Since the eruption of the economic crisis last fall, armies of
corporate lobbyists have been battling to keep even modest changes in
executive compensation rules off the legislative table. Their most
common argument: pay restrictions will drive "top talent" out of U.S.
firms and into the welcoming arms of higher-paying European companies.
This argument has always been laughable. Was it really a resume-builder to lose trillions of dollars in financial wealth and drive the global economy off a cliff?
Is that what makes one a hot commodity in the global labor pool? Were
European companies, while shedding thousands of their own employees,
really aggressively recruiting on Wall Street?
Ludicrous as they might sound, the financial industry's professed
fears about losing their best and brightest seem to have had an impact
in Washington. Whether policymakers actually believe these claims or
not, they have failed so far to pass meaningful restrictions on
executive compensation. Nearly a year into the economic crisis, the CEO pay bubble that was a key cause of the meltdown remains un-popped.
The executive pay "restrictions" put in place since last September
affect only a small number of executives of firms that have collected
funds from one of the federal government's bailout initiatives, the
Troubled Asset Relief Program, or TARP. And these pay rules contain
gaping loopholes that have left the practice of mammoth executive pay
packages largely intact.
In fact, many of the executives responsible for the crash are
actually using the crisis as a springboard to their next fortunes. A
just-released report that I co-authored at the Institute for Policy
Studies, America's Bailout Barons, shows how it works. At 10
of the financial firms that are among the top recipients of bailout
money, executives were awarded stock options early this year when the
market was at the bottom. Now that taxpayer support has helped lift the
price of their stock, the executives who brought the global economy to
the brink of disaster now have seen their portfolios increase in value
by $90 million.
European governments, however, may be about to let some of the air
out of the U.S. CEO pay bubble. The French, German, and UK governments
have recently adopted regulations on pay in the financial industry that
go beyond U.S. restrictions. French banks will now have to spread bonus
payments over three years; if a trader's investments lose money, the
bonus won't be paid. In Germany, new rules set to go into effect on
January 1 will also prohibit bonuses tied to short-term profits and
require repayment if deals prove too risky. The UK government has
banned guaranteed banker bonuses of more than one year and mandated
that two-thirds of bonuses for senior employees be paid out over three
years to discourage short-term risk-taking.
And now, French President Sarkozy and German Chancellor Angela
Merkel are speaking out forcefully for an international agreement to
crack down on banker pay; they plan to press for this regulation at the
Group of 20 meeting to be hosted by President Obama in Pittsburgh on
September 24-25. Sarkozy said he'd like to see a fixed international
limit on bonuses, as well as a bonus tax that could generate funds for
use in times of crisis.
An obvious criticism of the European actions thus far is that they
focus primarily on one form of compensation - bonuses - leaving open
the possibility that firms will simply shift money from one kind of pay
to another. But these actions still put them, particularly the French
and German governments (both, by the way, led by governments the
Europeans consider "conservatives"), clearly in the lead when it comes
to reining in executive pay.
Looks like the foreign havens for earners of eight-figure bonuses
are nothing but an illusion. What better offer do these executives have
waiting in the wings? None at all.
Hopefully, by undercutting the U.S. financial industry's favorite
argument against reform, the European governments will open up
opportunities in Washington for real change to an executive compensation system that now threatens our economy and our democracy.
Sarah Anderson wrote this article as part of YES! Magazine's ongoing coverage of the New Economy
This work is licensed under a
This article was written for YES! Magazine, a national, nonprofit media organization that fuses powerful ideas and practical actions. Licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Since the eruption of the economic crisis last fall, armies of
corporate lobbyists have been battling to keep even modest changes in
executive compensation rules off the legislative table. Their most
common argument: pay restrictions will drive "top talent" out of U.S.
firms and into the welcoming arms of higher-paying European companies.
This argument has always been laughable. Was it really a resume-builder to lose trillions of dollars in financial wealth and drive the global economy off a cliff?
Is that what makes one a hot commodity in the global labor pool? Were
European companies, while shedding thousands of their own employees,
really aggressively recruiting on Wall Street?
Ludicrous as they might sound, the financial industry's professed
fears about losing their best and brightest seem to have had an impact
in Washington. Whether policymakers actually believe these claims or
not, they have failed so far to pass meaningful restrictions on
executive compensation. Nearly a year into the economic crisis, the CEO pay bubble that was a key cause of the meltdown remains un-popped.
The executive pay "restrictions" put in place since last September
affect only a small number of executives of firms that have collected
funds from one of the federal government's bailout initiatives, the
Troubled Asset Relief Program, or TARP. And these pay rules contain
gaping loopholes that have left the practice of mammoth executive pay
packages largely intact.
In fact, many of the executives responsible for the crash are
actually using the crisis as a springboard to their next fortunes. A
just-released report that I co-authored at the Institute for Policy
Studies, America's Bailout Barons, shows how it works. At 10
of the financial firms that are among the top recipients of bailout
money, executives were awarded stock options early this year when the
market was at the bottom. Now that taxpayer support has helped lift the
price of their stock, the executives who brought the global economy to
the brink of disaster now have seen their portfolios increase in value
by $90 million.
European governments, however, may be about to let some of the air
out of the U.S. CEO pay bubble. The French, German, and UK governments
have recently adopted regulations on pay in the financial industry that
go beyond U.S. restrictions. French banks will now have to spread bonus
payments over three years; if a trader's investments lose money, the
bonus won't be paid. In Germany, new rules set to go into effect on
January 1 will also prohibit bonuses tied to short-term profits and
require repayment if deals prove too risky. The UK government has
banned guaranteed banker bonuses of more than one year and mandated
that two-thirds of bonuses for senior employees be paid out over three
years to discourage short-term risk-taking.
And now, French President Sarkozy and German Chancellor Angela
Merkel are speaking out forcefully for an international agreement to
crack down on banker pay; they plan to press for this regulation at the
Group of 20 meeting to be hosted by President Obama in Pittsburgh on
September 24-25. Sarkozy said he'd like to see a fixed international
limit on bonuses, as well as a bonus tax that could generate funds for
use in times of crisis.
An obvious criticism of the European actions thus far is that they
focus primarily on one form of compensation - bonuses - leaving open
the possibility that firms will simply shift money from one kind of pay
to another. But these actions still put them, particularly the French
and German governments (both, by the way, led by governments the
Europeans consider "conservatives"), clearly in the lead when it comes
to reining in executive pay.
Looks like the foreign havens for earners of eight-figure bonuses
are nothing but an illusion. What better offer do these executives have
waiting in the wings? None at all.
Hopefully, by undercutting the U.S. financial industry's favorite
argument against reform, the European governments will open up
opportunities in Washington for real change to an executive compensation system that now threatens our economy and our democracy.
Sarah Anderson wrote this article as part of YES! Magazine's ongoing coverage of the New Economy
This work is licensed under a
Since the eruption of the economic crisis last fall, armies of
corporate lobbyists have been battling to keep even modest changes in
executive compensation rules off the legislative table. Their most
common argument: pay restrictions will drive "top talent" out of U.S.
firms and into the welcoming arms of higher-paying European companies.
This argument has always been laughable. Was it really a resume-builder to lose trillions of dollars in financial wealth and drive the global economy off a cliff?
Is that what makes one a hot commodity in the global labor pool? Were
European companies, while shedding thousands of their own employees,
really aggressively recruiting on Wall Street?
Ludicrous as they might sound, the financial industry's professed
fears about losing their best and brightest seem to have had an impact
in Washington. Whether policymakers actually believe these claims or
not, they have failed so far to pass meaningful restrictions on
executive compensation. Nearly a year into the economic crisis, the CEO pay bubble that was a key cause of the meltdown remains un-popped.
The executive pay "restrictions" put in place since last September
affect only a small number of executives of firms that have collected
funds from one of the federal government's bailout initiatives, the
Troubled Asset Relief Program, or TARP. And these pay rules contain
gaping loopholes that have left the practice of mammoth executive pay
packages largely intact.
In fact, many of the executives responsible for the crash are
actually using the crisis as a springboard to their next fortunes. A
just-released report that I co-authored at the Institute for Policy
Studies, America's Bailout Barons, shows how it works. At 10
of the financial firms that are among the top recipients of bailout
money, executives were awarded stock options early this year when the
market was at the bottom. Now that taxpayer support has helped lift the
price of their stock, the executives who brought the global economy to
the brink of disaster now have seen their portfolios increase in value
by $90 million.
European governments, however, may be about to let some of the air
out of the U.S. CEO pay bubble. The French, German, and UK governments
have recently adopted regulations on pay in the financial industry that
go beyond U.S. restrictions. French banks will now have to spread bonus
payments over three years; if a trader's investments lose money, the
bonus won't be paid. In Germany, new rules set to go into effect on
January 1 will also prohibit bonuses tied to short-term profits and
require repayment if deals prove too risky. The UK government has
banned guaranteed banker bonuses of more than one year and mandated
that two-thirds of bonuses for senior employees be paid out over three
years to discourage short-term risk-taking.
And now, French President Sarkozy and German Chancellor Angela
Merkel are speaking out forcefully for an international agreement to
crack down on banker pay; they plan to press for this regulation at the
Group of 20 meeting to be hosted by President Obama in Pittsburgh on
September 24-25. Sarkozy said he'd like to see a fixed international
limit on bonuses, as well as a bonus tax that could generate funds for
use in times of crisis.
An obvious criticism of the European actions thus far is that they
focus primarily on one form of compensation - bonuses - leaving open
the possibility that firms will simply shift money from one kind of pay
to another. But these actions still put them, particularly the French
and German governments (both, by the way, led by governments the
Europeans consider "conservatives"), clearly in the lead when it comes
to reining in executive pay.
Looks like the foreign havens for earners of eight-figure bonuses
are nothing but an illusion. What better offer do these executives have
waiting in the wings? None at all.
Hopefully, by undercutting the U.S. financial industry's favorite
argument against reform, the European governments will open up
opportunities in Washington for real change to an executive compensation system that now threatens our economy and our democracy.
Sarah Anderson wrote this article as part of YES! Magazine's ongoing coverage of the New Economy
This work is licensed under a