Bailout Barons’ Bounty

The top five executives at the 20 US banks that have accepted the most bailout support averaged $32 million each in personal compensation in the period 2006 -2008, according to a new study published by the Washington-DC based Institute for Policy Studies. At the same time more that 160,000 employees have lost their jobs. In 2008, the 20 CEOs at these firms each averaged $13.8 million, for a collective total of over a quarter-billion dollars in pay.
In its 16th annual survey on executive pay, “America’s Bailout Barons—Taxpayers, High Finance and the CEO Pay Bubble,” the Institute makes a timely reference to the discrepancy between CEO pay and regulators’ salaries. Specifically, the top 20 executives’ took home on average 85 times more than SEC staffers. The survey said the pay divide “breeds corrosive and ever-present conflicts of interest and encourages regulators to view Wall Street firms as lucrative future employers”. The independence and funding of the SEC has been a sore point for many US investors in recent years and the announcement from US Senator Charles Schumer introducing legislation to address these concerns is likely to be well received.

The study revealed that many of the executives at financial institutions stand to profit handsomely from U.S. taxpayers’ handouts. These firms granted new stock awards to their executives earlier this year as their share prices tanked, and, now, thanks to the bailout, the value of these awards has grown. Based on rising stock prices, the top five executives at 10 of the 20 bailout firms that have reported details of stock options granted in early 2009 have reaped a combined increase in the value of their stock options of nearly $90 million.

The Institute is also openly critical of the US government’s response to the banking crisis and attempts to control boardroom pay. “The restrictions on CEO pay put in place since the bailout began do not in any fundamental way challenge the excessive pay rates that have become, over the past 30 years, standard operating practice in America’s financial and corporate boardrooms,” the Institute said.

Commenting on the role of shareholders and the independence of compensation committees, IPS Director John Cavanagh said: “Governance problems do need to be resolved, but unless we also address more fundamental questions – about the overall size of executive pay, about the gap between the rewards that executives and workers are receiving – the executive pay bubble will most likely continue to inflate.”

“Public officials in Congress and the White House hold the pin that could pop the executive pay bubble,” said IPS Senior Scholar Chuck Collins. “They have so far failed to use it.”


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