The curious task

Tsk tsk friends.

We've already devolved into discussing the proper way to structure the executives' pay.

It's not the proper role for the state to decide such things.

Period.

Least not in a free society.

"Least not in a free society."

Let me know if you find one. In the mean time, I'm busy forking over half of my depreciating earnings to a master who then uses it to squelch my values.

Is there an logical economic reason for their behavior, or are they just acting irrationally again. And do they believe that private industry will not look for an out. They(private industry) will play their best response, count on it.

... employees under his authority ...

If employees under Obama's authority don't like being under his authority, they know where to find the door. I'd be happier if Obama paid these guys in sea rations, poorly.

Since when did bondholders begin to have voting rights? I thought that was reserved for people with an equity position (stockholders). Perhaps the Banks should begin to regulate the salaries for councilmen and governors of the various municipalities, after all banks are the primary holders of municipal bonds. As a matter of fact, maybe they should extend this principle to all the U.S. government debt that banks own, or even to local businesses who look to banks for short-term financing.

Doesn't lower income produce lower tax revenue to the government? Now just how does that work?

Does this not produce less income for the government to tax? Now how is that going to work?

Not a problem for the politicians...they'll just "increase tax rates on the rich" to account for the lower income.

Of course, if the government would stay out of the bailout business, then the pay of the executives would be a matter for the owners of the entities to determine, as it should be. If the owners want to over or under pay their exec's, so be it.

If restricted stock was the right way to compensate executives, you'd think that it would be part of more compensation schemes, like it used to be 35 years ago. Let's see, what changed that? Oh, yeah, the tax code! First it was restricted stock, but the Congress didn't like that, so taxed it. Then it was stock options, but the Congress didn't like that, so taxed it and had the accountants pronounce against it. Then it was bonuses, but the Congress didn't like that, so prohibited them and tried to recapture them. Now it's salary. Maybe we should all just work for bribes, like the government does.

Shhhh.

These rules are just for public consumption. There will certainly be several loopholes designed into whatever system is adopted.

Did you know that you can avoid inheritance tax if you do a little planing and spend a few thousand dollars on a good trust attorney? If the law wasn't structured that way everyone would avoid the tax. That's not workable .

If you have a real good attorney and a business you can live very well and avoid all income taxes -- legally!


Law is written to appear fair -- and gets really creative when it addresses reality. Watching how it's done can really be entertaining, and I expect this will be no exception.

Pffft!

Most of the institutions the Commissar is targeting already have such a payment scheme. A portion of the comp is already paid in restricted stock that vests over a period of 3 to 6 years.

There are no loopholes around the vesting period and If you leave the firm before the vesting period, you forgo that bonus. That's why when firms hire desirable candidates they "buy out" the bonus. No loopholes required. Market forces will be what they will be.

"There are no loopholes around the vesting period and If you leave the firm before the vesting period, you forgo that bonus. That's why when firms hire desirable candidates they 'buy out' the bonus. No loopholes required. Market forces will be what they will be."

So ... there are no loopholes around the vesting period ... but you can get another firm to buy-out the bonus?

If the deferred compensation can be valued by a third-party and bought-out before it has matured -- then it can be converted into present-day dollars.

Basically, for the best employees, the vesting period is not an issue.

The only employees hindered by a vesting period are ones that are not in high enough demand to have their bonuses bought out by a competing firm. So, what is the pay commissar really accomplishing by tying the dudds to the firm more tightly?

That's right. But, that's not a loophole. That's the market valuing employees. Non-Wall Street firms also buy out bonuses to lure employees who are tied to such pay schemes in their current job.

The only people who are really hindered by the vesting period are the people who aren't in high enough demand for another company to buy out their bonus. So, what is the pay commissar really accomplishing here?

I seem to remember reading that the problem was that too much of their compensation wasn't in salary but was in bonus based on performance, thus encouraging them to make deals and take on undue risk.

If people respond predictably to incentives, and if the incentive is stock, what prevents the executives from focusing on the short-term to drive the stock higher? Even if the stock isn't accessible for a period of time, the incentive is still to drive it higher over time. Am I missing something?

Wall Street tries to variablize its compensation as much as it can.

Nobody would ever work for the base pay, so for most bank employees bonuses are just the portion of compensation that varies with the bank's fortunes. For the lower level employees the "bonus" is only nominally tied to performance (as in - we can lower your comp if we don't like you). For high level employees and especially for people who directly generate a P&L, the bonus is much more tied to the amount of money they actually make for the firm. There are far more lower level employees, obviously.

The usual pay structure is a base of $150K (which won't even rent you a decent apartment in NYC, let alone afford you a vehicle - especially not after paying the highest tax rates in the country) and then a bonus based on the amount you make for the firm. So, a guy making $10MM will have a base of $150K and the rest is bonus. It's different for officers of the firm - more of their comp is base.

So, good luck to the commissar with his little plan. I can't wait to see how these Wall Street guys are planning to outsmart him.

"Kenneth Feinberg is planning to shift a chunk of an employee’s annual salary into stock that cannot be accessed for several years, these people said. Such a move, the most intrusive yet into corporate compensation, would mark the government’s first effort to curb the take-home pay of everyone from auto executives to financial traders."

Several years? What a fraud of a system. The best money can buy.

Hey Kenny boy, how about pushing for term limits?

"So many things the government does are attempts to circumvent the bad things caused by something else they already do."

No corrections and enough iterations, and you you may find yourself headed down, well, The Road to Serfdom ..

There's no use in expending the effort to induce a heart attack in your patient if you can't rush to his aid and become a savior. -- SheetWise

So-called progressives have an alarming tendency of assuming that people move in a straight line and at a constant speed until some government force nudges them this way or that. Man is a creature of habit -- with no ryhme nor reason for action -- who will continue along whatever trajectory he is on until redirected toward a more noble or productive path.

But man is a kind of matter that anticipates, prepares, second guesses, and calls bluffs; he responds to the plans of others by changing his own plans, and thus throws the expectations of progressives into disarray. The task of directing an economy of such matter -- already difficult -- is made impossible by the interplay between those planning and those being planned for.

But man is a kind of matter that anticipates, prepares, second guesses, and calls bluffs; he responds to the plans of others by changing his own plans, and thus throws the expectations of progressives into disarray. The task of directing an economy of such matter -- already difficult -- is made impossible by the interplay between those planning and those being planned for.

Which is why man must be denied the opportunity to make his own plans.

Like picking up mercury with your fingers.

I love the word praxeology -- as I think you do ;)

Actually, it's strange. I don't like Mises very much, and the word "praxeology" is aesthetically displeasing. Is sounds like it could be an insult or a disease.

This is all fine and well lee_kelly -- but it doesn't fit our narratives, and provides too little information to fit into our models. Would you do us the favor of pre-defining your preferences so as to allow us the opportunity to prepare an array of options that suits everyone?

No doubt the anti-capitalists and Micheal Moore movie goers will rejoice.

Where in the Constitution is that legal?

You're using the Constitution as a legal standard? How quaint.

Where in the Constitution is virtually anything that the government has been doing allowed and enumerated?

My knowledge of economics is casual (I'm wearing sweat pants and a t-shirt) but I've learned to always "remember my Hayek." That can be very frustrating however.

Kind of like having some sort of vague ESP; you know the people around you are moving towards a train wreck, but you can't say exactly which turn the train will derail. But it will derail.

When I used to do more editorial type stuff for people, I had a couple pieces where Hayek is yelling at a passing runner. The runner being Uncle Sam moving in the direction for which a sign says "The Road to Serfdom." You know, running on a road, the road sign says. . . aw never mind.

It was too esoteric for most editors too.

"The curious task of economics" is a good quote. Mostly because it differentiates people -- by how they react to it.

Since you're wearing sweat-pants and a t-shirt, and I'm wearing my pajamas -- I'm tempted to say that we understand what others don't -- or even that we understand more than those who change from their dinner to smoking jackets as a ritual.

But to me Hayek meant we should always understand how limited we all are -- even if we can ace Jeopardy. It's the people who are really smart who need to learn the lesson.

I'd like to see President Obama and his cabinet on "Are You Smarter Than a Fifth Grader"...

(My daughter watches it. At first I thought it was silly -- but I like the show, and it really makes Hayek's point).

I'm not trying to be partisan -- I'd also like to see Bush and his cabinet on the show. But not nearly as much as I'd like to see selected members of congress on the show.

I remember Reagan talking about why actors were paid so much. It was the 80-90% tax rates that earned them $8k a week in the 40's and 50's. The studios simply had to pay them enough that even after their taxes were paid they could still afford to represent the lifestyle that made the studios money.

Had the tax rate been 99%, I'm certain the studios could have ponied up $80k per week -- it would simply have meant increasing ticket fares one to two cents.