Will My Tax Payer Dollars Pay for Bonuses On Wall Street?


Congressional leaders are haggling over executive compensation for Wall Street suits, as taxpayers on Main Street await the final bill for the latest rescue plan surrounding the financial markets. A vote on the matter is expected this week.

After the financial sector nearly collapsed after taking a beating, policy makers have been at work hammering out details for a $700 billion bailout plan. But, a few disagreements have cropped up as members of congress debate placing limitations of pay for executives of firms that use government rescue money.

Executive pay has always been an area of contention. “Since 2002, the hourly compensations of college and high school graduates have been, if anything less than inflation, and that shapes how the public views [executive compensation],” says Lawrence Mishel, President of the Economic Policy Institute.

Last year, the top five highest paid CEOs of a public company raked in $327 million. Who topped the list? Former Chairman and Chief Executive Officer of the toppled 94-year-old financial investment firm Merrill Lynch (STOCK QUOTE: MER), John Thain, who collected $83 million for 2007. Just a year before the financial markets nearly collapsed.

Now Treasury Secretary Henry Paulson is said to be resisting efforts for limitations on pay for executives, believing such measures could be a hindrance to the package. The ability to retain and capture talent has been a source of argument for a package without such limits. But, “the high salaries got us this great talent, which got us into this great mess,” says Mishel. These Masters of the Universe, hopefully their days are gone and the sector become reconnected to the rest of the economy and that pay levels will correspond appropriately, says Mishel.

But, what is appropriate? Outgoing Chairman of AIG, Robert Willumstad declined a $22 million severance package for 3 months as the company head due to his inability to restructure the company during his tenure. Not all CEOs are as generous. His predecessor Martin Sullivan banked a severance package of $47 million two months before the insurer’s $85 billion loan from the Federal Reserve. That’s 1000 times the $46,000 national average salary of public school teacher.

“It absolutely makes sense to constrain executive compensation,” says Mishel. “When a private equity firm takes over a business, there’s lots of quid pro quos [people lose pensions and may see wage cuts, “says Mishel.

“If the government is the back of last resort, tax payers shouldn’t feel that they’re backstopping enterprises people that have made terrible decisions.”

How should the government determine executive compensation?

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