|
|
By The Worden Report, on April 4th, 2013
Executive compensation is an art rather than a science. It is not as if certain numbers are fed into a computer and the correct compensation amounts pop out. There is more discretion involved than meets the eye. “Since the financial crisis,” the New York Times reported in 2013, “compensation for the directors of [America’s] biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay.” Board and upper management pay seem to be going in different directions is spite of both being presumably tied to the same firm performance. There is much maneuver, in other words, even given a performance-incentive approach.
At $488,709 in 2011, Goldman Sachs had the highest director-pay of any American bank. Some of the bank’s 13 directors make more than $500,000 because they have extra board responsibilities. As the directors are paid in stock, 2012 promised to be an even better year for the thirteen. Compensation experts say banks must pay premium dollar to pay such figures for what is essentially part-time work in order to get the best advice. However, JPMorgan, the largest American bank, gave its directors “only” an average of $278,194 in 2011. Bank of America paid its directors $275,000 each. Equilar reports that the average compensation for a director at one of the six largest American banks in 2011 was $328,655. This compares with $232,142 at almost 500 publicly-traded companies, according to Spencer Stuart, in spite of the fact that regulations have narrowed the responsibilities of bank boards. One would think that compensation would reflect changes in the number of tasks even more than macro indicators of bank performance.
“I get you have to pay up for sophisticated board, but what is that complexity worth?” said Timothy M. Ghriskey, co-founder of the Solaris Group, a financial services shareholder that voted in 2011 to reject a pay plan for top executives at Citigroup. “Does it take $200,000 or $500,000? The discrepancy between a board like JPMorgan and Goldman is confusing.” For one thing, the differential indicates that the matter is far more subjective than meets the eye. This in turn suggests that when a compensation expert claims that a certain level is necessary, the claim can be critiqued rather than taken at face value.
In fact, when it is claimed that a certain director-level compensation is necessary (e.g., X amount of stock at Y exercise price), the fact that this claim is not true may suggest that insider collusion between board members or the board and upper management is involved. Put another way, the false-necessity may be a subterfuge used by insiders seeking to enrich each other. You scratch my back, and I’ll scratch yours. The dispersed stockholders a left with less.
In short, it can be doubted whether the director compensation level is necessary or even in the stockholders’ interest. The excess probably reflects the difficulty facing stockholders in holding the insiders accountable. Accordingly, one consequence of corporate governance reform may be a reining in of pay for what is really a part-time job (i.e., gravy) with fewer and fewer responsibilities.
. . . → Read More: Getting More For Doing Less: Bank Board Directors
By The Worden Report, on April 4th, 2013
Executive compensation is an art rather than a science. It is not as if certain numbers are fed into a computer and the correct compensation amounts pop out. There is more discretion involved than meets the eye. “Since the financial crisis,” the New York Times reported in 2013, “compensation for the directors of [America’s] biggest banks has continued to rise even as the banks themselves, facing difficult markets and regulatory pressures, are reining in bonuses and pay.” Board and upper management pay seem to be going in different directions is spite of both being presumably tied to the same firm performance. There is much maneuver, in other words, even given a performance-incentive approach.
At $488,709 in 2011, Goldman Sachs had the highest director-pay of any American bank. Some of the bank’s 13 directors make more than $500,000 because they have extra board responsibilities. As the directors are paid in stock, 2012 promised to be an even better year for the thirteen. Compensation experts say banks must pay premium dollar to pay such figures for what is essentially part-time work in order to get the best advice. However, JPMorgan, the largest American bank, gave its directors “only” an average of $278,194 in 2011. Bank of America paid its directors $275,000 each. Equilar reports that the average compensation for a director at one of the six largest American banks in 2011 was $328,655. This compares with $232,142 at almost 500 publicly-traded companies, according to Spencer Stuart, in spite of the fact that regulations have narrowed the responsibilities of bank boards. One would think that compensation would reflect changes in the number of tasks even more than macro indicators of bank performance.
“I get you have to pay up for sophisticated board, but what is that complexity worth?” said Timothy M. Ghriskey, co-founder of the Solaris Group, a financial services shareholder that voted in 2011 to reject a pay plan for top executives at Citigroup. “Does it take $200,000 or $500,000? The discrepancy between a board like JPMorgan and Goldman is confusing.” For one thing, the differential indicates that the matter is far more subjective than meets the eye. This in turn suggests that when a compensation expert claims that a certain level is necessary, the claim can be critiqued rather than taken at face value.
In fact, when it is claimed that a certain director-level compensation is necessary (e.g., X amount of stock at Y exercise price), the fact that this claim is not true may suggest that insider collusion between board members or the board and upper management is involved. Put another way, the false-necessity may be a subterfuge used by insiders seeking to enrich each other. You scratch my back, and I’ll scratch yours. The dispersed stockholders a left with less.
In short, it can be doubted whether the director compensation level is necessary or even in the stockholders’ interest. The excess probably reflects the difficulty facing stockholders in holding the insiders accountable. Accordingly, one consequence of corporate governance reform may be a reining in of pay for what is really a part-time job (i.e., gravy) with fewer and fewer responsibilities.
. . . → Read More: Getting More For Doing Less: Bank Board Directors
By The Worden Report, on January 18th, 2013
Inevitably, with any focus comes the opportunity cost of the benefits that could have come from alternative agendas. Put another way, a sustained focus on particular trees means losing the benefits that go with looking at the forest as a whole. One might ask whether Wall Street bankers, even those in lofty positions, are too focused on marginal differences even as the bankers stay away from operational oversight. Goldman Sachs, being led by a former trader, may have been a case in point as 2012 succumbed to 2013.
In December 2012, Goldman Sachs distributed $65 million in stock to ten senior executives. Typically, such distributions are made in January. In this particular case, the shift back to December helped executives avoid the higher marginal tax rates on income of $450,000 or more beginning in January 2013. The decision does not say much for the bank as a “corporate citizen” in the U.S., which is particularly telling given all the “Goldman alums” occupying high offices in the U.S. Government. With deficits of over $1 trillion, the U.S. Government could hardly afford such opportunistic high-rollers. One might wonder what sort of public policy the alumni were trumpeting.
Lest it be assumed that the bankers’ opportunism was limited to North America, Goldman Sachs was also considering delaying the payment of bonuses to its employees in Britain until after April 6, 2013, when the top tax rate was scheduled to drop to 45% from 50 percent. The bank decided not delay the bonuses, but the damage was done, at least with respect to public relations.
Mevyn King, the governor of the Bank of England, told a parliamentary committee that even though a delay in bonus payments was not illegal, it was “a bit depressing that people who earn so much seem to think that it’s even more exciting to adjust the timing of it.” That is to say, people who are paid so much should spend their time on matters of more value than adjustments based on the calendar. Small people ought not make so much. At the very least, King opined, one would expect that people compensated with so much wealth would not be “rather clumsy and lacking in care and attention to how other people might react.” Tunnel vision is a bad fit for the upper echelons of an organization.
U.S. Senator Carl Levin (D-Mich).
One might think of Lloyd Blankfein stonewalling at Sen. Levin’s investigative committee in 2010. Levin’s exasperated expressions alone made Goldman’s CEO seem cagey and evasive on “the big short” and the bank’s proprietary position. The former trader undoubtedly knew the mechanics of making a trade, but this did not translate into a strong public persona representing the bank as a whole in a public forum. Considering the fixation at Goldman on delaying compensation to take advantage of tax differences that must surely be marginal from the standpoint of the rich bankers, one could reasonably conclude that technicians were running the show.
Lest it be supposed that promoting technicians at least means that oversight on operations is highlighted even on the top floor, the inappropriateness of the technical fixation there at the expense of societal leadership also probably means that oversight is also lacking. Put another way, the technical fixation is on tertiary rather than primary matters. For a CEO, oversight is primary and representing the organization externally is secondary—neither is tertiary.
The basic error in Goldman’s upper management lies in perceiving the relatively unimportant as important. This is ultimately a problem of values: treating less as more. In moral theory, the related error is called misordered concupiscence: putting a lower good above a higher one. Greed, for example, involves loving gain above God. Pride is the love of self above others. The problem is one of priorities.
In short, short-sighted or marginally beneficial priorities are particularly self-destructive at the highest levels of organizations. Sen Levin must have been shaking his head in utter disbelief as Blankfein carried on as a mouse in evading the chairman’s questions on the bank’s selling of “Timberwolf” (a.k.a. “crap”), a security based on nearly-worthless sub-prime mortgages. The attempts to avoid a few percentage points on the tax rate must have given the public the sense that the bankers at Goldman are not only opportunistic, but also short-sighted both in terms of money and public relations.
Fundamentally, the disbelief regards how such people could be so wealthy—so privileged. Seeing a movie star who is paid millions per film have a temper tantrum in Hollywood could elicit a similar sense of wonderment. We presume that men rather than mice occupy the firmament of our vaunted institutions on Wall Street, and yet our perception has no immediate basis. Societal images and reputations benefit more from public relations strategies (and firms) than from actual personality and character. Our institutions could do much better, in other words, in terms of how their highest office-holders are selected and retained. To distinguish the important from the unimportant can be regarded as a quality of maturity. This ought to be higher on the list of desirable traits as boards search to fill upper management.
. . . → Read More: Leadership at Goldman Sachs: Mice or Men?
By The Worden Report, on October 10th, 2012
In October 2012 the Wall Street Journal reported, “the Financial Industry Regulatory Authority is examining how major investment banks and brokerage firms define and manage conflicts of interest between themselves and their clients.” Prime facie, d… . . . → Read More: Conflicts of Interest: Relying on a Wall Street Bank’s Safeguards
By Michael Haltman, on July 16th, 2012
A difficult proposition to be sure as OWS really never did have a point, a goal, a valid mission statement or an articulated endgame that ever made any sense to sensible people! This story has nothing to do with how much these bankers earned or ab… . . . → Read More: Just this once, OWS may actually have a point!
By The Worden Report, on July 12th, 2012
A former spokesman for U.S. Treasury Secretary Timothy Geithner announced in July 2012 that he would head to Goldman Sachs at the end of that month. Andrew Williams is the second of the Secretary’s spokesmen to head to the bank. These moves… . . . → Read More: Goldman’s PR Men: From Treasury
|
