Clawbacks Coming?

Well, this is exciting and encouraging news:

“Kenneth Feinberg, the Obama administration’s pay czar, said Sunday that he had broad and “binding” authority over executive compensation, including the ability to “claw back” money already paid, and he is weighing how and whether to use that power.

He also said he has the authority to use a “clawback” provision to go after compensation for executives from any company that received money from the U.S. Treasury’s Troubled Asset Relief Program (TARP).”

That’s the good part. Uncle Sam should be going after senior executives who were vastly overcompensated for helping to drive their firms into the ground. In particular,t he focus should be on the excess compensation that was unrelated to actual performance.

Stock options, bonuses for excess risk taking should all be clawed back to the taxpayer.

Where the czar may be acting too Russian is going after traders who made their money legitimately, but at bad, TARP receiving banks. Energy trader Andrew Hall is the poster boy for misplaced clawback efforts. For the record, I do not think the government has the authority to go after his contract, as it pre-dates the new TARP rules.

Nor should they. Hall is one of the most profitable contract employees of Citigroup. If he were to leave, it would negatively impact the now partially government owned bank’s profitability. Hall earned as much as $100 million this year trading energy, and PhiBro, the unit he works at, generated $667 million in profits to Citi.

There are some who seem to think that people earning lots of money is inherently wrong. My position is simple: If you legitimately earn millions or even billions of dollars, well then, chalk one up for being int he right place at the right time with the right idea. Guys like Steve Jobs, John Paulson, and Jim imons earn billions, and their shareholders/investors are thrilled to pay them it.

My bone of contention is with the crony board members awarding outlandish pay for non-performance; with compensation schemes paying absurd amounts regardless of risk or future losses; and with the big institutional shareholders looking the other way as it all happens.

This is yet another reason why the government should not be in the business of owning large banks. Receivership, asset sales and/or liquidation is the correct way to go. Uncle Sam should have been saving the banking system –not specific banks.

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Previously:
CEO Clawback Provisions in the Bailout? (September 24th, 2008)
http://www.ritholtz.com/blog/2008/09/ceo-clawback-provisions-in-the-bailout/

Clawing Back at Exec Comp (part II) (December 18th, 2008)
http://www.ritholtz.com/blog/2008/12/clawing-back-at-exec-comp-part-ii/

TARP Recipients and their Bonuses (February 5th, 2009)
http://www.ritholtz.com/blog/2009/02/tarp-recipients-and-their-bonuses/

Source:
U.S. Pay Czar Says He Has ‘Clawback’ Power
Dealbook, August 17, 2009, 8:14 am
http://dealbook.blogs.nytimes.com/2009/08/17/pay-czar-says-he-can-claw-back-compensation/

See also:
“Pay Czar” Refusing to Back Down Over Possible $100 Million Citi Bonus (naked capitalism)

"Pay Czar" Refusing to Back Down Over Possible $100 Million Citi Bonus

Ditch Bonuses, Bring Sense to Wall Street’s Pay (Bloomberg)
http://www.bloomberg.com/apps/news?pid=20601039&sid=aRb1t81srE58