There have been 2 diaries written about comments President Obama made about bonuses paid to the top executives of financial firms. Both diaries were built around Paul Krugman's response to these comments, in which he called the President "clueless". I'm not trying to bash Krugman-the guy is a genius and far smarter than I'll ever be. But I think he's off base in his reaction.
If you read the Krugman column, you're probably angry. It seems like the President defended Wall Street, maybe even sold out Main Street. But let's delve deeper into the story, from BusinessWeek:
Blankfein and Dimon took their bonuses in stock rather than cash, which Obama encouraged other corporations to do. Such compensation, he said in the interview, "requires proven performance over a certain period of time as opposed to quarterly earnings." He said that’s a "fairer way of measuring CEO success and ultimately will make the performance of American businesses better."
So these aren't cash bonuses, first off. I think this point hasn't been detailed enough. Certainly there's a case to be made that a stock bonus does not work either. But I think if you have stricter financial regulations that eliminate many of the ways Wall Street has swindled America, they are fine.
Obama said compensation packages over the last decade haven’t always been commensurate with performance, and reiterated his call for shareholders to have a say in CEO pay.
"That serves as a restraint and helps align performance with pay," he said. "Shareholders oftentimes have not had any significant say in the pay structures for CEOs."
So the President re-affirms his desire for shareholders to have a meaningful say in CEO pay. I don't think many of us would disagree with that.
The Obama administration named Kenneth Feinberg special master on executive compensation in June after a political outcry over bonuses paid to employees at American International Group Inc.
Feinberg, 64, ordered the seven companies whose pay he supervised, including Citigroup Inc. and Bank of America Corp., to emphasize long-term stock compensation rather than cash payments. Citigroup and Charlotte, North Carolina-based Bank of America repaid their federal bailout funds in December, leaving Feinberg with five companies, including AIG, under his supervision.
Feinberg told Bloomberg Television on Feb. 8 that Goldman Sachs heeded his "prescriptions" even as he called Blankfein’s $9 million total pay excessive. "I don’t believe there are more than one or two" executives making as much among the 700 he has had under his jurisdiction, Feinberg said.
So this policy is actually preferred by the White House. I don't know, it seems fairer to me that the executives are paid in stock. Then they actually have to perform well to see the money. Again, you need stronger regulations to go along with it, but I really don't think this is a major blunder by the Administration.
There is a bigger issue I suppose. I personally don't feel the government should tell any private company what they can pay their employees. I guess some here feel differently. But I just don't think it's in the best interests of private business or the government to do so. I also thought that much of the outrage shown in Washington over bonuses was manufactured. The politicians got to scream at bankers and make themselves look good, but what did it accomplish? At least the President has taken concrete steps to address the problem.
UPDATE: I wanted to add 2 things. First, there have been a few questions as to whether I oppose minimum wage laws. No I don't. I think there is a big difference between requiring a company to pay a living wage and capping what a person can earn. I also do not oppose other labor laws. I do think that the burden of health care needs to be taken away from private businesses. If they want to offer it as a perk to lure the best employees, that's fine. But they shouldn't be required to do so. This is one of the reasons I support the Wyden/Bennett health care bill, if you can't get single payer.
The other point is that the White House has addressed the issue on their blog:
We wanted to clear up some confusion about where the President stands on bonuses and excessive executive compensation. A recent headline from an interview the President did with Bloomberg yesterday inaccurately made it sound like the President brushed off the impact of bonuses and applauded the role of bankers. This naturally came as a surprise to the many people who share his outrage at the behavior that continues on Wall Street and is not an accurate portrayal of where the President stands or what he said during the interview.
The President has said countless times as he did in the interview that he doesn’t ‘begrudge’ the success of Americans, but he also expressed ‘shock’ at the size of bonuses and made clear that there are a number of steps that need to be taken to change the culture of Wall Street. A sentiment he has consistently expressed since long before he took office.
He also made clear, as he has said many times before, that he believes bonuses should take the form of stock so that the compensation is tied to long term performance. His focus from day one has been on signing into law a comprehensive financial reform package that reins in the abuses on Wall Street, addresses Too Big to Fail, imposes real oversight and strict accountability on financial companies, prevents predatory lending practices, ensures that consumers get clear information and imposes a fee on the biggest banks to ensure they pay back every dollar of money owed to the taxpayers.
They also include numerous statements the President has made in the past on the issue.