So it really does sound like Ken Feinberg is on the right track. I like the idea of cutting cash salaries to under $500,000 for top executives and shifting compensation toward long-term stock grants, which the Journal says wouldn't be touch-able for at least four years (with the possible exception of companies that pay back their bailout money early). One question: What happens to the stock if the executive leaves the firm sooner? According to the Journal, Feinberg wants the long-term grants to start this year. If leaving prematurely led to some forfeiture of stock, then any executive who wanted to leave as a result of the new compensation scheme would have to do so in the next few weeks or else leave a lot of money on the table. Which would seem to cut down on the volume of defections.
My only real concern here is AIG-FP, where no employee will receive total compensation of more than $200,000. That seems a bit extreme to me--not because I hold any brief for the AIG-FPers, but because we want these guys unwinding their trades in a way that maximizes value for taxpayers and proceeds at a reasonable clip. It's not hard to imagine people who've seen their salaries fall 70, 80, 90 percent not throwing themselves into a task like this. Or, worse, leaving with a lot of proprietary information--which would at best weaken the unit's ability to liquidate itself and could even be used by competitors to trade against AIG's positions.
Finally, this is pretty interesting:
At Bank of America, executives worried about how the changes will be received by the global banking and markets group, run by Thomas Montag and home to a number of highly paid investment bankers, executives say. Mr. Montag is among those expected to have his pay slashed, even though his total compensation may still appear large by non-Wall Street standards.
The bank has lured a number of new recruits to this group in recent months, in some cases with multiyear guarantees.
As I mentioned last week, one of the reasons that Bank of America and Citigroup had such lousy results last quarter while JP Morgan Chase did well is that JP Morgan's investment banking business was pretty profitable while the other guy's I-banking business flagged. Which is to say, Bank of America may see I-banking as its only hope for profitability in the short-to-intermediate term, when high unemployment will really crimp its consumer lending business. Again, I'm really supportive of the new compensation structure. But if BofA is depending on these high-priced I-bankers to drive its earnings for the next several quarters, you can imagine why they'd be nervous about restrictions on their ability to motivate these guys with, say, big, short-term bonuses.
Then again, Citi seems okay with the new restrictions. "At Citigroup ... officials say the review isn't causing the upheaval some feared," says the Journal. So either Citi knows something BofA doesn't, or they're just bowing to the reality of a long slog rather than casting their lot with more short-term fixes.