Archive for March 16th, 2009

The politicization of our financial system was a foregone conclusion once Congress approved the TARP fund. However, this morning’s predictable outrage at the $165 million AIG  executive bonus payout is a calculated over reaction by the President and his administration given that they are powerless to prevent it.

The President needs to demonstrate the proper outrage for the Congress and  the public given that the economy may require additional bail outs or stimulus as additional data and experience  become available in the coming months. It sickens all of us that a company like AIG which has received a $170 Billion from taxpayers, is able to pay out bonuses given their well publicized pathetic performance. 

Incentive bonuses, are a fundamental linchpin of executive compensation however, my experience has always been to include a clause which requires minimal performance objectives to be met by the corporate entity prior to authorization by the Board. This allows the Board of Directors to weigh in and assure that the interests of the organization as a whole, are aligned with those of  its’ executives.

The failure to include such a clause is, in the opinion of Ceo4aday, negligence on the part of the Board. It represents a failure by Board members to understand their fiduciary responsibility to shareholders. It requires a difficult decision to waive an earned bonus for an executive or associate that may have performed in an outstanding manner while the entity itself failed to meet its performance objectives. Those however, are among the decisions we expect Boards and CEO’s to make.

The mere fact that Barack Obama, Timothy Geithner and others in the administration and Congress focus on the compensation practices of AIG or the other recipients of TARP funds is a concern in the sense that we do not generally elect business leaders to serve our interests in Washington. Rather, the elected officials that inhabit Washington, tend to be professional politicians like Barack Obama, Nancy Pelosi, Barney Frank and Chris Dodd. We do not need to compound the ineptness already demonstrated by the management teams at many of these financial institutions with the additional ineptness of a group of Washington politicians.

These certainly aren’t the people we should entrust with creating compensation programs for American businesses. There have been some extreme abuses among select corporations and select executives however, the vast majority of CEO’s are focused on directing their companies toward profitable growth and work on main street not wall street.

This administration when they make outrageous remarks that are negative towards the business community are merely pandering toward populism and establish a tone that further erodes confidence in the economy. We have no doubt that the President’s remarks this morning regarding AIG did little to prop up the economy and could be viewed as nothing more than political theater which contributed to a market sell off, by reminding investors that we have an administration that continues to perceive the business community as suspect.

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