Yesterday’s Washington Post eliminated another pretense of accountability for companies taking the billions in taxpayer money Congress has thrown at Wall Street: "Executive Pay Limits May Prove Toothless, Loophole in Bailout Provision Leaves Enforcement In Doubt"
The so-called cap on executive compensation in the bailout legislation had enough loopholes as approved. It left discretion for when to apply compensation restrictions in the hands of the Treasury Department. It prohibited golden parachutes only for executives who are fired, or drove their company into extinction, and existing compensation packages (even for the execs who brought their companies to the brink of disaster) were left intact. It limited some corporate tax deductions for some executive salaries, but only for a limited number of executives, and only for companies who sold a large amount of bad assets to the government. Now, even that provision turns out to be meaningless. From the Post:
But at the last minute, the Bush administration insisted on a
one-sentence change to the [executive compensation] provision, congressional aides said. The
change stipulated that the penalty would apply only to firms that
received bailout funds by selling troubled assets to the government in
an auction, which was the way the Treasury Department had said it planned to use the money.
Now, however, the small change looks more like a giant loophole,
according to lawmakers and legal experts. In a reversal, the Bush
administration has not used auctions for any of the $335 billion
committed so far from the rescue package, nor does it plan to use them
in the future. Lawmakers and legal experts say the change has
effectively repealed the only enforcement mechanism in the law dealing
with lavish pay for top executives.
Congress’s supposed crackdown on executive compensation was little more than a talking point.
But, while Congress didn’t manage to shave a sliver off Wall Street executive paychecks (let alone rank and file workers) in return for $700 billion bailout, a handful of Senate Republicans sunk a $35 billion cash infusion for the auto industry and blamed the companies’ blue collar workers for refusing to slash wages again after years of concessions. Just one comparison from the Multinational Monitor blog:
Auto worker compensation makes up a small cost of manufacturing a car — less than 10 percent.
So, you can slash wages as much as you want, but you won’t bring costs
down much. By contrast, as you would expect in a service industry,
compensation makes up a huge portion of costs for the financial sector.
The New York state comptroller lists employee compensation costs as
equivalent to more than 60 percent of 2007 revenue for the 7 largest financial firms headquartered in New York City. At Goldman Sachs, employee compensation made up 71 percent of total operating expenses in 2007.
So while financial firms’ employee costs were off-limits (it took public humiliation to get AIG to stop spending millions on employee junkets), union workers’ greed sunk the auto bailout? Priceless.