Obama Plan Caps CEO Pay At Bailed-Out Firms President Obama has announced new limits on executive pay at companies that receive government bailout funds. Financial analyst Barry Ritholtz talks about the proposal and whether it will make a difference.

Obama Plan Caps CEO Pay At Bailed-Out Firms

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From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.


And I'm Alex Cohen. Coming up, response to President Obama's stimulus package from both the left and the right.

BRAND: But first, President Obama is capping big salaries and bonuses for some top executives whose companies received federal bailout money.

(Soundbite of press conference, February 4, 2009)

President BARACK OBAMA: This is the height of irresponsibility. It's shameful.

COHEN: The president says if an organization takes government money, no one can be paid more than half a million dollars.

BRAND: Barry Ritholtz is an independent equity research analyst. He writes the blog The Big Picture. And Barry, what do you think of this plan, a $500,000 limit?

BARRY RITHOLTZ: Well, it's a symbolic gesture. It's not going to get at the root of the problem. The big issue that we've been dealing with for the past few years has been misaligned incentives from employees who are not paid based on the performance of the junk they ended up buying, but they're really just being paid on the volume of how much paper they could shuffle around.

BRAND: But why do you say it's just symbolic?

RITHOLTZ: We're talking about teeny tiny amounts of money relative to the tens and tens of billions of dollars they lost.

BRAND: But there is huge anger out there at corporate bonuses, corporate pay structure. I mean, there's just a populist swell against these executives and the compensation they receive.

RITHOLTZ: No doubt about it, and that's why we have this symbolic gesture. You know, what should have happened early on, right off the bat, was there should have been an edict that said, no more dividends. The banks are paying out $40 billion a year in dividends to their shareholders. And you know, if you're insolvent, if you have to go to the government hat in hand for cash, hey, let's stop those dividends. I'm actually, generally speaking, in favor of companies paying dividends when they're profitable. But when you're essentially insolvent, when you're on - teetering on the verge of bankruptcy and the taxpayer is subsidizing you to the tune of almost a trillion dollars, well, that's not symbolic. That's real money; 40 billion a year is real money. A half-a-million cap on executives, it's sort of assuages the uprising of anger, but it really doesn't address the issue. Why are these companies paying people tens of millions of dollars in bonuses for losing billions of dollars? It's just astonishing.

BRAND: Though, a lot of people are saying, hey, you know, this is going to make the top-flight talent out there look elsewhere, maybe look abroad or get a...

RITHOLTZ: Yeah, where are these people going to go? Hey, listen, I was at Goldman Sachs, and I lost $18 billion. I'll only come and work for you if you give me a $10 million bonus. I think we'll hear the laughter, the peals of laughter, echoing down the halls of Wall Street, across the Atlantic, to London, to Hong Kong. The guys have been jumbo money losers. They ain't going anywhere quick. And if you actually look at what's happening at AIG, we just laid out, you know, tens of millions of dollars to retain these geniuses who managed to take a profitable, reasonable business model and turn it into a debacle.

BRAND: What about those who say, look, this is really too much government interference? I mean, not only are they limiting corporate pay, but they're also going to oversee the amount of money, for example, spent on office decorating.

RITHOLTZ: Well, you know, they don't have to take the government money. Tell you what. You guys go out on your own and don't take any taxpayer money. And when you come out of bankruptcy proceedings, we'll talk. But when you run a company into the ground and essentially, you know, drive the bus off the road into the ravine, you no longer have the ability to dictate to your rescuers, OK, I want some caviar and some croissant before you guys can come rescue me. That sort of discussion just doesn't work.

BRAND: Barry Ritholtz is an equity analyst, and he blogs for The Big Picture. Barry, thank you.

RITHOLTZ: Thanks for having me.

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