Executive Compensation: The Excess and the Agony

The Institute for Policy Studies has put out a report on executive compensation called "America's Bailout Barons," which more or less reveals the content.  Among other things, the report concluded:

• The 20 US financial firms that have received the most bailout dollars from taxpayers awarded their top five executive officers, in the three years through 2008, pay packages worth a combined $3.2 billion. These 100 financial executives, . . . averaged $32 million each.
• In 2008, the year taxpayers rescued the financial industry, chief executives at the top 20 financial recipients of bailout dollars earned 37 percent more than their CEO counterparts elsewhere in the U.S. economy. These high-finance CEOs averaged $13.8 million last year. S&P 500 CEOs, by comparison, averaged $10.1 million.

The report noted that things would only get worse since these financial institutions had issued stock during the period when their shares were trading at low prices and they have now "inflated in value."   

Probably the most interesting part of the report, however, is the appendix that lists all of the legislative efforts with respect to executive compensation, some of which we've discussed on this Blog.  It demonstrates a variety of approaches to the compensation issue.  On the other hand, the list is depressing.  Most are either limited in time (to those companies that accept TARP money) or largely sitting dead in the water (with only the Bill put forth by Barney Frank having seen much progress).

More and more it looks like this financial crisis and the culprit of excessive compensation will remain unreformed in any permanent way, allowing for this to happen again.

Comments

[Jennifer Taub]

Great post. I thought I'd also share the following related data:

Lucian Bebchuk and Alma Cohen analyzed nine large financial institutions that received a total of $165 billion in TARP (bailout) money. They focused on earnings before compensation (“EBC”), or the “total pie to be divided between . . . the firm’s employees and the shareholders.” They found that for the years 2003-2006, aggregate compensation ran at between 52-62%. In comparison, for the first half of 2009, aggregate compensation was approximately 74% of EBC. Told in absolute (inflation adjusted) dollars, in 2006, EBC at the firms was $244 billion and aggregate compensation, $143 billion. In 2009, (assuming the second half will mirror the first), ECB will be $211 billion and compensation $156 billion.