COMMENTARY: Pay Czar on Board
October 26, 2009
General Motors Co. and Chrysler Group LLC executives are having their salaries cut - and like the often petulant professional-sports millionaires their typically outsized senses of worth so closely resemble - are at the same time getting some religion about responsibility and selfishness.
By now, anybody interested probably knows the details: direct salary for each company's token top 20 or 25 executives is cut an average of 31 percent at GM and about 18 percent at Chrysler. Salaries exceeding $500,000 are all but verboten. Instead, the big money that Detroit execs used to nail down just for phoning it in now is tied to longer-term company performance.
There's a notion.
In reading the "letter" of Special Master ("Pay Czar" to you and me) Kenneth Feinberg to GM and Chrysler, it's instructive to note - surprise, surprise - the companies submitted exec-pay proposals that suggested bulgingly higher salary caps and a lot less reliance on pay-for-performance metrics.
Let's forget for a moment the popular notion that executives who won't or don't think they should have to toil for salary "capped" at somewhere around a half-million dollars are welcome to leave. I can imagine legions of educated people in Detroit who would consider signing on at those compensation levels and who might also manage to run a better railroad to boot. They scarce could do worse.
And I'd rather not take sides on whether it's justifiable or advisable to have the federal government - any government - involved so deeply in private industry.
Set politics aside and consider the common-sense party line that's been flogged since the government loaned GM and Chrysler their first dollars: shouldn't highly paid executives be highly paid only if and when they deliver exceptional value (in the form of knowledge and expertise) to the company?
Over the years, most of the heavily compensated executives at GM and Chrysler did nothing extraordinary to merit their large compensation - in fact, they did the opposite. After all, it is they who were tacitly responsible for driving their companies into bankruptcy.
No, GM and Chrysler executive compensation was at such levels because that's what others in the auto business - at least the U.S. auto business - were making. And that's problem No. 1.
It's widely known Japanese and even European auto executives - particularly those in the middle ranks - never have been privy to the outsized compensation of their American counterparts. Chrysler and GM executives presided over years of market-share decline and general erosion of their respective companies' business position - yet the "reward" mentality of high compensation continued. In short, executives' personal financial success was conveniently decoupled from the company's.
This, as we've seen with AIG, big banks and any number of businesses in other sectors, is not a problem limited to the auto industry.
Is it proper, then, for a representative of our government to attempt to ostensibly force a fresh injection of responsibility into the GM and Chrysler (and AIG and Citigroup) corporate cultures?
For now, it seems to be the opportune method at our disposal to try to make the point.
The real issue is one that's been a festering blight in corporate America probably since contemporary corporate structure was formalized: boards of directors become friends and cohorts of their company's managers rather than their watchdogs. And as companies became huge and increasingly bureaucratic, this unholy team of power elites became removed from and unaccountable to the common shareholder.
As long as I can remember, it has been a standing criticism of GM that its core problem was not so much incompetent management as it was the company's legacy for conciliatory, hands-off boards of directors.
Ultimately, it was the executives running the company who failed GM and Chrysler. But the cozy and coddled boards of directors that for so many years turned a blind eye to serial mismanagement share the blame. They, too, found it advantageous to their own net worths to hold no one liable for the company's downward spiral.
Failure and incompetence now not only is justified, it's rewarded. That's the prevailing fault with America's corporate culture no amount of pay-Czar mumbo-jumbo is going to fix.
Detroit and Wall Street are broken because American business is. Unless we get a Let's-All-Do-Our-Job Czar, does anybody think Kenneth Feinberg's ministrations with seven companies really can change the futile way in which modern corporations work? -- Bill Visnic, Senior Contributing Editor
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Obama Pay Czar Kenneth Feinberg appeared on CNBC shortly after his appointment.
Posted by Michelle Krebs at 6:49 AM under Chrysler , Commentary , GM | Comments (1) | digg this | Seed Newsvine
This is what happens when you let Washington into the door of private enterprise. They will be the like sloppy and obnoxious house guests that won't ever leave, after having been naively invited into the house even when all the contradicting signs were there.
It's typical group think, to bash big company executives and think they need to be reined in, due to all the political propaganda. Too many people have succumbed to it. I refuse to. I would much rather have a company or companies occasionally fail in the free market instead of letting the government in where they're guaranteed to fail. They always do, when they intervene where they're not supposed to. So what recompense do we have when government officials and representatives fail? Do *they* limit their own salaries? Of course not. They can make all the rules, change the rules, and bend them to their own benefit. Do you think there's not cronyism there?
And when caught in a scandal, they find someone to take the fall and promise to "reform" the system they corrupted. All their attempts to fix tend to make it worse and more complicated, giving them more power in the process. A private sector company can't confiscate a portion of your earnings and make laws that you have to follow lest you pay the consequences. It is for reasons such as this why our nation's constitution puts more limits and restrictions on the power of the federal government than what it specifically authorizes to it. The country's founders knew that people can be corrupted when given enough power over others. And now they're seizing it because they've got so many people conditioned that a more encroaching national government is the only hope of things getting better. That is a dangerous path to follow.
Yes, GM and Chrysler did ask for and accept government loans. Certainly, they should not have, nor should Washington have been so "generous" with other peoples' money. But this is not the way to fix. The best outcome is that all this control will motivate GM to do whatever it can to right itself and kick the bureaucrats out. But will they leave? Don't count on it. Even if GM had the money today to pay back those loans, that same government would hesitate in accepting them, making excuses like they want to make sure that GM passes their "stress test", just as they've done with some of the financial institutions who've attempted to pay back their TARP loans. Some of those institutions were *forced* (by former Treasury Secretary Paulson) to take money they didn’t need, supposedly so that the weaker ones wouldn’t look so weak by not being the only ones who took money. http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2009/05/14/financial/f060259D69.DTL
How could this happen if we had operated with the limited government our founders outlined?
The politicians want to keep the control they already have. People never give up power willingly. It must be taken from them after they've abused it. Will we one day soon have to fight another Revolutionary War?
Posted by: cwc1 | October 26, 2009 at 6:46 PM