The $500K Bailout Pay Cap: Pleasantly Surprised but Exceptionally Skeptical

I’ve heard a lot of talk recently about how great it is that Obama is flexing some muscle and reigning in executive pay for companies that have received bailout money.  I agree that this is great news, as I didn’t think any mainstream politician would actually take a stand and hold Wall Street accountable (both democrats and republicans seem to think its OK to privatize profits while nationalizing losses).  But, as pleased as I am, I’m very worried that this is just a red herring that will pacify the masses without really changing a thing.

Why do I think this?  Well here are just a few reasons:

• History repeats itself.  Every time we’ve tried to reign in executive pay in the last 20 years executives have always found loopholes
• Companies that have already received TARP money are under no obligation to follow the guidelines (so some just will opt out of taking more money; I mean, we already gave them $1,000,000,000,000)
• The cap explicitly allows for restricted stock grants without any caps, and most of the really harsh stuff only applies to the top executives (remember the average compensation at Goldman last year was something like $600,000–even when you included janitors and secretaries)

On the topic of loopholes, a cursory look over the proposal shows some pretty obvious gaps:

• Restricted stock can be sold “once a company’s fiscal condition is stable.”  This is about as subjective as you can get, and I can almost guarantee any specific standards will be lenient
• The restrictions only apply to companies receiving “exceptional” government assistance.  Who decides what counts as exceptional?
• The top executives will take non-executive titles (like bankers and traders) who will can still get millions in cash each year
• Deferred compensation and pensions aren’t addressed (so execs could collect 2010 pay in 2015 or something like that)
• I know I’ve brought it up twice already, but THERE ARE NO LIMITS ON RESTRICTED STOCK GRANTS.  So the bankers just have to wait a year or two to cash out…oh the torture

Maybe I’m wrong, and I hope I am, but come to think of it, how is $500k a year even a punishment?  Yea yea yea…executives need to get paid well or they will jump ship…but with finance industry in shambles, where are they even going to go?