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Following up with the “Fat Cats”

December 18th, 2009


12.18.2009 original publish date
12.19.2009 edit/ update
03.17.2011 repaired broken links

Following up with the “Fat Cats”

original article written by Net Advisor

President Obama criticized Wall Street calling them, “fat cats” on 60 Minutes’ 12-13-2009 broadcast, but failed to acknowledge that some of Wall Street’s top management have not been taking bonuses even when earned.

The latest addition is Morgan Stanley’s CEO; John Mack decided to not take a bonus this year. In fact, according to Reuters, Mr. Mack has declined to accept any bonuses since 2006. Bank of America’s (B of A) departing CEO, Ken Lewis will receive neither a bonus, nor a salary this year (source: USA Today). Given my research on B of A, this is the right level of compensation. According to the article, Mr. Lewis will also give back $1 million of compensation previously paid in negotiation with Obama’s Pay Czar.

Off Wall Street, and into government control, General Motors former chief Rick Wagoner received $2.1 million salary in 2008 with total compensation of $5.5 million. His 2007 total pay was reportedly $14.1 million. Wagoner took $1.00 for compensation in 2009. (Source: Edmunds). Aside from the 2009 pay, and based on the total failure of GM, this I would argue would not be fair compensation for lackluster performance. The President would have a good argument here. Why should someone be paid millions when the company is losing billions?

Keep in mind that there is a difference in paying back debt with interest, and still having a government tell you whether, when, and how much you should be paid if at all.

Pick Your Job:
$1.00 per Year as CEO or $7.10/hr at
McDonald’s
Getting someone to work on a job for $1.00 a year is tough. No CEO has lasted that long doing that no matter how wealthy they were before the compensation change. You have to pay someone to do a job like CEO especially of a sizable company even if it is in restructuring. Again, bonuses should be determined based on the company’s earnings and stock performance.

So no bonus for no performance. Agree. Now, $1.00 a year income for a ton of really hard work, and you will have the public and government bitching at you all day and in the media? So $1.00 a year is the right compensation for that job? Would you work for $1.00 a year let alone $1.00 an hour? Doesn’t $1.00 a year amount to slave labor? That is not even the Federal Minimum Wage of currently $7.10/ hour. Even in China some of the lowest paid jobs stills gets you .45 cents an hour. After 2 1/2 hours you made as much as some United States CEO’s for an entire year.

So a veteran CEO could earn 7x more per hour flipping burgers at McDonald’s than they would in a an entire year as a CEO. Plus they would have far less responsibilities working at fast food than they would as CEO for some giant mega billion dollar corporation. Is that correct, because that is what we have in some cases.

Our government thinks that’s fair because ‘we bailed all these guys out.’ AIG, General Motors, Fannie Mae, Freddie Mac, all are being paid very well in comparison under the government control. But, pay back 100% of your loan, with interest, operate independent from government, turn a profit, make money for shareholders, and watch out…more than $1.00 and you are being paid way too much.

AIG’s last CEO Edward Liddy got $1.00 in 2008-2009, no bonuses in 2008, and has since quit or pushed out by the Obama Administration.

AIG has thus far received $180 Billion in US government bailouts, almost 8 times more than any other company, except GM, which would be 2x more money than GM. New AIG CEO Robert Benmosche original pay package: Put your Depends on… $10.5 million. This amount was approved by Obama’s Pay Czar, then was revised down by AIG’s Board to $3 Million a year salary plus $4 million in immediately invested AIG stock. AIG CEO Benmosche had threatened to leave AIG (video), but says he’s now “totally committed.” (Source: Reuters)

I have to hand it to Benmosche, he at least says (in so many words) you wont get a guy with my experience for free, and he has no reservation to tell you that. I’d give him an extra $1.00 for having the guts to deal with managing such a disaster such as AIG. Benmosche is AIG’s third CEO since the government took over AIG. Good Luck!

(image: Michael J. Williams, Fannie Mae)

New Chief of Fannie
The Obama Administration apparently appointed Michael J. Williams (pictured above left), current Senior Fannie Mae executive to head that government ran mortgage giant as the new CEO. Williams will receive a $1.3 million bonus under existing pay plan plus $676,000 salary as the new Fannie Mae CEO. (Source: Washington Post) Mr. Williams has been employed by Fannie Mae since 1991.

Old Chief of Freddie
Freddie Mac CEO Richard Syron received over $19 million in compensation in 2007, plus a minimum of $8.8 million in stock despite that the company’s stock had been slashed in half. Freddie Mac also paid for the CEO’s “planning expenses, car and driver for commuting, home security system, business-related dining and travel costs for his wife and $100,000 in l legal fees from negotiating his employment contract.” (Source: MS-NBC) One would think with $19 million you could afford you own car and driver? So is President Obama calling this guy a fat cat? No. Somehow he is exempt from the argument – and who is one of the guys who was part of the real estate problem.

(image: Charles E. Haldeman Jr. at Darthmouth.edu)

New Chief of Freddie
Freddie Mac is actually on their fourth CEO in less than a year. In March 2009, David Moffett quit his CEO post at Freedie Mac citing in part by his apparent frustration about having to the approval from the government for virtually everything he did. The company’s chairman, John Koskinen was acting CEO until Charles E. Haldeman Jr. became the helm. (Source: Wall Street Journal)

Charles E. Haldeman Jr. (pictured above left) has an impressive bio and clearly has some impressive academics with an M.B.A. from Harvard Business School, a J.D. cum laude from Harvard Law School, an A.B. summa cum laude from Dartmouth College, and CFA. Haldeman will receive a base salary of $900,000 per year plus certain benefits subject to U.S. government (FHFA and the Treasury’s) approval.

Fannie and Freddie guarantees about half of the mortgages in the USA, about $5.4 Trillion. The government ran mortgage companies have access to a $400 Billion “bailout” credit line with the Treasury.

— Source: Bloomberg

President Obama stated referring to Wall Street,

“You guys caused the problem (of the economic down turn).”

— Source: CBS 60 Minuets video short (text link – backup source)

My continued research suggests that:

Wall Street is NOT the source, or the sole source of the problem. That both government and consumers can take significant blame, as Wall Street, including U.S. banks facilitated the ability for consumers to take loans they could not ever afford to pay. Banks failed to manage their credit and risk management underwriting ability. Credit rating agencies, and said mortgage giants also played a role.

I would also argue that based on his previous comments the President has painted the entire financial industry (banking and Wall Street) with the same brush. If all firms were exactly the same and had equally the same business and same risk, and the same risk management, they would also have the same market cap, thus the same stock price. It would be false to make this assumption.

The public needs to keep in mind those bonuses for Wall Street are not given for people who show up to work, or who work long hours. They are generally set up as “pay for performance.” If the company performs, thus makes money for their stock holders to a specified amount in their employee contract that year, then a bonus is derived from that. If management failed to achieve those goals, no bonus.

Given the President’s position attacking Wall Street as the source of American’s economic problems, blame an industry that he wants to change just like the auto industry, health care, insurance, banking, etc., and will use your tax dollars and no limit to costs, and regardless of (deficit) risks to achieve those goals. The President also did not comment that Wall Street was some of his biggest campaign contributors, receiving over $3.5 million. I have not found any articles showing that the President has given any “Wall Street” money back either.

original article:
Who Are The Real Fat Cats?

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