Monday, January 30, 2012

The Peter Principle in action

Citgroup. Bank of America. AIG. General Motors. Ally. Chrysler. Chrysler Financial.

What do all of these companies have in common? (Ally, for those of y'all who haven't seen the annoying commericals was created by the spinoff of GMAC from General Motors.)

The seven companies listed above were the largest recipients of the bailout funds doled out by the federal government as the economy came crashing down. As part of the bailout, executive compensation at the firms was limited to $500,000. Citigroup and Bank of America have since repaid their loans and are free to pay their executives whatever the hell they want to.

Kenneth Feinberg was named the special master whose duties included overseeing executive compensation at the bailed out companies. Under pressure from the Treasury Department and the New York Federal Reserve Bank, Mr. Feinberg gave the official thumbs-up to the wholesale obliteration of the compensation limit according to an audit from the inspector general for the Trouble Asset Relief Program (TARP).

One of the worst offenders was AIG whose collapse was caused by its sale of unregulated credit default swaps. After handing the company over $180 billion, the taxpayers still own 70% of AIG. Now, keep in mind that the executives we're talking about are the folks who sat in the captain's chair as they drove their companies over the cliff in 2008.

The companies begged and pleaded with Mr. Feinberg (and had their friends in Washington and New York do more cajoling) to ignore the limit on compensation because, otherwise, the executives might just leave the companies and look for work elsewhere.

To which I say, so fucking what? Would you want to retain the people that drove your company into the ground? As an example, Robert Benmosch is the CEO of AIG. In 2008 Mr. Feinberg authorized a $10.5 million compensation package for Mr. Benmosch. For what? Under his leadership AIG's stock was worth less than the paper it was printed on. But that wasn't all. The following year Mr. Benmosch found himself the recipient of another $10.5 million in compensation while 17 of the company's 22 top employees received between $3 million and $7.6 million in compensation.

And they were rewarded for what? Getting down on their knees and begging the government to give them taxpayer money to keep their doors open? They shouldn't have been rewarded. They should have been kicked to the curb and left to fend for themselves.

Instead the men responsible, in large part, for the economic meltdown continue to sit in the lap of luxury on the taxpayer's dime. If executive compensation is meant to be a reward for steering the company to higher profitability then the opposite must also be true. Meanwhile the federal government just doesn't seem to be able to scrape the money together to help homeowners stave off the repo men.

The moral must be that if you screw something up, screw it up royally - otherwise you'll just find yourself on the unemployment line.

H/T Democracy Now!

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