By on January 29, 2013

What’s 10 million these days – give the man a raise!

Up until the mid-1800s, debtor’s prison did await those who could not pay their debts. To this day, more than a third of U.S. states allow debtors to be jailed for non-payment. If you run a company called GM, Ally, or AIG, not only do you keep your freedom, you will be bailed out by the government, and given a $10 million salary. Waitaminute, you say, aren’t executive salaries of bailed-out companies limited to a still very generous $500,000? This is exactly the question the special inspector general for the Troubled Assets Relief Program asked. The answer, provided in a report to Treasury Tim Geithner, and the public, is scathing: The Treasury Department ignored its own rules and approved “excessive pay packages” for the leaders of bailed-out companies.

The report lambasts the government which “continues to award excessive pay packages.” It also flogs executives who “continue to lack an appreciation for their extraordinary situations and fail to view themselves through the lenses of companies substantially owned by the U.S. Government.” Special mention for an inordinate amount of chutzpah received “GM CEO Dan Akerson [who] even asked Treasury Secretary Geithner to relieve GM from OSM’s pay restrictions, which was denied.” Akerson took home $9 million in cash and stock in 2012, apparently, he thought that was not enough.

This is your money on drugs

A total of 69 executives of bailed-out companies are under supposed salary restrictions. 23 were found earning more than the $500,000 limit. Another 25 made exactly $500,000. 65 of 69 made more than $450,000. Says the report:

“In stark contrast, the 2011 median household income of U.S. taxpayers who fund these companies was approximately $50,000.”

The report did not specifically reveal by name how much the executives of bailed-out companies make. It also did very little to hide the names.

According to GM’s website, a Daniel F. Akerson serves as GM Chairman and Chief Executive Officer, a Stephen J. Girsky is GM Vice Chairman, Daniel Ammann is GM Senior Vice President & Chief Financial Officer.

The Washington Post calls the report “stinging allegations of lax oversight and supervision.” The Detroit Free Press on the other hand complains that “Akerson’s pay package, which included $1.7 million in cash salary and stock valued at $7.3 million, did not increase from 2011 to 2012,” and that Alan Mulally and Sergio Marchionne make much more.

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41 Comments on “The Truth About Post-Bailout Pay Restrictions: They Are A Lie...”


  • avatar
    Oelmotor

    So…the executive salaries and bonuses could have bailed out their companies, but they decided to steal it from the taxpayers. Something is very wrong in the USA.

  • avatar
    CoastieLenn

    I’ve said this many times before, and I’m saying it again.

    In the grand scheme of economics and business, there’s (logically) no such thing as a company that’s too large to fail. Poor business practices and poorer financial planning should not be the responsibility of the taxpayer to bear the burden of.

    As much as I like the idea of “the big 3″, GM and Chrysler should have closed thier doors. The long term repercussions of these ACTUAL bailouts (read: not grants or short term loans) are going to be dealt with for a LONG time coming. It also sets a bit of a precidence that “In America, a large company never actually fails.” and so the road gets paved for future bailouts of other companies.

    • 0 avatar
      hubcap

      “In the grand scheme of economics and business, there’s (logically) no such thing as a company that’s too large to fail.”

      Agree but here’s my question. If an institution is so large that its failure would cause catastrophic harm to the financial system wouldn’t it be prudent to break it up into smaller entities?

      And lets not forget general lawlessness and unethical behavior. How does HSBC admit to “cleaning” money for drug cartels, terrorist organizations, and other unsavory types and no one in the organization is held responsible criminally or civilly.

      When a bank can break multiple laws and possibly compromise national security yet only pay a small fine (I know small is relative but compared to their profits…its small) something’s wrong.

      If you or I gave money to a charity who, unbeknownst to us, supported a terrorist organization we’d be put through the ringer. If you’re caught with a shoebox of weed you’re looking at prison time.

      Isn’t it comforting to know that big banks and other institutions can commit crimes at will without the fear of prosecution. After all, their failure would break the system.

      • 0 avatar
        CoastieLenn

        I agree that the demise of a large corporation like those mentioned can collapse an economic structure… but it’d be MUCH more temporary than the long term effects that we’ll feel from the large bailouts that were handed out to GM, Chrysler, AIG, Solyndra, etc. The temporary “turmoil” that would be felt would end as soon as a main competitor of [insert failed uber-company name here] regroups and collects the market share and even potentially personnel of the fallen company.

        Again, the largest problem here that’s never seemly addressed is not so much the immediate expeditures of these corporate bailouts and subsequent failures (as if that wasn’t bad enough), its the “We REALLY need $40B to stay afloat… and since you did it for Company X a few years back…”.

        This current administration is setting an absolutely God-aweful framework for future economics. Its going to turn into a never ending cycle.

      • 0 avatar
        vaujot

        @Coastielenn: Remember that the bailout of the financial sector was initiated by the previous administration.

      • 0 avatar
        jim brewer

        “In a panic, lend freely at penalty rates” I don’t know why everyone is hating on the auto companies. The bailouts saved a million jobs and the government took back a note from Fiat at 17% and essentially all the equity of GM.

        The question in my mind is why don’t we own Citibank and Bank of America? They got 5% money in the form of preferred stock offerings, meaning they could skip payments from time to time if they desired.

  • avatar
    Jeff Waingrow

    Yes, there’s either lax oversight or a tacit approval of these absurd salaries, but this is just sop in corporate America where corporate boards are stocked with people who neither know much about the particular industry nor are inclined to question the CEOs about much of anything so long as the profits roll in. The shareholders generally be damned. This is also lax oversight. Boards look at comparable CEO compensation to determine theirs, so it’s the CEOs themselves who are deciding what their compensation will be. The notion that the bailed-out companies are overseen in a lax fashion, while absolutely true, really implies incorrectly that it’s different in most other corporate venues. It’s not.

    • 0 avatar
      geeber

      The critical difference is that those other companies didn’t receive a taxpayer-funded bailout. That is the point of the article.

      • 0 avatar
        Pch101

        “The critical difference is that those other companies didn’t receive a taxpayer-funded bailout. That is the point of the article.”

        But it’s a shrill, populist point that lacks context.

        The average CEO compensation package in 2011 was close to $13 million. I’m reasonably sure that 2012′s average won’t be any lower.

        We can ponder whether that’s excessive or socially unacceptable, but it does set the bar for what large companies such as GM should expect to pay for their executive leadership.

      • 0 avatar
        thelaine

        Agreed geeber. The politically-connected get the money and the taxpayers pay for it all, often with borrowed money. If you are an individual taxpayer or a small businessperson, you get to pay. If you have an in to the government, you get the money. It’s not just GM, but they are the poster-child, along with executives from companies like Solyndra. There are many examples. Failure is irrelevant. Risk is irrelevant. Competence is irrelevant. You get paid regardless. Akerson will have been well compensated by the time he walks out the door, regardless of performance. I wouldn’t care, if it wasn’t on my dime, and the debt left to future generations.

    • 0 avatar
      Jeff Waingrow

      Dear Mr. Geeber:

      Perhaps you feel that a particular point is “the point” of the article, and that’s fine, except that my point was something different, namely that it might not be realistic to expect these bailout company pay packages to be markedly lower when it could be difficult to make a case for it with compensation in general being so outsized. Neither political party seemed to be serious about this anyway. Of course, I might be wrong in my assumptions, but I trust that you too might entertain the same possibility for yourself.

      • 0 avatar
        geeber

        By ignoring the fact that these companies received a taxpayer-funded bailout, you are ignoring the elephant in the room.

        If excessive CEO pay with these particular companies is a concern, the federal government is in unique a position to do something about it. Especially since said government is not under the control of those awful conservatives/libertarians who supposedly just live to help the executive class rape the middle class.

        What other companies pay their CEOs is ultimately irrelevant. Sure, Ford pay Mr. Akerson more than GM can. But, why would it want to?

        Your view also assumes that all American CEOs are overpaid by world standards. The people who push this view ignore the perks and other forms of under-the-table compensation that foreign companies give their CEOs, usually to get around very high income tax rates.

        Perhaps they really aren’t overpaid by world standards, if we look at ALL forms of compensation. Maybe that is the point – unintended perhaps, but still the main point – brought to light by this article?

      • 0 avatar
        Pch101

        “If excessive CEO pay with these particular companies is a concern, the federal government is in unique a position to do something about it.”

        It really isn’t. The market sets the price for executive compensation. It’s not as if the government can impose a military-style draft in order to force someone to do the job.

        In any case, Akerson is paid less than average, so his package is not excessive. He may or may not be good at the job, but his pay isn’t the issue.

      • 0 avatar
        geeber

        You would think that the challenge of really turning GM around would be a lure to executives. Sure, the pay may be low initially, but if the CEO successfully pulls it off, he or she will become a virtual celebrity.

      • 0 avatar
        Pch101

        “You would think that the challenge of really turning GM around would be a lure to executives”

        The compensation is part of keeping score. There is no glory in being underpaid. People who are more interested in service for the sake of it go into non-profit or civil service.

      • 0 avatar
        danio3834

        “People who are more interested in service for the sake of it go into non-profit or civil service”.

        When I think civil servant, the last thing that comes to mind is service. Most of the civil servants I’ve met do it for the significantly higher pay and benefits than they could ever be worth in the private sector.

      • 0 avatar
        geeber

        I was thinking of Lee Iacocca in the 1980s. He initially took pay of $1 a year when Chrysler was on the verge of bankruptcy.

        After he helped bring Chrysler back from the brink, he was not on featured on the covers of Time and Newsweek, but also the subject of articles in People magazine. He even did a cameo on the television show Miami Vice.

        He did make a lot of money after Chrysler came back from the brink, but he was also virtually a household name by 1986. He wasn’t just an executive – he was a celebrity. That is something that money cannot buy.

      • 0 avatar
        Pch101

        “I was thinking of Lee Iacocca in the 1980s”

        The exceptions to the rule don’t disprove the rule.

        In any case, Iacocca’s situation was different. He was already at Chrysler, and had just previously been fired by Ford, so he had a lot of personal motivation to take some risks.

        In GM’s case, an outside hire isn’t likely to have similar motivations. Most of them are going to want to get paid.

        What’s being missed in Mr. Schmitt’s post is that the government’s compensation cap was unrealistic. You aren’t going to be able to hire a CEO for a large multinational US-based corporation for a half million per year. Ben and Jerry’s famously tried to cap compensation but failed; their efforts to minimize the spread in pay between the lowest and highest paid worker famously failed once they decided to hire an outside CEO.

        (And it may help to remember that Rick Wagoner did offer to stay at GM for $1 per year. I commented here at the time that even a dollar was too much; the greatest cost of keeping someone like Wagoner was the damage that he would inflict on the company, not the cost of his pay packet.

    • 0 avatar
      jim brewer

      Its really just a special dividend paid to the insiders at the expense of the shareholders. Honestly, this seems like an area ripe for outsourcing. Does a qualified WASP to run GM really cost $13 million? Well, look around for a smarter and harder working Indian guy to do it for $2 million. Get that man an H3b Visa!

    • 0 avatar
      jjster6

      “but this is just sop in corporate America where corporate boards are stocked with people who neither know much about the particular industry nor are inclined to question the CEOs about much of anything so long as the profits roll in.”

      Doesn’t the share holder want the profits to roll in? Am I missing something?

  • avatar
    jfranci3

    Didn’t Akerson become CEO just before or just after the crisis? HE CAN’T BE HELD RESPONSIBLE FOR THE FAILINGS
    I buy into the supply and demand argument of some CEOs. There are only so many people with the professional history, who are qualified, and who have the talent to run a company the size of GM. These people presumably have opportunities elsewhere, presumably places with less problems, headaches, and time requirements/commitments.

    • 0 avatar
      darkwing

      That’s why the bulk of a GM executive’s compensation should be in two forms:
      - Long-term stock options that incentivize the health of the company (and, conveniently, are cheap to write at the outset, when the stock’s in the crapper)
      - Reputational currency: let the private sector compete over throwing millions at “the people who saved GM”

      In healthy organizations, you make money for adding value. In dysfunctional and/or public-sector ones (BIRM), you make money for showing up.

    • 0 avatar
      Jeff Waingrow

      That’s been the arguement, but my understanding is that in many other countries around the world, CEOs are paid much less and apparently still perform at a high level (or not). Perhaps they haven’t caught on yet on how to pack the board with friends and snooker the shareholders.

      • 0 avatar
        darkwing

        Your understanding is incomplete. In general, these comparable “low-salary” CEOs are paid extensively in perks and benefits, much like comparable American executives were 50 years ago.

        I don’t know about you, but I’d much rather pay my CEOs in cash and stock over the table, and get a little sunlight on the whole arrangement, rather than paying them in perks and benefits under the table, where it’s much harder to see. (Would you even know you were being “snookered” in that case?)

      • 0 avatar
        mnm4ever

        Admittedly I am no expert, but from what I understand from my European friends, there is a cap on compensation in many other countries, something like 100x the lowest paid employee of the company, and I think that includes all compensation.

        This may not be a popular opinion, but I feel that no single person is worth the kind of money any of these CEOs make. This is simply corporate greed at it’s finest. Comparing different overly compensated CEOs to each other is pointless, none of them actually provide as much value as they are paid. There are just a bunch of super-rich board members taking care of themselves and each other. They are paid enough in one year to last a lifetime, and it is never enough, they get more and more, they get paid to succeed, they get paid to fail, the golden parachutes just keep getting bigger and bigger, and more often than not their success or failure has nothing to do with their abilities or performance, they simply sit at the helm and take the praise or the blame until they move on to the next job.

      • 0 avatar
        jjster6

        mnm4ever,

        “This is simply corporate greed at it’s finest.” Good point. I’ll go ask the companies my 401K is invested in to not be so greedy and make less money for me. Ya, that’s what I’ll do!

  • avatar
    Jeff Waingrow

    I admit that this is news to me. I find it hard to understand exactly how you get benefits and perks to add up to multi-millions of dollars unless the perks might include the gift of a corporate jet. And even if there are perks, why must one assume that they’re “under the table”, as you put it? Are you suggesting that the boards and shareholders have no way of knowing this? I confess I’m confused about this reasoning.

    • 0 avatar
      darkwing

      Let’s consider a simple example: former Merrill Lynch CEO John Thain. It’s pretty easy to look at Merrill’s 2007 annual report — the year before their collapse — and find that he was paid $83.1 million. But it took leaked documents to reveal that he spent $1.2 million of company money that same year renovating his office. (To put that in perspective, that’s roughly 400 hours of light jet time.)

      The board may have known about this, but shareholders certainly didn’t — not until the documents were leaked. And they only came out after Merrill lost billions and got taken over by BoA; perhaps knowing about this beforehand would have suggested to shareholders that their investment was being poorly managed.

      Still confused?

      • 0 avatar
        Jeff Waingrow

        Not any less so with your example. Are we really comparing office renovations that stay part of the corporate enterprise with mega-million dollar compensation packages? I’ll probably remain confused until you or someone else offers some examples of the right order of magnitude. I’d be more persuaded with some so-called perks that total in the millions and that depart with the CEO. BTW, when you look at the goodies Jack Welch requested from GE upon leaving, it was almost laughable. Health club memberships, etc. Ludicrous, stupid little things that added up to zilch. I listened to numerous interviews he gave upon retiring. Another jerk. Many of these guys are much less than meets the eye.

      • 0 avatar
        geeber

        If I were a shareholder, I would certainly be concerned about $1.2 million in office renovations paid for with company money.

        It’s highly unlikely that the office was renovated because it was outdated, and will therefore be good for another 20 years. It was likely renovated to suit Mr. Thain’s personal taste, and, if this had continued, his successor would have most likely wanted another round of renovations (worth another $1 million or so) to suit his or her taste.

    • 0 avatar
      geeber

      You don’t even have to look at the CEO class to see how this works.

      Read any British car magazine. You will find regular references to various cars received as a perk by middle-tier and upper-tier managers. (Your position within the company food chain determines whether you get a BMW or a Ford.)

      The car is bought by the company, owned by the company and later traded in by the company. The employee, however, gets virtually unlimted use of it. To visitors (particularly Americans not used to how this system works), it looks as though the employee owns the car. He or she keeps it home, uses it whenever he or she wants, and washes it. But the employee does not own it. It is a perk used as a substitute for additional income. This helps the employee avoid high income taxes.

      I saw this in action with my aunt in Germany. She worked for a law firm, but had unlimited use of a Ford Fiesta. She kept it at home, was responsible for keeping it filled up with gas, and used it to take us around Germany. When we needed a bigger car for her daughter’s wedding, we “borrowed” a BMW 5-Series used by one of the firm’s lawyers. We went to his house to pick it up, and returned it that night. She did not own the Fiesta, and the lawyer did not own the BMW.

      Now, imagine this system as it applies to executives, but with fancier cars and other goodies (i.e, remodeled offices) thrown into the mix.

      • 0 avatar
        vaujot

        In Germany, the company cars are regarded as a form of salary and taxed as salary. Often, it is advantageous from a tax perspective to give the employee a car that costs e.g. EUR 500/month to lease and insure than to pay him/her the necessary cash. In a way, the German tax system subsidizes the sale of company cars in this way.

  • avatar
    Bimmer

    They should be made to repay back everything in excess of $500K.

  • avatar
    BrianL

    Not to debate if the bailout was a smart idea or not (I don’t think it was, but understand the fear of not doing anything), limiting financial compensation was probably the dumbest aspect of TARP.

    Since this is a car site, lets take GM as the example. What do the CEO’s of Ford, Toyota, Honda, and Nissan make? How does 500k per year sound? By the way, it was 500k salary plus long term stock incentives.

    I don’t see many people just itching to take the job when they can go other places make orders of magnitude more. When reading the SIGTARP report, it talks of risk to the tax payer with TARP money. SIGTARP fails to account for is a total loss for unqualified talent taking the wheel because that is who the companies are forced to employee given the restrictions.

  • avatar
    jjster6

    So, first it was management that was incompetent to decide what the CEO (who was part of management) got paid. Then it was the Executive Compensation Committee of the Board of Directors who was incompetent. So we got the TARP Special Master and now they are incompetent. SIGTARP has all the answers.

    Where does this madness stop. Can’t we all just admit we are extremely jealous that some are paid so much more than us. This is America. The market pays what the market demands.


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