Government to Cut Executive Comp?

According to the New York Times, the Obama administration will order companies that received billions of bailout dollars to cut the compensation of their 25 highest paid executives by an average of 90% as compared to the total compensation they received last year. For all executives at these companies, total compensation will drop, on average, by 50%.

The government-imposed compensation plan is not complete yet, and the Times report is somewhat confusing as to what all this will really mean. At one point, it’s said that for “many of the executives, the cash they would have received will be replaced by stock that they will be restricted from selling immediately.” Unless the companies go bankrupt, however, the executives will be able to sell the stock eventually and will possibly make a huge profit at that time.

At another point, it’s said that executives won’t receive “other compensation, like stocks or stock options.” Well, which is it? In the past, when executives have voluntarily forgone bonuses during a down year, they’ve been given extra options or restricted stock, so they really don’t lose anything. The payment is just delayed.

If the Obama plan is similar to this past practice, then nothing has changed. The announcement of this plan simply makes for a big headline. It will be interesting to examine the details of the government plan. That’s where the devil usually is.