The Pay Czar: Dividing the Haves and the Have Nots

It was  an awfully stark week for news on the compensation front. 

On the one hand, the WSJ has reported that financial firms as a group are on course to pay a record amount of compensation.  While the data included a few companies subject to the restrictions imposed under TARP (Citigroup, for example), most of the companies in the study were subject to no regulatory restrictions on the amount of compensation they paid.  Some at one point had bailout money but have since paid it back. 

They are the "haves."  They can keep what they have and, more accurately, pay what they want, however they want, with no real restriction.  

The "have nots"are those subject to mandatory restrictions on compensation and oversight by the Pay Czar.  These are the seven companies that as penance for taking large amounts of bailout money have to give up independence over the determination of their compensation.  Instead, the pay is subject to the review of Kenneth Feinberg.  Feinberg apparently plans deep cuts, some reported to be as much as 90%, in the compensation of some of the top 25 officers in these companies. 

There will be two ways to look at these cuts.  Come will see the gesture as political, a demonstration that the Administration is tough on compensation.  There may be some of that but once the Pay Czar obtained oversight authority, cuts were eminently foreseeable.  No real surprise there.

More accurately, they continue to raise questions about the determination by boards of directors in setting compensation (the so called Delaware model).  First, how did the amount get set at a level that the Pay Czar needed to cut 90%?  Second, if these companies can be run on much smaller amounts of compensation, what's going on at the non-TARP companies that seem to know no limit in compensation?

Perhaps this is why, less widely reported, Feinberg wants the TARP companies to implement a series of corporate governance reforms, including separation of chairman and CEO, creation of a risk review committee of the board, and elimination of staggered boards.  Wise moves all.  But the changes are limited, applying apparently only to the biggest of the bailout companies.  In other words, the "reforms" are temporal.  Once the seven companies pay off the money, the restraints will be gone. 

Then these companies will go from the "have nots" to the "haves," with no more oversight by the government.  No more limits on compensation.  No more separation of CEO and chairman.  No more prohibitions on staggered boards.

If the Pay Czar really believes that this amount of compensation is too much and needs to be cut, if the Pay Czar really believes these corporate governance reforms are necessary, why isn't there some serious effort afoot to make the changes permanent and applicable to all companies?  Or, are we destined to go back to the pre-financial crisis situation where all the companies were "haves".