Administration: Rein in pay in US private sector

**B5C** · June 11, 2009, 10:28 AM

Administration: Rein in pay in US private sector

WASHINGTON (AP) -- The Obama administration says executive compensation must be better managed to prevent the sort of risk-taking that jeopardizes the economy.

Gene Sperling, who advises Treasury Secretary Timothy Geithner, said Thursday the administration does not want to impose caps on executive pay. But he also laid out for the House Financial Services Committee a list of guidelines calling on publicly-held companies to link compensation to long-term performance, not short-term gains.

Sperling said in prepared testimony that the administration believes compensation practices "must be better aligned with long-term value and prudent risk management at all firms, and not just for the financial services industry."

http://finance.yahoo.com/news/Admini...0519.html?.v=6

**Mikelus Trento** · June 11, 2009, 10:39 AM

He promised change.

Evidently he has concluded greed is something to protect the country against. I can't say I disagree with him.

**JP226** · June 11, 2009, 12:41 PM

Makes you wonder what some government lacky thinks is "too much" and then how they expect to compete for the best and brightest. Oh wait I forgot, trailor trash could do the same job a CEO does...

**Mithie** · June 11, 2009, 12:45 PM

Originally Posted by JP226

Makes you wonder what some government lacky thinks is "too much" and then how they expect to compete for the best and brightest. Oh wait I forgot, trailor trash could do the same job a CEO does...

Trailor trash would find it difficult to screw up harder than the current corporate leadership.

In case you haven't noticed, JP, these highly paid CEOs haven't been competent, and their decisions directly caused the failure of their firms.

Since we, as tax payers, directly pay these guys' salaries (a move which I don't agree with, but has happened regardless), yes, we should certainly have a say in how we want our money used.

**justicar5** · June 11, 2009, 12:48 PM

read it, it actually doesn't say that CEOs pay is lowered, what it does say is that bonuses should be linked to long term performance rather than 'get rich quick' risk taking, can't disagree with that actually.

**Sphere** · June 11, 2009, 12:51 PM

The administrations statement says nothing about wanting to limit pay;

....the administration does not want to impose caps on executive pay....

Rather they preseted;

a list of guidelines calling on publicly-held companies to link compensation to long-term performance, not short-term gains.

**Mikelus Trento** · June 11, 2009, 12:55 PM

Originally Posted by JP226

Makes you wonder what some government lacky thinks is "too much" and then how they expect to compete for the best and brightest. Oh wait I forgot, trailor trash could do the same job a CEO does...

Based on the billions we are giving to many companies, I would say the TT probably couldn't do any worse.

**Sphere** · June 11, 2009, 01:12 PM

I think the whole point is being missed here. The people running these firms weren't dull, most new that they were creating huge amounts of risks for their company, or at the very least did not concern themselves with properly assessing the risks. They did it anyways because their bonuses were based on yearly profit.

Why not ride the bubble if it means $1million+ in bonuses each year? The bubble may burst sometime down the road, and your firm could go under, but you will have put together a small fortune in the meantime, so what does it matter to you?

**Mikelus Trento** · June 11, 2009, 01:22 PM

Those entrusted to run mega-corporations should have enough sense to know NOT to take big risks, regardless of the linkage to their bonuses. The reason I know they should have known this is because some of them are now on their way to jail.

**Sphere** · June 11, 2009, 01:37 PM

Those entrusted to run mega-corporations should have enough sense to know NOT to take big risks, regardless of the linkage to their bonuses. The reason I know they should have known this is because some of them are now on their way to jail.

Who exactly is on their way to jail? There's nothing illegal about taking on excess buisness risks.

**JP226** · June 11, 2009, 02:19 PM

I think the whole point is being missed here. The people running these firms weren't dull, most new that they were creating huge amounts of risks for their company, or at the very least did not concern themselves with properly assessing the risks. They did it anyways because their bonuses were based on yearly profit.

Is this serious? How do you think they actually value risk? The actual procedure?

**Mikelus Trento** · June 11, 2009, 02:35 PM

Originally Posted by Sphere

Who exactly is on their way to jail? There's nothing illegal about taking on excess buisness risks.

There are some from Enron and the CEO of Countrywide has been charged.

As far as legality, it is illegal to portray their company's performance as better than it is.

Also the CEO of Refco and 3 executives from National Century Financial Enterprises.

**Mikelus Trento** · June 11, 2009, 02:36 PM

Originally Posted by JP226

Is this serious? How do you think they actually value risk? The actual procedure?

eenie meenie miney moe?

**Mithie** · June 11, 2009, 02:44 PM

Is this serious? How do you think they actually value risk? The actual procedure?

Risk analysis methods are usually among a bank/exchange's best kept secrets, so I doubt Mikelus could tell you.

Unless you're a chief analyst or CEO at one of these toppled firms, JP, I doubt you could tell him.

But the bottom line is the trend of decisions that resulted in the financial collapse tended toward the short-term high risk/high reward rather than the long term low risk/moderate reward kind.

Could this be because short-term high risk/high reward yields better bonus pays? I'm willing to bet on it.

**JP226** · June 11, 2009, 03:33 PM

Risk analysis methods are usually among a bank/exchange's best kept secrets, so I doubt Mikelus could tell you.

Unless you're a chief analyst or CEO at one of these toppled firms, JP, I doubt you could tell him.

Not how they explicitly get the value of risk, but once they have it what do they do with it. How does it fit into supply/ demand?

Actually coming up with the value isn't all that complicated either. It's simply risk= f(demographics, neighborhood values or case/schiller indices, job, health probably plays a role as well) It's not top secret information, nor is it rocket science. Even if company A won't release their exact methodology, I garantee the correlation of your predicted values with theirs would be plus 90%. Meaning there is a whole wide range of calculating these things and coming up with damn near the same answer.