Top Employees Flee Pay-Limited Firms
Remember that plan by Obama’s pay czar to radically limit executive pay at bailed out banks? And how some of us were predicting that they’d just go to companies whose pay was not limited? Well, it didn’t take long.
Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart.
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies. “There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”
At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.
At American International Group, only 13 people of the top 25 were still on hand for Feinberg’s decision.
Alex Tabarrok does the math and notes that 23 of 50 is “close to a majority.” He guesses, and so do I, that a few more will leave now that it’s official.
Again, the issue isn’t one of “feeling sorry” for the executives whose pay the administration wishes to limit. There’s no reason to: The ones who can are simply going to go where they can command what the market will bear. The taxpayers who are holding the bag on tens of billions of dollars in bailout loans, on the other hand, might prefer not to have to staff these companies with those who can’t find jobs at the hundreds of firms who pay more than Feinberg thinks fair.