The Heart of Wall Street

When "pay czar" Kenneth Feinberg appeared before the House Oversight
and Government Reform Committee on Wednesday, most
members seemed quite pleased with his work.

And why wouldn't they be?

Feinberg, after all, had just slashed cash compensation by 90
percent, and total compensation by 50 percent, for the top twenty-five
executives at each of the seven companies under his purview--the seven
lemons the American people now own post-bailout--AIG, Bank of
America, Chrysler Financial, Chrysler Group LLC, Citigroup, GM, and
GMAC.

For politicians whose constituents want, if not blood, then at least
some measure of revenge against the bailed-out fat cats, Feinberg's work
is a gift.

But it quickly became clear that whatever impact Feinberg's
decisions might have on these seven companies, executive excess on Wall
Street--which Missouri Democratic Congressman William Lacy Clay pointed
out has resulted in CEOs making more than 400 times the
average worker's pay, an all-time high--will not be impacted.

Even the initial pay proposals submitted by the seven
companies--which one might think would show remorse and
responsibility--were very telling.

"The general conclusions I reached after careful evaluation and
analysis of the submissions were the same for six of the seven
companies," said Feinberg. "Each submission would result in payments
contrary to the 'Public Interest Standard,' and should, therefore, be
rejected."

Feinberg said the problems with the proposals included "excessive
guaranteed cash--salaries and bonuses"; stock that was "immediately
redeemable or redeemable without a sufficient waiting period"; too much
compensation that wasn't tied to "performance-based benchmarks"; too
many "perks," like use of a private jet, country club dues, golf trips,
etc.; and insufficient effort to fold contracts that were signed
previous to the TARP restrictions "into 2009 performance-based
compensation."

In short, the same old, same old.

So Feinberg got to work slashing. The exorbitant cash guarantees
were for the most part converted into "stock salary," one-third of which
would be annually redeemable after two, three and four years, and some
money withheld until all TARP funds are repaid. Perks were limited to a
mere $25,000 per individual--cry me a river--with any greater amount
requiring Feinberg's approval. In the three cases where individuals
didn't agree to renegotiate their pre-TARP pay packages--and, you
guessed it, they were employees of AIG--Feinberg said he let them know
that would affect 2009 compensation determinations.

"We're very persuasive," said Feinberg with a chuckle.

Feinberg took issue with a widely reported Wall Street
Journal story that he had "actually raised cash-based salaries." He
said the story cited an instance when he raised an executive's base
salary to $475,000--but the article failed to mention that the same
individual had taken home a total of $13 million in cash from Citigroup
last year. Feinberg insisted that where base salaries were raised,
guaranteed cash was dramatically reduced in the overall pay package.

While most committee members were complimentary about Feinberg's
work, he did face some critics.

"Who would have thought in the United States of America we would
have the federal government telling a private American citizen what they
can make?" said Ohio Republican Congressman Jim Jordan. "It's no wonder
Americans are frightened, and frankly some members of Congress are
pretty scared too, where we're headed."

Ohio Democratic Congresswoman Marcy Kaptur didn't think the waiting
period for converting stocks was sufficient. She also said her staff had
information that some of the seven companies were past clients of
Feinberg's firm, which he adamantly denied. (In fact, if you look at the
Feinberg Rozen LLC website,
Citibank and AIG are both listed as clients.)

Indiana Republican Dan Burton feared that Feinberg's actions would
drive "top talent" away and result in the American public never
recouping the bailout bucks. (A consensus was expressed that we already
know we will never get back the $180 billion from AIG.) Burton said the
restrictions cause people to leave, so that "you have people that don't
have the knowledge and the competence to run that company, and so the
stockholders--the American people--are in danger of seeing their money
going down the tubes."

Chairman Edolphus Towns took issue with that notion. "There's a lot
of concern about these folks who have failed going to another company,"
he said. "I'm not sure that anybody would be too excited about hiring
people that fail.... Run one company into the ground, and then you
expect to get big money to go to another one and do the same thing?"

Feinberg repeatedly expressed the hope that his
work with these seven TARP recipients might serve as a model that
Wall Street would "voluntarily" implement.

"One of my objectives is hopefully...other companies on Wall Street
and elsewhere will take to heart what I've suggested," he said. "And
hopefully the model that is created in my report will trickle and expand
beyond these seven companies."

(Red flags: Wall Street, heart and trickle.)

Maryland Democratic Congressman Elijah Cummings acknowledged that in
appointing Feinberg, Congress had hoped other Wall Street firms would
follow his lead and adopt what is being mandated for these seven
companies.

Cummings said his own experience talking to Wall Street execs is
"like we're on two different planets," and "multimillion-dollar bonuses
[are] like shoeshine money to them." He said he has "no
confidence--none" that they will reduce salaries. But he challenged
Feinberg to offer the "best argument" he himself would present to Wall
Street.

"My best argument would be...because if you don't do this, there may
be a time when Congress or others will rein in pay, and will limit your
discretion, and will limit your unilateral ability to determine what to
pay people," said Feinberg. "To the extent that these [proposals] are
ignored in the private market place, the question is, will Congress in
its wisdom sit by and allow compensation to go forward under the old
regime and the old way of doing things?"

Is that a trick question? Has Feinberg heard of Blue Dogs, the need
for sixty votes to end a filibuster, Max Baucus or campaign
contributions?

New York Democratic Congresswoman Carolyn Maloney pointed to some
early indicators that Wall Street is already lagging behind the times in
compensation reform. She said the five largest banks in the UK have
agreed to comply with G-20 executive compensation rules, including
clawbacks for poor performance, and an independent compensation
committee. The UK has also adopted a shareholder vote on executive pay.

Feinberg will now move on to design the compensation structure for
execs 26 through 100 at these companies, and address next year's
salaries for the top 25 as well. He will also turn his attention to
AIG's $200
million in bonuses for the disastrous financial-products division,
which are due in March. While he can't void those contracts, he can let
AIG know that the bonuses will be a determining factor in upcoming
salaries if they aren't renegotiated.

It's undeniable that Feinberg has had an impact on the companies in
his purview. But it's equally clear that the casino culture that created
this mess--including guaranteed exorbitant salaries and bonuses that
have nothing to do with performance--remains untouched.
Despite Feinberg's wish, Wall Street ain't the Yellow Brick Road, and
the execs aren't Tin Men. There's no post-bailout heart waiting to be
discovered here.