Last evening we watched in amazement as US politicians gasped with disbelief that taxpayer money would be used i) to pay AIG executives annual bonuses, and ii) that taxpayer money given to AIG would be siphoned through to its counterparties such as Goldman Sachs, Barclay’s and Bank of America.
Your editor’s first reaction is “what did the politicians think AIG would do with it? Keep it in a box?!” The politicians claimed all along that the bail-out wasn’t a bail-out, it was merely to inject liquidity back into the market. It is clear that the politicians had no idea what that actually meant.
Maybe if someone had explained to them at the time that the bail-out funds would ultimately end up with other banks they wouldn’t have approved it. But hang on, didn’t they also approve the direct bail-out of banks like Citigroup?
As for the bonuses paid to AIG, how can they claim they were not aware that AIG would pay its staff bonuses? Especially when they have used ‘excessive bonus payments’ as the scapegoat excuse for collapsing global economy. Did they really think that AIG would be the only Wall St firm not to pay a bonus to staff?
And then we read in today’s paper that “Institutional investors have proposed that executive pay be capped and amounts above a predetermined annual limit be paid as shares that do not vest for five years.”
It is nothing more than another pointless attempt to harness the free market. Every attempt to make executive remuneration more transparent and more accountable has failed. In yesterday’s Money Morning I wrote how it was pointless watching director’s purchases in their own company shares as it wasn’t really their own money they were using.
For a start it wouldn’t work. You can’t have a coverall cap across all industries. And what is to stop the board setting the cap at a ridiculously high level? Sure, they may start off in good faith, but eventually competition for executives would mean figures would get massaged. Yet again, the only result would be the further clouding of executive remuneration rather than improving it.
The only real solution is make the disclosure of executive salary levels voluntary and allowing individual executives and the board to negotiate their pay without artificial influences from regulations.