greater level playing field. .

Ummm... YES!!!

I also believe in the right to private property. You actually made my point for me very well. If it is YOUR company, and you are the CEO, then you are free to pay yourself whatever salary you see fit. Hence the concept of private ownership. As in the govt does not have the right to tell you how to run your business. Businesses that structure themselves properly and pay decent salaries tend to do well and survive. Those that do a poor job of it, tend to go bankrupt and fail. And that is as it should be.

No matter how much the US goverment might want to, there is just no way to "legislate" prosperity for everyone. The economy is based on millions of "individual" choices made by people every day. Some of those decisions will be good ones, and some will be bad. Some will probably even be ruinous. The govt seems to want to control each and every decision that each of us makes everyday. i completely understand their desire for it. From their point of view, they have the "big picture". And if only they could make (I would substitute the word force) every single person to do what they each wanted us to do, then everything would turn out just great.

And you know what... if they had that level of control, they are probably right! But that form of govt is called totalitarian, not a democracy. And I doubt it is a system that anyone in here would want to live under.

 

[Westernskies]

Ummm... YES!!!

I also believe in the right to private property. You actually made my point for me very well. If it is YOUR company, and you are the CEO, then you are free to pay yourself whatever salary you see fit. Hence the concept of private ownership. As in the govt does not have the right to tell you how to run your business. Businesses that structure themselves properly and pay decent salaries tend to do well and survive. Those that do a poor job of it, tend to go bankrupt and fail. And that is as it should be.

No matter how much the US goverment might want to, there is just no way to "legislate" prosperity for everyone. The economy is based on millions of "individual" choices made by people every day. Some of those decisions will be good ones, and some will be bad. Some will probably even be ruinous. The govt seems to want to control each and every decision that each of us makes everyday. i completely understand their desire for it. From their point of view, they have the "big picture". And if only they could make (I would substitute the word force) every single person to do what they each wanted us to do, then everything would turn out just great.

And you know what... if they had that level of control, they are probably right! But that form of govt is called totalitarian, not a democracy. And I doubt it is a system that anyone in here would want to live under.

Agreed. But AIG crossed the private/public line when they stuck their snout in the bailout trough and started feeding off the taxpayers. I don't think this has anything to do with legislating prosperity; folks are concerned about legal, moral, and ethical impropriety on AIG's part and the complete lack of oversight by our elected officials.

 

[ChrisC]

A few words:
-- Board of Directors.
-- Contract
-- Informed and consenting adults
-- Private parties engaged in private business
-- Lack of fraud or force
-- Civil court

There is certainly room for improvements in the mechanisms whereby the BoD responds to the shareholders and whereby the CEO's self-interests are more properly aligned with those of the company. These improvements would help the free market (that is, the market for the services and compensation of CEOs) function more effectively. That's very different from the legislative or executie branch making judgements about how much a person should get paid.

A few words back at you: those words don't work effectively! We keep on tinkering, by the way, with appropriate rules, whether legislatively or judicially engrafted, on appropriate corporate behavior so it's not like the prevailing view is to leave this entirely to free-market concepts!

 

[ChrisC]

Ummm... YES!!!

I also believe in the right to private property. You actually made my point for me very well. If it is YOUR company, and you are the CEO, then you are free to pay yourself whatever salary you see fit. Hence the concept of private ownership. As in the govt does not have the right to tell you how to run your business. Businesses that structure themselves properly and pay decent salaries tend to do well and survive. Those that do a poor job of it, tend to go bankrupt and fail. And that is as it should be.

No matter how much the US goverment might want to, there is just no way to "legislate" prosperity for everyone. The economy is based on millions of "individual" choices made by people every day. Some of those decisions will be good ones, and some will be bad. Some will probably even be ruinous. The govt seems to want to control each and every decision that each of us makes everyday. i completely understand their desire for it. From their point of view, they have the "big picture". And if only they could make (I would substitute the word force) every single person to do what they each wanted us to do, then everything would turn out just great.

And you know what... if they had that level of control, they are probably right! But that form of govt is called totalitarian, not a democracy. And I doubt it is a system that anyone in here would want to live under.

We have a basic failure to communicate based on a differing foundation. Ah fagedboutit. In your view, the SEC, FDA, and EPA have no business telling you how to run your business, right?

 

[samclem]

From tomorrow's WSJ:

"New York Attorney General Andrew Cuomo said late Monday that 15 of the top 20 retention bonus recipients in AIG's Financial Products unit have agreed to give back their bonuses -- amounting to returned cash in excess of $30 million."

I can only guess that those giving the money back were under intense pressure from the managementy and others in the industry "You are making us all look bad, and the government is threatening to close down the trough. For Pete's sake, give back your 2008 bonus and we'll make it up to you later."

I'd like to read about at least one guy with backbone who gives every dime of the bonus to soup kitchens and animal shelters. If the government wants the money they can confiscate from those entities.

Or, maybe buy a Hummer (the bigger and more fuel-thirsty, the better) and hire people to drive it around in front of government buildings in DC throwing money to pedestrians at random.

 

[Westernskies]

From tomorrow's WSJ:



I can only guess that those giving the money back were under intense pressure from the managementy and others in the industry "You are making us all look bad, and the government is threatening to close down the trough. For Pete's sake, give back your 2008 bonus and we'll make it up to you later."

I'd like to read about at least one guy with backbone who gives every dime of the bonus to soup kitchens and animal shelters. If the government wants the money they can confiscate from those entities.

Or, maybe buy a Hummer (the bigger and more fuel-thirsty, the better) and hire people to drive it around in front of government buildings in DC throwing money to pedestrians at random.

whoa, sam- remember-decaf after dinner!

 

[armor99]

We have a basic failure to communicate based on a differing foundation. Ah fagedboutit. In your view, the SEC, FDA, and EPA have no business telling you how to run your business, right?

Yes.... correct...

 

[FUEGO]

Or, maybe buy a Hummer (the bigger and more fuel-thirsty, the better) and hire people to drive it around in front of government buildings in DC throwing money to pedestrians at random.

Why spend the money prudently? In a true middle finger to congress move, one should take the multi-million dollar bonus and just waste it. You know, hire a bunch of blowhards to form a committee to brainstorm and discuss how horrible a job congress is doing and then lambaste them for continuing to accept their paychecks, receiving travel reimbursements and flying around the country on private jets (since they are being supported by the taxpayers, you know) while the country is in the middle of the deepest recession since the Great Depression and people are starving and dying on the street.

 

[bright eyed]

Agreed. But AIG crossed the private/public line when they stuck their snout in the bailout trough and started feeding off the taxpayers. I don't think this has anything to do with legislating prosperity; folks are concerned about legal, moral, and ethical impropriety on AIG's part and the complete lack of oversight by our elected officials.

AGREE!

The free marketers can declare that govmt should never stick their nose in business' business as long as business is not allowed to crawl on their knees for a meganormous bail out at taxpayer's expense for an industry-wide virus of risk-taking and greed...