Wall Street Reacts To Executive Pay Curbs

The Treasury and Federal Reserve both announced new rules Thursday that would curb pay at U.S. financial institutions. Andrew Ross Sorkin, a financial columnist for The New York Times, says a number of people at the banks are unhappy with the new rules.

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MICHELE NORRIS, host:

And for more on the culture of Wall Street and its reaction to Washington's aggressive policing of pay, we turn to New York Times financial columnist Andrew Ross Sorkin. Sorkin is also the author of the new book "Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System - and Themselves." Andrew Ross Sorkin, welcome back to the program.

Mr. ANDREW ROSS SORKIN (Author, "Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System - and Themselves"): Thank you for having me.

NORRIS: Help us understand why companies that accepted taxpayer bailout money, and only survived because of it, would still try to hand out these huge executive pay packages?

Mr. SORKIN: Well, I think, frankly, there's been a ten-year element to all of this, which is that there's always this grand disconnect and paradox on Wall Street between what is your responsibility to the community and to the country and what is your responsibility to the shareholder. And over many decades now, the shareholder has historically won. And I think they've had a very hard time getting out of that mindset.

NORRIS: It's - though, when looking at these numbers, I mean, with the memories of the bailouts and the financial (unintelligible) still fresh in everyone's mind, it is still so surprising that they would attempt to do this and not expect a slap back from the government.

Mr. SORKIN: I - no, it's remarkable. And frankly, by the way, I think, you know, I thought what Kenneth Feinberg said was fascinating. But I do think they are more surprised than he let on, in that I know a number of people this afternoon - like that Wall Street Journal article reflected - that were very surprised by this. And I think, frankly, quite unhappy. Now, it goes back, though, to this responsibility issue. And I think there - that ten year is the problem.

I, you know, Wall Street as a culture, you sort of introduce this segment as a culture question and it's a business about money. That is the goal. It's unlike most other businesses, you know. Journalists, their job is to uncover the truth. Teachers want to teach. Doctors want to save lives. The business of Wall Street is about making money. That is the goal. That is the scorecard, if you will. And so, it's very hard, culturally, the mind set, the group think about why they actually think they either deserve this money or need this money.

NORRIS: In your book, you talk about group thinking, you describe the way the institutions operate and the way they think about salaries, and the idea that if you don't pay someone a lot of money, they'll just take their talent elsewhere to a competitor down the street. Is there a truth to that or could that just be a tactic for negotiating with the government?

Mr. SORKIN: Well, there's no…

NORRIS: …or with the employer in that case?

Mr. SORKIN: There is no question that that is a tactic as part of a negotiation. But I do think it is a real issue. And, you know, at some level we probably don't give some of these compensation committees on the boards of these banks enough credit because I do think there's some self-awareness, and they're sitting there trying to grapple with: How do we do this? How do we run our business and at the same time try to - and this is the problem - it's not be responsible, it's look responsible.

And so, you have people moving more and more towards offering shares, which is a good thing because it means that they're going to have skin in the game. But at the same time, the numbers are still astronomical. You know, even after the announcement today by the Fed and what Kenneth Feinberg said, that $20 billion number that you heard about at Goldman Sachs, the likely payout, it will likely still be the same headline number. The only distinction, and it's a good important distinction, is a lot of it will be in stock.

But let me just suggest to you, and it's in the book too, Dick Fuld, Richard Fuld, who was the CEO of Lehman Brothers, at one point owned $1 billion of Lehman Brother stock. And he had as much skin in the game as anybody else. And he ended the day with $65,000 in stock. And you can tell how much that matters.

NORRIS: I want to ask you one last quick question because we don't have a lot of time. The Fed, in part, made this announcement to try to take on risk and discourage risky behavior by the banks. And in many cases, on Wall Street, those involved in the riskiest ventures tend to reap the greatest rewards. Can the federal oversight or can federal oversight really change that?

Mr. SORKIN: Well, I hope it can. But I think it's going to have to be part of a larger sort of regulatory reform package. And the real issue there is what type of teeth that's going to have, what kind of capital requirements, how much money are you going to force the banks to keep in the bank every day as a cushion? And that was really the problem the first time around. And, you know, we're going to see legislation, hopefully, in the next couple of months. But as the economy gets better, it's harder and harder for Wall Street to remember the problems.

NORRIS: Andrew, thank you very much.

Mr. SORKIN: Thank you.

NORRIS: That was Andrew Ross Sorkin of The New York Times.

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