Wednesday, June 10, 2009

It's Worse Than I Thought

I just finished participation in a conference call held by Gene Sperling, counselor to Treasury Secretary Tim Geithner.

The news is even worse than what I interpreted form Geithner's vague statement.

The compensation oversight programs announced by Geithner will not be limited to financial companies. The Treasury will propose legislation giving the SEC the power to ensure that compensation committees are more independent, for all publicly traded companies, according to Sperling.

Sperling championed this as putting standards into effect for compensation similar to those put in place for audit committees as part of the Sarbanes-Oxley Act.

I know of no one, including most legislators , who don't think that Sarbanes-Oxely was a big mistake, that it costs companies millions of dollars annually in compliance costs, with zero benefit. Setting up such a nightmare for all publicly traded companies will make it even more difficult, if not impossible for small companies to raise money and go public, and will force others to leave the public markets and go private (or overseas).

What should be of major concern is that this is going to bring to the compensation table all kinds of people with all kinds of agendas As Geithner's statement puts it:

At the same time, compensation committees would be given the responsibility and the resources to hire their own independent compensation consultants and outside counsel.
Who knows what these "consultants" will consider as an important role for an exec to take on? Planting green trees?

I asked Sperling if the Federal Reserve and President's Working Group on Financial Markets were also supervising all public corporations or just those in the financial sector, since they were both mentioned in Geithner's statement? As far as the Fed, I thought he would say the Fed was only going to supervise financial institutions, but, instead, he somewhat dodged the question and told me to ask Bernanke.

As for the Working Group, he said that Geithner is tasking the group with reporting on overall trends in compensation and in risk. He left it unclear how far beyond the financial sector that the Working Group would delve.

In short, there appears to be Herculean oversight of executive compensation coming that is likely to turn into more regulation than oversight. And there is enough wiggle room in these proposals, at this point, that the Administration can drive the programs in any direction they want, any time they want or need to. It sounds like a Paulson plan all over again. Throw everything up against the wall, get legislation passed and interpret all these broad generalizations any way you want, down the road.

Very scary.


  1. Wenzel,

    Do you have any journalist friends and do you think there is any way to reach some of these people and try to convince them there is something dangerous afoot and that they need to start asking questions? Like a Coalition of Concerned Journalists type thing, to make sure these people get CORNERED in interviews and can't dodge questions without a story being written that they were evasive and uncooperative?

  2. Just so I understand: whats does this compensation oversight entail? Is the function to review salaries paid to exectutives? In effect an incomes policy restricted to Execs?

  3. @Annonymous

    Good question.

    It's seems like the plan is to require independent board members to set compensation based on advise from lawyers and consultants. So basically, these consultants will have major power.

    This is the devil in the details. Who will these consultants be? And what will be important to them in determining what is relevant to an execs salary? Will he for example get a higher salary because he takes a half hour off everyday to hug a tree?

  4. @Taylor

    I know a lot of journalists. Most don't get it.

  5. Wenzel,

    The other part of my question was, do you think any of them can be reached? Can we help them get it? Or are all journalists (major network names) as a class just ignorant and maliciously stupid people by nature?

  6. @Taylor

    They are not "ignorant and maliciously stupid people by nature."

    Most are very left wing, but, for the most part,they are not on crusades. They are just out protecting their jobs. Instinctively, they know what questions they can and can't ask.

  7. Wenzel,

    You're free to employ another definition but in my mind, advocating for left-wing politics is a form of "malicious stupidity" because each of those policies successfully implemented results in coercion against innocent individuals.

    I can't tell if you responded to my other question. I had asked if you think these people can be "gotten to" and convinced to see things another way. You responded that they're not ideologues and that they're just trying to protect their jobs. On the one hand this seems like you're saying they're not hardcore so you might be able to change their minds. On the other hand you seem to be saying they're going to vote with their wallets and therefore they will not be open to seeing things differently or approaching their jobs differently.

    I am interested in your own personal anecdotes that give you the perspective you have because I feel like what I've seen of professional journalists, as well as what I saw in journalism school amongst students and professors, is that many of these people are very much on crusades, they are convinced of their own self-righteousness and the "duty" they have to society to support this ideology and spread it through practice of their trade, ignorantly or not.