The Workhouse Test

The new Bailout plan has some interesting restrictions on CEO compensation and golden parachutes.  For example:

…a prohibition on the financial institution making any golden parachute payment to its senior executive officer during the period that the Secretary holds an equity or debt position in the financial institution.

This could either be a disaster or a saving grace.  If you think the situation is very dire and also that Wall Street is ruled by greed then it’s a disaster as the captain may prefer to go down with his ship, rather than give up the golden parachute (life-jacket?).  Thus, those who think the situation is very dire must be gambling on CEO altruism!

On the other hand, if you think that there is still private capital out there ready to buy at the right price then this clause may mean a smaller public bailout than many are predicting.

It all reminds me of the workhouse test.   

Comments

Thus, those who think the situation is very dire must be gambling on CEO altruism!

Yes!

What we should really do is make sure no one in the USA can earn more than the President, and anyone below the CxO level can't earn more than the Vice President.

Especially sales people. And lawyers. (Most especially lawyers.)

And because our Congress critters work so hard, they should all get raises!

It is a PR stunt but it's also an effort to get rid of some of the moral hazard of giving these firms money.

I agree with your workhouse test analogy. I really don't have any way to directly determine if the bailout is needed, so I have to rely on the opinion of others with more direct knowledge. Given that most of those with direct knowledge are not people that I'm inclined to give the benefit of the doubt, the more unpleasant provisions are for those running the companies being helped, the more I'm convinced the bailout is needed.

The vengeful limiting of CEO pay attacks a symptom, not the cause of the problems.

It's long been remarked that CEO pay was a much smaller multiple of worker pay until fairly recently. Something in the institutions that regulate CEO pay has changed.

Unless we change the institutions (and I'm going to suggest that the institutions of corporate governance are at fault), then the same imbalance of CEO power that allowed the CEOs to write themselves and their cronies huge checks will be abused just as badly for another purpose.

"captain may prefer to go down with his ship"

The hidden assumption here is that the captain could not be thrown overboard.

It is enlightening!

it is not bad

CEO's of the world, unite! You have nothing to lose but your chains.

The vengeful limiting of CEO pay attks a symptom, not the cause of the problems.

The hien assumption here is that the could not be thrown overboard.

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