Stress Tests, But No Change

For months, we’ve all been under stress. Most of us have been been stressed because of uncertainty. Those who’ve lost jobs, health insurance, houses, college education, and hope have experienced unrelenting stress.

Yet it’s the banks largely responsible for stress unknown since the Great Depression that are being tested for stress. Later today, the results of these stress tests will be revealed. It appears the banks will fare better than feared. Some might need no more bailout money. Some might be able to return some bailout money. A few may need more, and they’ll get it.

To hear the banks tell it, most of their stress has come from government imposed rules on their operations. They yearn to be regulation-free, particularly when it comes to executive compensation, In fact, banks have been saying they want to return the bailout money – not because they’re ashamed of taking it, not because they’ve put their houses in order, not because they now repent of living on Fantasy Island way too long — but because they don’t like the government restrictions placed on executive compensation.

Enter a special report on CEO compensation by Forbes Magazine, showing that the ten highest paid CEOs in 2008 made between $646.6 million and $98.21 million. The highest paid banking CEO pulled in $99.8 million. During the worst recession since the 1930′s when millions of workers lost their jobs and the federal government doled out trillions of dollars to businesses run by fat cats, the fattest got fatter.

Unfortunately for most Americans, their stress is unlikely to end soon, and meaningful change in the way businesses are run and their executives rewarded won’t ever occur. There’s a big divide between the compensation of executives and that of regular employees, and there should be. It just shouldn’t be surreal.

1. 

   Maggie Mentel says:

   May 8, 2009 at 11:35 am

   While I am not in favor of capping an employee’s success or accomplishments, I do feel that compensation should be tied to these accomplishments. Tying them to longevity or presenteeism is a form of unionization. We have allowed business, and in particular, banks to run amouk with their compensation policies. Where are the Board of Director’s Compensation Committee in setting the parameters of compensation???

   As a potential stockholder, I will pay much more attention to compensation policies in the future.
2. 

   John Phillips says:

   May 8, 2009 at 12:07 pm

   Maggie,

   Thanks much for your comment. Good points. I particularly like your union analogy.

   Most boards are pretty clubby. They’re friends of the CEO and are often CEOs themselves. Thus, there’s a reluctance (understandable but unfortunate)to scrutinize executive comp until it’s too late. You’d think the last year’s crisis would have caused a lot of boards to change their ways, and while I’m sure a few have, it’s still pretty much business as usual.

   Thanks again.

   John