Prophetic: Maximum Wage

In a country that is based upon the rule of law how is it that President B-Rock and his ilk can come up with a plan to cut compensation for executives that work for companies that have received federal bailout monies.

I wrote about a maximum wage initiative in January, February and April. Now it has come that it will probably happen. A clear assault on success and capitalism.

B-Rock's pay czar, Kenneth Feinberg, indicates that he will propose cutting the contractual salaries and total compensation for these executives. If the tax payers are to ever be paid back for the money given to these companies, General Motors, AIG, Citigroup, Chrysler and others then you will want the most successful business leaders leading these companies. But that will never happen if any executive and for that matter any employee has fear of their compensation being regulated by a government bureaucrat.

Because of these regulations and interference all of these companies will have leaders running them that are not focused on increasing shareholder value but on doing whatever they can to stay off a government noncompliance list. No business leader or executive will want to go to work for a company where their hands are tied behind their back and asked to brush their teeth. These companies will not succeed and the taxpayers will never be paid back. All because of government interference and regulation.

While some Americans support this policy because of class warfare these are some of the same people that never say a word about the money that Brad Pitt, Madonna, LeBron James or Tom Brady and other athletes and entertainers earn from their work. The reason I listed entertainers and athletes is because they are not responsible for creating jobs and contributing to the overall health of the economy yet they make millions of dollars for their work.

If we are a country based upon the rule of law then the Obama administration is seeking to be above that law. They are seeking to void contracts that are negotiated in good faith and agreed to by both the executive and the executive compensation committee at those companies. All because of government intervention into free market and the assault on capitalism.

Based upon the reasoning of receiving government bailout money how soon will it extend to companies that will have their compensation regulated because they do contract work or business with the federal government. What is preventing the administration from extending this regulation to the hourly employee with the reasoning that you may be making more per hour than a comparable government employee? Look out it is coming to your company!

If we are going to continue as a republic then we have to rein in our government. Enough of the attacks on success. Enough of governing by polls and public opinion. Whatever happened to common sense?

These are my words! Please post yours!

Here We Go Again. This Time It's Citigroup

The last time I blogged about bonuses it was in defense of those being paid to the employees and managers of American International Group, AIG. Now Citigroup, which is a holding company as well, is now going to ask Big Daddy if they can pay out bonuses to keep some key personnel. Big Daddy owns a 36% stake in Citigroup. So he can decide if Citigroup can pay any additional money out to key people.

Get ready for some hand wrangling and teeth gnashing from congress and the white house on this. The problem is that Citigroup needs to keep its key people in its energy-trading unit, Phibro, to continue to go forward and emerge from their current fiscal problems. The employees in this unit are threatening to leave because of the paycaps that were instituted under the bailout rules. Phibro has contributed hundreds of millions of dollars in profits to the bank.

The CEO of Citi, Vikram Pandit, should have sounded the alarm early on and not sat idly by while he was forced to agree to the government terms of operations to accept bailout funding. He was not alone in this. All of the chief executives of the banks should have been more vocal in their demands. But I guess beggars can't be choosers! All the banks knew that they would have a brain drain of their key people if they could not pay them market rates and bonuses. Now Pandit wants to provide stock-based bonuses for these people to keep them from jumping ship. This stock will vest over three years. Well, I say good luck to that. With your stock price hovering around $3 per share and losing over 95% of its value since 2007 I would rather you pay me with Mega Millions Lottery game tickets.

Citigroup has been operating like germs in a petri dish. Under the microscope and constant observation. These bonuses are needed to raise the morale of a group that are being demoralized by working for the government. When you work for the government you are told that you will toil all day and all night for pittance. You will like it and you will not ask for more because you have a job, be thankful. But for the employees that must work under these conditions if you see the light, go into it. Leave on your terms. Do not bank on the idea that Citigroup can change the mind of the Treasury Department or the President.

The government should help but Obama is a man of polling approval. The vast populace of the country often does not understand bonuses and how they are achieved or paid. They have wealth envy and think that these guys make enough already. The polls will say that Americans are opposed to paying any bonuses and Obama will force Geithner to tell Citigroup, No go!

Bonuses are always a good thing when paid for the right reasons. Have key levers attached and measurements to show that they were achieved and the company does what it is suppose to do and that is pay them when they are achieved. Our banks are becoming Nationalized and the brain drain will continue. The best and the brightest will go work somewhere else but not for these U.S. Banks.

Those are my Words! Please post Yours!

The Maximum Wage II

“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president.” President Barack Obama

Will someone please inform the President that with great risk comes great responsibility, then comes great rewards. If you are challenged with performing a task and in the performance of that task you meet or exceed those expectations then there just might be some sort of reward in place. Bonuses are not just awarded because a corporation decides it wants to do so. The merits and the criteria are spelled out at the beginning of the fiscal year, quarter or month. If this then that. In many cases these rewards (bonuses) are contractual.

Let's use fictional company, IRun Enterprises, Inc. They have been losing money for the past 4 quarters and are projected to lose $6 million this fiscal year. The board of directors fire the current CEO, Imma Screwup. They initiate a CEO search for a true turn-around manager and find a candidate, Mr. Ican Dooit. Mr. Dooit studies the business of IRun Enterprises and presents a plan to the board of directors. The plan does not include returning to profitability this year but does show that he can reverse most losses and finish the year at a loss of $3 million dollars and return to profitability by end of year 2. The board prepares a hiring contract for Mr. Dooit. His representative negotiates that if he meets his target objective then he will be paid $500,000 base salary and a bonus 30% of the savings (That's $900K for the math challenged.) The board agrees and along comes Mr. Dooit and his plan. By the end of the first year, Mr. Dooit and his team of executives have not only met their plan but exceeded it and Irun Enterprises has only lost $1 million dollars. So Mr. Dooit's contract calls for a payout of 30% of savings as a bonus, which in this case would be $1.5 million dollars.

Now should you be outraged? Yes, if you are a wealth envy nut job. You see the stockholders would not have a problem with this because Mr. Dewit just increased their shareholder value by turning the company around. Many of the employees will not have a problem with this as because a worse case senario would have meant greater layoffs. The board of directors would be elated since they made a good decision and their shares of this company have been improved as well.

But Barack Obama would have you believe that any company which receives any "exceptional" assistance from the government then their executives should be paid a Maximum wage of $500,000 annually. While the average American is somewhere around $50K a year this does seem like a great amount of cash. Would any top notch CEO looking to advance his/her career want to do this job where there will be tons of government interference and oversight? Long answer is NO! So if he is successful in implementing this Maximum wage then companies that really need a top notch executive will end up with an mediocre CEO at the helm. The talent will go where they can be compensated on a comensurate scale with other CEO's and with no government intervention.

I commend Goldman Sach's and J.P. Morgan for initiating their own version of a poision pill. That pill is to pay back the TARP money early. Goldman Sachs indicated that their financial condition was sound. JP Morgan said they didn't need nor did they ask for any bailout.

"White House spokesman Robert Gibbs said the rules weren’t intended to be “overly punitive,” while a senior administration officials said their primary goal is to align the interests of top executives at bailed-out firms with those of shareholders, who now include U.S. taxpayers.

I thought that the Treasury Department purchases preferred stock and warrants from these troubled financial institutions. That would ensure that the US Treasury would receive payment before common equity shareholders would. And since it is non-voting preferred stock how does the Treasury get to vote on how a company operates?

I hope that these financial institutions get back to the business of lending and freeing up credit so that they can began to pay back the American taxpayer quickly and get government out of of the business of running corporations. And for the rest of you.....Don't do it! Just Don't do it!

That's my word. Post yours.