Posts Tagged ‘TARP’

He’s ‘Done’ It

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Expert Perspective from Grahall’s OmniMedia Editorial Board

expert perspective telescopeTwo articles this week addressed the comments made by AIG’s CEO, Robert Benmosche, as a result of limitations imposed by Kenneth Fienberg, The Obama Administration’s “Pay Czar”.   First on November 11, 2009  Wall Street Journal reporters Liam Pleven, Serena Ng and Joann S. Lublin tell us that “At a board meeting last week, the strong-willed industry executive told fellow AIG directors that he was “done” but agreed to think it over after other board members reacted with shock, according to the people.” (AIG’s Benmosche Threatens to Jump Ship  Chafing Under Government Oversight, Chief Executive Tells Board He’s ‘Done’; ‘An Impossible Situation’). 

Reaction: Cry baby!
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TARP and the Future of Executive Compensation

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Published in Board Member November 14, 2009 by Irv Becker and David Wise

The Troubled Asset Relief Program (TARP) has the Compensation Committees of participating financial institutions scrambling to understand and adapt to its rules and restrictions affecting executive compensation. However, Board members at other companies should be watching how organizations subject to TARP are changing their programs to satisfy the new requirements – as many of these provisions may likely become relevant for non-TARP companies in the not-too-distant future.

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Too Successful to Succeed?

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Executive Perspective by Robert Cirkiel and Garry Rogers

expert perspective telescopeThe recent article in the Wall Street Journal by Joe Bel Bruno titled “Goldman Pay, Trading Probed” got our Editorial Board blogging.  Mr. Bruno’s article states: “Goldman Sachs Group Inc.’s second-quarter results might have attracted some unwanted attention from the government. The investment bank said Wednesday in a regulatory filing that the government has launched investigations into pay practices and credit-derivatives trading. Goldman said it was cooperating with the request, but declined to give further details.”
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Pay Czar Quietly Meets With Rescued Companies

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Published in The Washington Post August 9, 2009 by Brady Dennis and Tomoeh Murakami Tse Washington Post Staff Writers

President Obama’s compensation czar has been meeting for weeks with executives at some of the country’s largest and most troubled companies as they face a Thursday deadline to propose how much they will pay their top employees.

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Will TARP impact the executive compensation plan design of non-TARP companies?

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business-strategy-chess-41Ask Our Experts:  Grahall’s Garry Rogers reflects on how TARP may impact executive compensation plan design.
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Risk through Rose Colored Glasses

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expert perspective telescopeExpert Perspective by Grahall’s Greg Loehmann

A June 28, 2009 article entitled “Treasury Expands TARP Compensation Rules to All Bank Employees, Puts Focus on Risk Management“  published in FinCriAdvisors.com, discusses recent Treasury rules intended to manage risk at TARP companies. The article says: “The rules require the bank’s compensation committee to limit features in pay plans to ensure that senior executive officers (SEO) and others “are not encouraged to take risks that are unnecessary or excessive and that the TARP recipient is not unnecessarily exposed to risks.” 
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SEC May Give Shareholders in TARP Banks a Vote on Pay

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Published in Bloomberg, July 1, 2009 by Jesse Westbrook

Bank of America Corp., Citigroup Inc. and other companies that haven’t repaid government aid may have to let shareholders weigh in on executive pay for top managers under rules proposed by U.S. regulators.

The Securities and Exchange Commission voted 5-0 today to seek feedback from investors and the banking industry on whether companies with outstanding debts should be required to give shareholders a vote on compensation. The rule would apply to banks that haven’t repaid funds received under the Troubled Asset Relief Program.

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It’s Better to be on the Bus than Under It

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expert perspective telescopeExpert Perspective from Grahall’s OmniMedia Editorial Board

The Journal’s Deal Column on June 18, 2009 titled “BofA’s Paying Bonuses to Keep Top Talent? Shocking!” the author discusses: “… the numerous pitfalls in regulating Wall Street pay. [And] the fear was that if Washington clamped down on compensation for all of Wall Street it would put the industry at a disadvantage globally. But by not regulating compensation for all of Wall Street, the Obama administration seems to be hoping that the banks that paid back TARP would follow the “best practices” the TARP banks are required to follow.”

But in the face of near overwhelming competition from overseas banks, non-TARP US banks and boutiques for the best talent, what’s a company to do to select, retain and mobilize key employees?  So far the prominent idea seems to be to pay and pay and pay.  But the question really leads us to a more important point.  That being: who are the organization’s key employees?  Who are those individuals who will really make a difference to the organization and whose contribution is critical to the organization’s success?  You can’t answer that question without understanding the organization’s business strategy.  For B of A and Citigroup, clearly a NEW business strategy is required, as the old strategy wasn’t working.  

As both taxpayers and consultants, we sincerely hope that the bonuses paid at Citi and BofA were reflective of a new strategy and intended to retain and motivate those individuals who will be, for them, the Czars of Change.

Citgroup’s CEO has announced that part of their new strategy will be to capitalize on the company’s strengths in the transaction processing arena with their Global Transaction Services unit (GTS).  “The credit crisis has indeed underscored the value of GTS’s high-margin, low-risk business, which derives its competitive edge from Citi’s global scale and technology rather than big trading bets” Says Julie Segal in an article in June’s Institutional Investor” (Read the full article.)

That commodity business might not deliver a powerful price to earning ratio increase for Citigroup’s stock, but it certainly could be the foundation on which a new a stronger Citigroup will be built.  And don’t discount B of A, with the 2008 bargain basement acquisitions of Countrywide and Merrill, they are well positioned with what will we think soon be highly valuable properties in their portfolio.  

With apologies to Joseph Schumpeter, “creative disruption” has been part of the business landscape for decades.   This time the TARP companies are in the eye of the storm.   The effect of this disruption is that a reshuffling occurs.  Those once “on top” can find themselves far down the pack as perhaps leaner and meaner competitors steal the best talent, picking them off one by one or in teams.  And we can’t blame the defectors, although while it isn’t always just money that provides adequate incentive for a move, if you can get more money for the same job somewhere else, the temptation is generally too strong to resist.

This Great Recession has impacted most if not all industries and business segments. No company that we can think of has the resources now to “just throw money” at people or problems.  Surgical approaches to compensation can help a company to select, retain and mobilize not just its best people but the people best suited to drive success in the future. 

A surgical approach requires a clear understanding of business strategy and what strategy segment the company will pursue.  For example, Harvard Business School Professor Michael Porter would suggest that a company’s strategy would follow one of three lines:  Cost based (think WalMart), Differentiated (think Mercedes Benz) or Focused (a combination of cost based and differentiated).  Once the company identifies it’s general business strategy and segment, a surgical approach is highly effective. 

Grahall has been at the forefront of designing surgical compensation strategies around appropriate market attachments that create true incentives to drive desirable and risk-appropriate behavior.   Once a company had decided what organizational capabilities are the key drivers of success, it can identify the positions in the organization that are most highly valued and therefore should be staffed by top talent, who are appropriately compensated to join and stay and work in those jobs.  

We have presented this surgical approach to clients who, in the past, have worried about the impact on corporate culture, but today in most companies cost is king and culture is a distant relative.  Companies no longer have the financial resources to make all employees happy campers.  The bus for Camp Profitability has left the terminal and you are either on it or under it.  

Email Grahall’s OmniMedia Editor at edie.kingston@grahall.com

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Treasury Expands TARP Compensation Rules to All Bank Employees, Puts Focus on Risk Management

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Published in FincriAdvisor.com June 28, 2009

TARP recipients beware: Treasury has severely limited incentive compensation plans for not just your senior executive officers, “but for everyone in the bank,” notes Henry Oehmann, director of national executive compensation services for Grant Thornton in Raleigh, N.C.

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Citigroup Has a Plan to Fatten Salaries

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Published in The New York Times  June 24, 2009 by Eric Dash

After all those losses and bailouts, rank-and-file employees of Citigroup are getting some good news: their salaries are going up.

The troubled banking giant, which to many symbolizes the troubles in the nation’s financial industry, intends to raise workers’ base salaries by as much as 50 percent this year to offset smaller annual bonuses, according to people with direct knowledge of the plan.

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