A Talk with the Pay "Overseer": What's Fair?

Kenneth Feinberg will review compensation for executives

Thursday, June 11, 2009

The Obama administration has announced the appointment of a compensation czar who will regulate executive pay at seven of the largest companies getting TARP (Troubled Asset Relief Program) funds. He will also develop a compensation structure for 80 smaller companies. The man who is taking on that job is Kenneth Feinberg, a Washington, D.C. attorney who was in charge of the September 11th Victim Compensation Fund. He joins The Takeaway to tell us about his plans. (Click through to read the interview.)

"Let everybody know exactly what we're doing, why we're making these decisions, why we feel they're the right decisions, and let the public then decide for themselves with full disclosure." — Compensation overseer Kenneth Feinberg

John Hockenberry: So the news yesterday, of course, Treasury Secretary Timothy Geithner announced the appointment of a compensation overseer, a so-called pay czar who will regulate executive pay at seven of the largest companies getting so-called TARP funds, the federal bailout money for the financial sector that also includes Chrysler. He’ll also have a hand in how executives are paid at 80 smaller companies. The man taking the job is familiar to listeners of this program, and to you generally: Kenneth Feinberg, Washington attorney perhaps best known for his role as special master of the September 11 Victim Compensation Fund. Mr. Feinberg joins us today from Washington. Welcome back to the program, Kenneth Feinberg.

Kenneth Feinberg: Thank you.

John Hockenberry:My first question is why would you want to get involved in this? It doesn’t have the same sort of moral consensus. The math is much more daunting, it seems to me. And I can’t imagine you’re going to make anybody happy in this job. If you forgive me for asking, but that’s on the top of my head here.

Kenneth Feinberg : You may be correct. It’s very, very difficult to say no to the Secretary of the Treasury and the Obama administration when they ask you to help perform a public service. That drove me to accept this opportunity, the opportunity to try to work this problem out.

John Hockenberry:And we’re glad that you did. How is your role and your process going to be different than a compensation committee in a corporate board room?

Kenneth Feinberg : Well, it’s unilateral. It’s me alone. But I must say that this adjective, this notion that I’m a czar, is very, very unfortunate. I am not aiming to impose some sort of imperial edict on corporate America or corporate officials. I’m hoping that working together and working in a way that will both promote a solution here, it will be a cooperative joint exercise. I’m really not here to impose my rule as a czar would.

John Hockenberry:Got it. That’s the last time we’ll mention the word czar. So 175 executives, potentially, are under your purview in one way or another. It seems to me that regardless of your autonomy here or your authority here, you’ve got Timothy Geithner, the treasury secretary, who used to make about $400,000 who now makes about $191,000. He’s already taken a 60 or so percent pay cut. He’s not going to blink at even cutting in half the salaries of some of these bankers. Going in, it’s a pretty daunting mission it seems to me.

Kenneth Feinberg : I think it is. But remember, the real key thing here isn’t only what the dollar level should be. The real important aspect of this, when you read the regulations creating this job, is to somehow tie compensation to profitability, to improvement in the economy, to avoiding excessive risk-taking, to assuring competitiveness among companies. Every bit as important, maybe more important, than the dollar level, is what the dollar level is tied to in terms of fixing compensation. That, I think, is the heart of the matter.

Farai Chideya: Ken, this is Farai. We spoke earlier with Peter Morici, professor of business at the University of Maryland, and I asked him about compensation that essentially comes from stock options and other forms of ownership. What do you think, theoretically at least, I know we’ve seen some flaws in this, stock prices are tied to performance. Should stock options be more of a package or less of a package?

Kenneth Feinberg : Again, I don’t think one size fits all. You have to look at the company, the historical importance of options within that company. I think there’s a vast difference between discussing with corporate officials at Bank of America or Citibank what the compensation system should look like as opposed to, say, General Motors or Chrysler. I think stock options are one example of a compensation package that should be put on the table. But I really do believe going into this job that we’ve got to tie compensation, unlike the past 10 years, we’ve got to tie compensation to some economic financial variables where you’re rewarded for success, and you’re punished for lack of success. I think that’s going to be the key to all of this.

John Hockenberry:That seems to me, and I’m not an economist, an argument to put all these bankers on commission, like salespeople. You sell something, you get paid. You don’t, you lose. Just forget the salary, forget the bonus. You make money, you get money. Just like an investor, you lose money in the stock market, you lose. Sorry.

Kenneth Feinberg : I think there’s a lot to be said about that as long as you understand that everybody, no matter what your employment or your profession, there has to be some sort of base compensation. But I agree that somehow you have to tie compensation to performance. I think that’s going to be a critical part of all of this.

John Hockenberry:You know the thing that worries me here. It worries me for you. Potentially, this is the Obama administration putting the political heat on you for something they don’t want any part of. How do you A) Get the assurance that that’s not the case, and B) Prevent that from happening? Because you know how Washington works.

Kenneth Feinberg : I don’t worry about that. I go into this with my eyes wide open. The secretary has been enormously helpful to me. I’ve met with him on a couple of occasions. We’ve talked about the assignment. I think that, as with the 9/11 fund, I think the administration will back me 100 percent. I don’t mind walking the plank on some of these individual decisions, it goes with the territory.

Farai Chideya: What do you get out of this? I have to ask a question of self-interest. This is the kind of job that a lot of people would hate. Other people would love because it confers a lot of power whether or not you call yourself a czar. What do you get out of it?

Kenneth Feinberg : The satisfaction of working in the public interest. It may sound a little corny, but I think millions of Americans would gladly do what I’m doing. This exciting new administration has asked me to perform this service. I’ve always had a real public interest bent to my profession, and I’m more than honored by being asked to do this.

John Hockenberry:In the public interest, let’s explore that a little bit, how do you prevent your process from becoming what to some Americans may seem very appropriate, from becoming punitive against people like Vikram Pandit at Citibank, people who have been in the news, people whose numbers of compensation over the past are just astronomical and people just want them brought down to size in some sense. How do you prevent that?

Kenneth Feinberg : That is a real concern. There’s a real historical tension here between this popular sentiment, widely pervasive, that we should not be compensating these banking and corporate officials with this competing view, historically, that federal government ought to stay out of the business of micromanaging private marketplace concerns. I think you have to be ever-vigilant to the punitive concern. One way you prevent it or undercut the likelihood of it, is the same way we did it with the 9/11 fund: full transparency. Let everybody know exactly what we’re doing, why we’re making these decisions, why we think they’re the right decisions, and let the public then decide for themselves, with full disclosure, here’s why we did what we did.

John Hockenberry:You’re a student of history and I can’t help but ask this question: there’s a lot of comparisons between what is going on right now and the Great Depression. But I’m wondering if a better comparison is what happened in the progressive era under Teddy Roosevelt when it was the trustbusters and going in and breaking up the huge corporations. Do you think the attitude that you describe there would be any different if it was Teddy Roosevelt appointing Ken Feinberg a century ago to go in and change the structure of corporate America?

Kenneth Feinberg : I have no idea looking into a historical crystal ball what would’ve happened if President Roosevelt had said, “Let’s ask Kenneth Feinberg to break up the railroads or the trusts.” I’m happy to be doing this in 2009.

John Hockenberry:It sounds like you may consider this maybe a simpler job than what Roosevelt might have appointed you to.

Kenneth Feinberg : Well, it’s different. It’s different. I do think that just as with Roosevelt, though, I do think that there is this tension. It’s sort of interesting, when you ask the man on the street what they think about this, you get two answers: Go get them, punitive. They caused this go get them. But there are an awful lot of citizens who say, Mr. Feinberg, get in and get out. This is not the government’s business. It’s a bad precedent and even though the government loaned these companies this money, the sooner you complete your task and go back into private life, the better it will be for everybody.

John Hockenberry:Kenneth Feinberg, I have to say that it is morally affirming to hear the enthusiasm which you approach this very, very challenging job. It certainly speaks volumes about the notion of public service.

Kenneth Feinberg : Thank you.

Guests:

Kenneth Feinberg

Hosted by:

Farai Chideya

Contributors:

Nadia Zonis

Comments [1]

Judith

Of course the executives need overseeing and need transparency. They took the money from the governmen (us), contributed heavily to the financial situation in the country today. All this while being paid tons for doing poorly in their jobs.

BTW, I strongly dislike the term Czar - it sounds 'third worldly' or like something a 14 year old gamer would use.

Jun. 11 2009 09:45 AM

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