Say-on-Pay Simplified

12/04/2013 04.24 EDT

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With “Say-on-Pay” and Dodd-Frank being practically household names, perhaps it is time for a 101 version in case you missed it.   With the financial crisis in 2008, the United States government developed the Troubled Asset Relief Program (TARP), which was set up to buy assets and equity from financial institutions to strengthen the financial sector.  It was signed into law by President George W. Bush on October 3, 2008, and it was a component of the government’s measures to address the subprime mortgage crisis.  TARP originally authorized expenditures of $700 billion.   Out of this same financial crisis, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was born, with its fundamental purpose being to rein in Fannie Mae and Freddie Mac.  It also reduced the amount authorized by TARP to $475 billion.  Barney Frank has described TARP as “highly successful and wildly unpopular.”   Fundamentally, over several years, tons of risk was being taken in the housing market by financial institutions that did not suffer any consequences.  These actions created significant economic change, which required a BIG change in legislation.  Translation: loans were made by people who were going to sell the loan, with the incentive being to issue many loans with little concern for borrowers’ ability to pay them back.  Not a good thing.   We saw the Lehman failure followed by the AIG failure.  None of the debts for Lehman were paid, while “all” of the debts for AIG were paid.  However,...

Post Recession: Executive Pay on the Rise

01/04/2013 02.46 EDT

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In the years leading up to the recession, the talent market was hot. Unemployment in 2007 was hovering in the 4.5 percent range and U.S. GDP growth – while not as robust as the late 1990s – had recovered nicely from the business and geo-political turmoil of the early part of the decade.   These factors created a business environment where the need for new senior executive talent was at a premium, and the price companies were willing to pay for such talent showed it.   In a recent study of our executive placements since 2006, we found that executives changing jobs in the two years leading up to the financial meltdown enjoyed a windfall in terms of compensation increases. On average, they were receiving an increase in total compensation of almost 25 percent.   Executive pay drops with the economy – 56% in 2 years   Adding to low unemployment and high GDP growth, a key demographic issue seemed to be fueling this increased appetite for talent: the upcoming mass retirement of the Baby Boomer generation. The eldest of the Baby Boomers were turning 60 in 2006. They had recouped their investment losses, their retirement accounts were bursting at the seams, and they appeared on the verge of enjoying the “New 40” at their leisure. Then, well, you know the story.   As the enormity of the financial meltdown took hold in late 2008, it threw U.S. corporations into turmoil. At first, they were paralyzed and began instituting hiring...