From Left: Kenneth Feinburg, Kenneth Lewis
Who would want to work for free? This year CEO Kenneth Lewis from the Bank of America is! It is the first time that Kenneth Feinberg the U.S “pay tsar” has interfered in compensation payments for bailed-out banks and took away an employee's entire pay. Lewis will receive no pay, bonus or any other payments for 2009. This is very good news for the shareholder who has seen the company produce a third quarter loss of $2.24 billion. A CEO's pay should be reflected on the performance of the company. Right? However, financial press this week were more sympathetic towards executives than I thought.
I lack sympathy for the executive who is to pay back $1 million to the company when he can still have a retirement package of a cool $125 million. There should be alternative ways to encourage talent than the traditional method of linking stock options and bonuses to share prices. It encourages risky behaviour and short-term profitability whereby executives fail to represent shareholder interests.
The U.S government is doing the right thing for the shareholder and tax payer. As it will set a precedent for companies that receive capital infusions from the government and hopefully encourage a review of shareholder rights. But I do also feel that the Feinberg's role is retro-active and could effectively rip up existing contracts. Therefore making contact law invalid. Shareholders should also be able to voice their opinion on compensation pay-outs and thus reward executives for performance.
However this week in the major financial bibles the Financial Times, Bloomberg, and The Wall Street Journal, the shareholders were very quiet. It was also very interesting to read how Lewis was told to give up his salary by the 'pay tsar'. All sorts of adjectives were used.
The Financial Times- 'avert a dispute'
Bloomberg- 'decision based on advice'
The Wall Street Journal – 'demanded by'
Reuters – 'request'
The Guardian- 'ordered'
They can mean all different things depending on your view of the 'pay tsar'. But the Bank of America releases a statement which said: 'Mr Feinburg suggested that Ken Lewis should take no compensation for 2009'. However, I get the impression the statement from BofA was downplayed for the press.
The Financial Times was the most objective and most conservative in its language. The Farrell article mentioned 'averting a dispute'. It seemed that both Lewis and Feinburg worked together and reached an agreement. Farrell also quoted a Treasury statement on the role and responsibilities that Feinburg will play in compensation payments. I found this very enlightening for an uneducated reader on the conditions for government bail-outs. Other articles failed to mention it.
Bloomberg, I felt was very anti-intervention and subjective. It was not what I had expected. The whole article had opinion from managers from the US who gave the their opinion that the action by Feinberg was 'extreme' or 'unfortunate'. But I suppose that can be expected if Bloomberg chooses to interview employees that would directly benefit from stock options and massive bonuses. However the article does mention the restricted stock and option rewards Lewis received since 2006. Maybe an average pay-out of $15 million is not much for an executive? There is was no views from shareholders which I found discouraging from Bloomberg since they usually give a balanced view.
The Wall Street Journal is a short article compared to the FT and Bloomberg but also failed to voice shareholder interests. It was also strongly worded- Feinburg 'demanded' Lewis give up his salary. The last few paragraphs also focused on the work of Lewis which could justify Lewis receiving a salary but definitely not for the fiasco surrounding the purchase of Merrill Lynch last year. The article also reported 'the' rationale for the decision by Feinburg which was based on retirement benefits but the sources conveniently remain 'anonymous'.
The level of pay-outs to executives should be regulated to protect shareholder interests. But based on the press I have read this week it seems that Wall Street would prefer if 'pay tsar' did not exist. Its based on the rationale that if free markets exist governments should not get involved. Since executives are willing to do anything to get that big cash bonus or stock option, I feel that it is necessary in extreme cases like the Bank of America for the government to step-in and defend the shareholder interest. However within the boundaries of contract law. New alternatives to reward to employees should be developed and shareholders should also be given more rights. It will be riveting news for Wall Street to hear who will also get a pay-cut by the October 30 deadline. But not surprising for the Average Joe. But at this moment the 'pay tsar' is the only alternative and in the eyes of executives it looks like karma for corporate greed.
Sources
Financial Times
http://www.ft.com/cms/s/0/c6626158-b9e2-11de-a747-00144feab49a.html
Bloomberg
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKnVhijkdgR0
The Wall Street Journal
Print and Online
http://online.wsj.com/article/SB125564137421788337.html
Reuters
http://www.reuters.com/article/ousiv/idUSTRE59E6GI20091016?sp=true
USA Today
http://www.usatoday.com/money/industries/banking/2009-10-16-bank-of-america-ceo-no-bonus_N.htm
CNBC
http://www.cnbc.com/id/33334914/for/cnbc/#
The Guardian
http://www.guardian.co.uk/business/2009/oct/16/ken-lewis-bank-of-america-pay
The Economist
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14678300
I lack sympathy for the executive who is to pay back $1 million to the company when he can still have a retirement package of a cool $125 million. There should be alternative ways to encourage talent than the traditional method of linking stock options and bonuses to share prices. It encourages risky behaviour and short-term profitability whereby executives fail to represent shareholder interests.
The U.S government is doing the right thing for the shareholder and tax payer. As it will set a precedent for companies that receive capital infusions from the government and hopefully encourage a review of shareholder rights. But I do also feel that the Feinberg's role is retro-active and could effectively rip up existing contracts. Therefore making contact law invalid. Shareholders should also be able to voice their opinion on compensation pay-outs and thus reward executives for performance.
However this week in the major financial bibles the Financial Times, Bloomberg, and The Wall Street Journal, the shareholders were very quiet. It was also very interesting to read how Lewis was told to give up his salary by the 'pay tsar'. All sorts of adjectives were used.
The Financial Times- 'avert a dispute'
Bloomberg- 'decision based on advice'
The Wall Street Journal – 'demanded by'
Reuters – 'request'
The Guardian- 'ordered'
They can mean all different things depending on your view of the 'pay tsar'. But the Bank of America releases a statement which said: 'Mr Feinburg suggested that Ken Lewis should take no compensation for 2009'. However, I get the impression the statement from BofA was downplayed for the press.
The Financial Times was the most objective and most conservative in its language. The Farrell article mentioned 'averting a dispute'. It seemed that both Lewis and Feinburg worked together and reached an agreement. Farrell also quoted a Treasury statement on the role and responsibilities that Feinburg will play in compensation payments. I found this very enlightening for an uneducated reader on the conditions for government bail-outs. Other articles failed to mention it.
Bloomberg, I felt was very anti-intervention and subjective. It was not what I had expected. The whole article had opinion from managers from the US who gave the their opinion that the action by Feinberg was 'extreme' or 'unfortunate'. But I suppose that can be expected if Bloomberg chooses to interview employees that would directly benefit from stock options and massive bonuses. However the article does mention the restricted stock and option rewards Lewis received since 2006. Maybe an average pay-out of $15 million is not much for an executive? There is was no views from shareholders which I found discouraging from Bloomberg since they usually give a balanced view.
The Wall Street Journal is a short article compared to the FT and Bloomberg but also failed to voice shareholder interests. It was also strongly worded- Feinburg 'demanded' Lewis give up his salary. The last few paragraphs also focused on the work of Lewis which could justify Lewis receiving a salary but definitely not for the fiasco surrounding the purchase of Merrill Lynch last year. The article also reported 'the' rationale for the decision by Feinburg which was based on retirement benefits but the sources conveniently remain 'anonymous'.
The level of pay-outs to executives should be regulated to protect shareholder interests. But based on the press I have read this week it seems that Wall Street would prefer if 'pay tsar' did not exist. Its based on the rationale that if free markets exist governments should not get involved. Since executives are willing to do anything to get that big cash bonus or stock option, I feel that it is necessary in extreme cases like the Bank of America for the government to step-in and defend the shareholder interest. However within the boundaries of contract law. New alternatives to reward to employees should be developed and shareholders should also be given more rights. It will be riveting news for Wall Street to hear who will also get a pay-cut by the October 30 deadline. But not surprising for the Average Joe. But at this moment the 'pay tsar' is the only alternative and in the eyes of executives it looks like karma for corporate greed.
Sources
Financial Times
http://www.ft.com/cms/s/0/c6626158-b9e2-11de-a747-00144feab49a.html
Bloomberg
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aKnVhijkdgR0
The Wall Street Journal
Print and Online
http://online.wsj.com/article/SB125564137421788337.html
Reuters
http://www.reuters.com/article/ousiv/idUSTRE59E6GI20091016?sp=true
USA Today
http://www.usatoday.com/money/industries/banking/2009-10-16-bank-of-america-ceo-no-bonus_N.htm
CNBC
http://www.cnbc.com/id/33334914/for/cnbc/#
The Guardian
http://www.guardian.co.uk/business/2009/oct/16/ken-lewis-bank-of-america-pay
The Economist
http://www.economist.com/businessfinance/displayStory.cfm?story_id=14678300
Your best blog yet. A very interesting topic and very well thought out and argued response to the news. 8/10
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