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CEO Clawback Provisions in the Bailout?

With Congress recognizing the public's dismay over this massive taxpayer giveaway, we are starting to see some serious questions about the folks who drove the financial ship of state aground.

Hence, its time to take a closer look at pay and severance packages for CEOs at investment houses, banks and mortgage lenders, who perversely stand to benefit from the public's largesse. 

Here's a quick overview:

• Lehman Brothers Chairman and CEO Richard Fuld Jr. made $34 million in 2007. Lehman (OTC:LEHMQ) filed for Chapter 11 Bankruptcy protection earlier this month. Fuld also sold nearly a half-billion –$490 million – from selling LEH stock;

• Goldman Sachs (NYSE:GS)paid its Chairman and CEO Lloyd Blankfein $70 million last year. Co-Chief Operating Officers Gary Cohn and Jon Winkereid were paid $72.5 million and $71 million, respectively.

• Bears Sterns (BSC JPM)former chairman Jimmy Cayne, rescued by a $29 billion Fed shotgun wedding to JPM, received $60 million when he was replaced;

• American International Group (AIG) chief executive Martin Sullivan got a $14 million compensation package in 2007. He was ousted in June. The insurance giant (NYSE:AIG) is on the receiving end of an $85 billion federal bailout. Robert Willumstad was handed $7 million for his three months at the helm. (Edward Liddy took over as AIG’s chief executive earlier this month).

• Morgan Stanley (MS) Chairman John Mack earned $1.6 million + stock. Chief Financial Officer Colin Kelleher got a $21 million paycheck in 2007. Morgan Stanley also received an expedited approval to become a banking holding company in 48 hours -- that's record time.

• Countrywide Financial's (CWF BAC) founder & CEO Angelo Mozilo,  which has been at the forefront of the subprime fiasco, cashed in $122 million in stock options in 2007; His total take is estimated at over $400 million dollars;

• Stanley Neal, who steered Merrill Lynch (NYSE:MER) into financial collapse before being taken over by Bank of America, was given a package of $160 million when he left his post last year; That package makes current CEO John Thain was paid $17 million in salary, bonuses and stock options in 2007 look like a bargain.

• Bank of America (NYSE:BAC) is acquiring Merrill. BofA CEO Kenneth Davis brought home $25 million in 2007.

• JP Morgan Chase & Co. (JPM) Chairman and CEO James Dimon earned $28 million in 2007. Chase  acquired troubled investment house Bear Stearns earlier this year with the federal reserve backstopping $29 billion in Bear assets to help get the deal done.

• Fannie Mae (FNM) CEO Daniel Mudd received $11.6 million in 2007. His counterpart at Freddie Mac (FRE) Richard Syron, brought in $18 million. Federal government is taking over the mortgage backers with Herbert Allison to serve as Fannie CEO and David Moffett the new CEO at Freddie.

• Wachovia Corp. (WB) Chairman and CEO G. Kennedy Thompson received $21 million in 2007. He was succeeded by Robert Steel as CEO in July. Steel is slated to get a $1 million salary with an opportunity for a $12 million bonus, according to CEO Watch. Wachovia (NYSE:WB) is one of the banks that could be sold in the midst of the financial crisis.

• Seattle-based Washington Mutual (WM) will pay its new CEO Alan Fishman a salary and incentive package worth more than $20 million through 2009 for taking the helm of the battered bank, according to the Puget Sound Business Journal.

>

Did I miss anyone? (Many of these do not include stock option packages)

Its time to start talking about a clawback provision as the grounds of any bailout.  As I have argued in the past, I have no problem with people making millions or billions IF THEY EARN IT.

But these guys above? If every man woman and child in the USA is going to be on the hook for a Wall Street Incompetence Tax of $5-10k each, then the folks who brought us this mess, and took bonuses under the false pretense that the profits they generated were real, should also shoulder some of the costs . . .

>

UPDATE: September 24, 2008 9:22am

I just noticed the NYT had a front page article on the same subject, only without any dollar figures as to the salaries and bonuses.

Consider the above a NYT sidebar.

>

Previously:
What's Wrong With Billionaire Fund Managers?  (April 2008) 
http://bigpicture.typepad.com/comments/2008/04/whats-wrong-wit.html

Sources:
CEO pay: What those involved in the financial meltdown made
Mike Sunnucks and Chris Casacchia
The Puget Sound Business Journal contributed to this story
Phoenix Business Journal, Tuesday, September 23, 2008 - 11:58 AM MST
http://www.bizjournals.com/eastbay/stories/2008/09/22/daily37.html

Bailout should cut the cords of golden parachutes
The Patriot Ledger Sep 23, 2008 @ 06:30 AM
http://www.patriotledger.com/business/x804155672/OUR-OPINION-Bailout-should-cut-the-chords-of-golden-parachutes

In Bailout Furor, Wall Street Pay Becomes a Target
STEVE LOHR
NYT, September 23, 2008
http://www.nytimes.com/2008/09/24/business/24pay.html

Wednesday, September 24, 2008 | 07:13 AM | Permalink | Comments (63) | TrackBack (1)
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Comments

Agree completely, although the list is incomplete -- Johnson and Raines are front and center on the "omitted" list. Also, how about the lobbyists these companies paid?

Posted by: Don | Sep 24, 2008 7:18:51 AM

Since Bear Sterns was the first to be bailed out, why are they not on the investigation list?

Posted by: JL | Sep 24, 2008 7:26:58 AM

I pulled down 160k in severance. But that was 10 years ago this week.

Kind of like the way Willie Mays was compensated versus what's happening today.

The difference of course is the bigger you FU the more you get.

Posted by: Ha | Sep 24, 2008 7:29:51 AM

Who cares. Envy. Economically insignificant.

Posted by: Doug_S | Sep 24, 2008 7:33:40 AM

Do you honestly believe that all of those listed above share equal responsibility for our current problems?

On that note, do you have some special relationship with Citigroup?

You list Jamie Dimon and Ken Lewis but not Chuck Prince.

Jamie Dimon and Ken Lewis are alomost angels compared to Chuck Prince and the other former CEOs listed.

Posted by: cfpete | Sep 24, 2008 7:34:39 AM

http://www.rollcall.com/news/28599-1.html?type=printer_friendly

According to this blog, per Tony Fratto, the bailout plan has been in the works for weeks as 'a contingency plan'. There's probably a scam in there somewhere.

Posted by: freddy | Sep 24, 2008 7:38:24 AM

nobody is worth that much,it is obscene

Posted by: bruce | Sep 24, 2008 7:51:06 AM

Barry Ritzhold,

you are not being helpful by singling out the aspect of the Paulson plan that "they" will be willing to change in order for the public to swallow the rest.

Executive compensation, no matter how disgusting it is, is not the main point of the plan, and not the priority in fighting it.

The priorities are: TRANSFER OF WEALTH from taxpayer to financial elite and HYPERINFLATION as a way out that punishes savers and rewards debtors, the ones that created this.

Please, do not fall for their distraction tactics...if the Plan is approved with some limits to executive compensation it will not be any better in any significant way.

A concession on executive compensation is intended for the public to swallow the really significant parts of the plan: buying securites at inflated prices, no effective limits on kinds or amount of money to be spent, no effective supervision, and no legal liability in the future.

These are the aspects that, in my opinion, have to be atacked.

Posted by: LooksLikeItIsTooLateToWakeUpAmerica | Sep 24, 2008 7:51:15 AM

The subprime guarantees at Fannie and Freddie only got significant after 2005, long after Raines left according to the Golfarb analysis just released yesterday

"...Fannie Mae and Freddie Mac purchased and guaranteed "many more low-documentation, low-verification and non-standard" mortgages in 2006 and 2007 "than they had in the past." He said the companies increased their exposure to risks in 2006 and 2007 despite the regulator's warnings..."

So in spite of people like Dennis Gartman et al who blame Raines, he was long gone.

Raines may be responsible if they start claw backs on accounting issues though.

Posted by: VennData | Sep 24, 2008 7:51:30 AM

At a skim, all the CEO compensation listed doesn't reach 1 billion dollars. If we put the Investment Bank Foreclosure Prevention fund, 700B, on one side of the scale, and the CEO compensation on the other side... well, I don't see why this is even on the radar, except as a sop to appease angry taxpayers.

Now if we were going to put these people on the hook for the 700B, that would be a different story.

Posted by: pmorrisonfl | Sep 24, 2008 7:54:19 AM

I'd make this FAR more general... it is time to bring back the steeply gradualted income tax that worked so well in this country for decades before the rich decided they were royalty.

Also, since the US is bigger than Berkshire-Hathaway, I'd expect the same deal, or better, for 'rescue' money that WEB got from Goldman.

Posted by: wally | Sep 24, 2008 7:54:49 AM

Well, I thought this was interesting from, of all sources, CNBC...

The Pollyannas here aren't expecting another 40% decline..

http://www.cnbc.com/id/15840232?video=865956419&play=1

S&P to Fall Another 40%...

Barry, he's a charter...like you.

Posted by: Bruce in Tennessee | Sep 24, 2008 7:58:16 AM

"ship of state"

...we ere onna HMS PALOOKAVILLE..steamin outta sea to rescue survivors fromma SHIPWRECK.

the United Flakes Ship TITANIC out of Wall St. has hit a iceberg an come to a shudderin stop!

the TITANIC is holed below the water line and toxic sewage has polluted the atlantic.

Admiral PAULSON has vowed to save the vessel at ALL COSTS and sez that the TITANIC is unsinkable and therefore will never go down!

Catain wobbleya BRUSH was onna bridge atta time o da CRASH declarin VICTORY after the shock an awe.

wobbleya : it wan me wot dunnit! it were a shot sellers innit!

paulie : i gotta 7000,000,000 dolla vacuum gun annit gon suck...

Posted by: peterthepainter | Sep 24, 2008 7:59:04 AM

"Who cares. Envy. Economically insignificant."

There's a shitload of people who care; just ask Senators and Congresspeople right now. They're getting an earful and then some.

Maybe you're so fully vested that you probably don't have to care.

Economically insignificant? Can you spell "incentives"?

Head I win, tail you lose is a game that can't last...it's cheating! This is insignificant?

Posted by: Francois | Sep 24, 2008 8:01:06 AM

Have a feeling that if the CEOs were taking performance enhancing drugs, this process would speed up. Find it ironic that Congress wasted their time on an issue such as steriods in baseball while our Financial infrastructure was in the midst if collapse...

Posted by: Jeff | Sep 24, 2008 8:09:54 AM

Barry, I am outraged to the point of distraction.

It seems to me the responsibility for much of the current mess in credit markets, as well as the egregious compensation awarded to these weapons of mass incompetence, falls squarely in the laps of the respective Boards of Directors. Is it possible that ALL of the Audit Committees and Compensation Committees were asleep at the wheel?

I am NOT against gargantuan compensation IF a person generates gargantuan value for stakeholders; what you describe is the antithesis of free market capitalism. It is indeed Socialism for the Rich.

Let the law-suits begin.

Posted by: Adam Butler | Sep 24, 2008 8:12:33 AM

Indymac?

Also, how do we classify what could turn out to be a fox slipping the fox trap, namely, the AIG warrants for 79.9% deal issued but yet-to-be shareholder approved?

If the mega bailout goes through, AIG will pass off their losses to the USA and be back to business as usual with a Merry Chri$tmas for all MDs and above.

Posted by: SL | Sep 24, 2008 8:21:18 AM

Barry - isn't BAC CEO Kenneth Lewis not Kenneth Davis?

Posted by: Mr. Sparkle | Sep 24, 2008 8:22:04 AM

CEO of BofA is Ken Lewis.

Posted by: charlottemom | Sep 24, 2008 8:22:57 AM

Barry,

Instead of encouraging us to focus on their diversions, why don't you start organizing people into a group that will march on Washington to protest the criminal nature of this bailout? As the author of Bailout Nation, it would certainly be good publicity for you. As the most popular financial blogger alive, you probably have the clout to get such a grass-roots movement underway, and as one of the few citizens who understand that Paulson is in fact trying to steal from us, don't you feel like maybe you owe it to your country to try to intervene? You're standing on the soapbox. Use it. Please, I beg you.

dgov

Posted by: dgoverde | Sep 24, 2008 8:42:15 AM

Lets compensate quarterbacks solely on the winning record of the team. A team with a weak line, poor defense and other problems will get nothing other than a third rate quarterback.

Lets compensate heart surgeons solely on ten year survival rates. You're a diabetic? Go find some fifth rate doctor, you ain't going to ruin my paycheck.

How about you let the owners of the business determine how much to pay the CEO? I want United Auto Worker contracts approved by the shareholders of GM, Ford and Crysler.

Posted by: Doug_S | Sep 24, 2008 8:47:32 AM

I see tons of small business people put all they have into their business and fail.

I see middle class people declare BK because they tried to live a certain way and failed.

New things rise up in their place and some get through with success.

This is innovation. Let these damn things fail! Its the biggest scam ever that it will bring down america. Bush, paulson, bernanke et al have already brought down america.

If we let wall street get cleaned out new firms will rise to take their place and innovation will improve our society. The same goes with any industry.

There are tons of independent car makers that would make better cars for americans than the big 3 do.

This stuff just needs to die.

Posted by: oulous | Sep 24, 2008 8:48:10 AM

> I have no problem with people making millions or
> billions IF THEY EARN IT.

Then you either don't care or don't understand the effects that massive inequality produces. There are many more zero-sum games than economists will admit: land, water, political representatives to name a few.

Posted by: pulaski | Sep 24, 2008 8:48:54 AM

Why are we not demanding that are congressmen and women no longer be allowed to accept any contributions from the financial industry as part of this package.

Posted by: peggy | Sep 24, 2008 8:51:13 AM

Misguided ideology and the Gospel of Home Ownership ...

From A Speech by George W. Bush October 15 2002, George Washington University, Washington DC.


President Hosts Conference on Minority Homeownership


"...More and more people own their homes in America today. Two-thirds of all Americans own their homes, yet we have a problem here in America because few than half of the Hispanics and half the African Americans own the home. That's a homeownership gap. It's a -- it's a gap that we've got to work together to close for the good of our country, for the sake of a more hopeful future. We've got to work to knock down the barriers that have created a homeownership gap.
I set an ambitious goal. It's one that I believe we can achieve. It's a clear goal, that by the end of this decade we'll increase the number of minority homeowners by at least 5.5 million families. (Applause.)...

...To open up the doors of homeownership there are some barriers, and I want to talk about four that need to be overcome. First, down payments. A lot of folks can't make a down payment. They may be qualified. They may desire to buy a home, but they don't have the money to make a down payment. I think if you were to talk to a lot of families that are desirous to have a home, they would tell you that the down payment is the hurdle that they can't cross. And one way to address that is to have the federal government participate. ...."

http://www.whitehouse.gov/news/releases/2002/10/20021015-7.html#

Posted by: Jay | Sep 24, 2008 8:51:23 AM

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