Of Populism and CEO Pay Limitsby Tim Manni
A last-minute insertion into the ’stimulus’ bill — limits on bank CEO compensation — is likely to have unintended consequences:
But CEOs at even midtier and much smaller banks are paid far more than the $500,000 limit set by the White House, or the bonus cap of one-third of total compensation set by the new amendment. For instance, M&T Bank (MTB) has assets of $65 billion and has received $600 million from the U.S. Treasury. CEO Robert Wilmers’ compensation in 2007 totaled $1.15 million, which included a salary of $646,154 with the rest coming from bonuses and other items such as pension benefits.
The clause was the idea of Sen. Chris Dodd (D-Conn), who saw a way to capitalize on taxpayer anger at ‘fat cats’ whose banks are receiving government bailout money (or were pressured to take it). Dodd, of course, is infamous for his role as a Friend of Angelo, by which he “received loans from Countrywide Financial through a little-known program that waived points, lender fees and company borrowing rules for prominent people.” But leave that aside for now.
In any event, as Michael Kinsley notes, the critics of this move have several valid points:
First is that restrictions on things like bonuses are easy to evade, simply by relabeling them as salary, which is either unrestricted or less so. This, the critics note (with exasperation, and some justification), will break the connection between pay and performance that was considered so crucial during other banker-burning festivals of recent years. Second, compensation ceilings limited to executives at troubled banks that have received government money will put these banks at a disadvantage in the competition for talent — just when they need talent the most. And third, the rules give these bank executives a strong incentive to pay back the government too quickly, in order to be free of the restrictions on their pay.
There’s also the point that — let’s face it — being in charge of a large business isn’t easy. To attract top-level talent, you need to pay. Flame away if you must, but that’s the same argument used by everyone from professional athletes to your neighborhood school’s principal — and some of them bomb out spectacularly, too. And if you’re honest, you’ll admit that faced with a choice of jobs, you’ll likely take the higher-paying one.
And even more on point: Even if you believe that the biggest bank CEOs are incompetent, greedy, malicious, or some combination, it’s hardly fair — though it’s undeniably convenient politically — to tar other banks with the same big brush.