Fat Cats Pillage - Feb. 2009

Fat cats' money grab shouldn't be a surprise

By H.P. Newquist

Everyone is up in arms about the financial industry giving itself $18 billion in bonuses even as it was getting a handout from Uncle Sam. President Barack Obama calls it "shameful" and "outrageous" while Capitol Hill's denizens decry the audacity of it.

Here's my question: Why are they so surprised?

The financial services industry, especially the investment side, is run by people unaccustomed to being held accountable for the vagaries of their money management. They have never had to defend their own pay, or that of fellow execs...

The underlying wisdom has been that Wall Street CEOs and senior execs were part of an elite club that had a singular understanding of how to run financial institutions and make them profitable -- or, barring that, make them attractive to shareholders. This revered, almost sacred skill set earned these execs the right to demand millions of dollars in salary, stock options, perks and bonuses. Which, of course, they got.

While it is indeed true that these individuals were part of an elite club, it has become glaringly apparent that membership in this club wasn't necessarily based on expertise or an inviolate skill set. Instead, admission was given in accordance with one's capacity for self-promotion, self-preservation, and willingness to support the other members of the club. They hired one another, worked with one another, replaced one another and occasionally betrayed one another...

These individuals have been insulated for so long, like so many members of Congress and certain clergymen, that they see absolutely nothing wrong with doing what they've always done. Covering it up when questions arise is standard operating procedure. Read More >>

$500,000 Cap on Executive Pay in Bailouts

Five of the biggest companies to get help — Citigroup, Bank of America and the American International Group, General Motors and Chrysler — were all facing acute problems. And top executives at those companies made far more than $500,000 in recent years.

Kenneth D. Lewis, the chief executive of Bank of America, took home more than $20 million in 2007. Of that, $5.75 million was in salary and bonuses.

Vikram Pandit, who became chief executive of Citigroup in December of 2007 and previously held other senior positions at the bank, made $3.1 million.

Richard Wagoner, the chief executive of General Motors, made $14.4 million, much of it in stock, options and other non-cash benefits. He earned a $1.6 million salary.

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm.

$500,000 - Draconian? You've got to be kidding! Read More >>

Wall Street finally got what it deserved

Wall Street had every possible opportunity to fend off government interference in executive compensation, but they bungled it through a combination of arrogance and ineptitude.

...The motto of the Wall Street firms seems to be "where's mine first?" They have lost billions of dollars of shareholder value, but they have lost even more in the deterioration of their brand, not just their individual brands but the brand of Wall Street as a trustworthy provider of financial services.

We want to see some perp walks. Instead, we get headlines about corporate jets and million-dollar office renovations. I used to compare these guys to Marie Antoinette. Now, the more apt comparison seems to be Nero.

The president's program is an essential first step in thinking about the role that executive compensation played in creating the economic meltdown. Perverse pay incentives and excessive compensation are not a symptom or a side benefit; they are a cause.

Pay that rewarded the number of transactions rather than the quality of transactions is at the heart of the subprime mess, and the executives and directors responsible for it should bear the consequences.

It is time for America as investors and as citizens to be ruthless in forcing Wall Street to prove that the return on investment for every dollar spent on executive compensation provides competitive returns. Read More >>

CEO Spent Over $1M to Redecorate Office

Merrill Lynch CEO John Thain resigned after it was revealed that he doled out executive bonuses a month ahead of schedule and just days before his struggling Merrill Lynch firm was acquired by the BofA.

The amount in bonuses paid out was between $3 and $4 billion, according to the Financial Times. Exorbitant Wall St. bonuses have garnered increased attention since the economic collapse and subsequent billions in bailout funds have gone to help companies stay afloat.

To make matters worse, Thain is now facing more criticism for reportedly spending $1.2 million to lavishly decorate his Merrill Lynch office early last year while the firm was fighting to survive.

Thain splurged on:

• interior decorator Michael Smith ($800,000)
• two area rugs ($131,000)
• two guest chairs ($87,000)
• a 19th Century credenza ($68,000)
• four pairs of curtains ($28,000)
• and a mahogany pedestal table ($25,000)

Other items mentioned:

• six dining room chairs ($37,000)
• a George IV Desk ($18,000)
• a custom coffee table ($16,000)
• a sofa ($15,000)
• a chandelier ($13,000)
• a mirror ($5,000)
• six wall sconces ($2,700).

Also reported to be on the list was a trash can for $1,400. Read More>>