The Cash for Clunkers brouhaha (translation: utter confusion) reinforces the view that the U.S. government’s doing an awful lot of improvising lately. (And not so lately – last fall’s rescue-the-economy efforts by the whithering Bush administration were most definitely off-the-cuff.) Obama’s healthcare reform effort has unfolded in an oddly ad hoc manner. One would have expected a savvier campaign – from the consummate campaigner, after all – to win over Congressional and, er, normal hearts and minds. The president’s impetuous comment about the Gates arrest was of a piece. And now, Cash for Clunkers: Is it being suspended or isn’t it? Will it get more money or will it stall at $1 billion? Answer: The House of Representatives has dumped another $2 billion into the program today but whether the Senate will okay the funding remains unclear – and what all this means for clunker-owners is murky. Peggy Noonan had it right when she recently wrote that the president’s trying to do too much, too soon and, I might add, a bit too haphazardly. Of course, it’s not just the Prez. The Congress is also deep in improv mode – especially the Republican Party as it continues wrestling with its post-Bush identity crisis. Who and what is the GOP, exactly? All this said, some of Washington, D.C.,’s machinations over helping Americans dump their rusty heaps would be charming if the attendant politicking wasn’t so very aggravating. Here’s WSJ colleague Joe White, coining the term “Clunker Follies,” with a Clunkers primer.
Archive for July 31st, 2009
Auto Industry, Environment, Politics, Washington / 2 Comments
Corporate Finance, Corporate Governance, Executive Compensation, Securities & Exchange Commission, Wall Street, Washington / Comments Off
“Inappropriate or imprudently risky compensation practices.”
That’s the phrase that jumps out from just-passed legislation by the U.S. House of Representatives that aims to generally rein in pay for top executives of significantly sized, publicly traded financial institutions.
There are sweeping rules for all public companies, mainly a non-binding annual ‘say on pay’ for shareholders, but the banks and other financial services companies come in for the brunt of regulatory force in the House bill, passed today by a 237 – 185 vote.
That top quote promises the potential for an awful lot of mischief by federal regulators who are asked by the legislation to proscribe their perceived inappropriate pay as part of solvency regulation.
No argument here about who brought us to this pass – some reckless pay schemes at foundering financial firms, partly detailed Thursday by the New York attorney general.
But even the short termism, greed and utter lack of proportion described in the Andrew Cuomo report don’t justify this solution: a significant chunk of financial company pay plans subject to veto by unelected regulators who won’t necessarily have the best long-term interests of the companies or their shareholders at heart.
It is a sorry state of affairs. The bill, which according to Dow Jones Newswires reporter Michael R. Crittenden has an uncertain future in the U.S. Senate, also mandates board of directors compensation committees be populated only by independent directors.
That’s a good idea, but really, why bother when another part of the bill essentially tells boards of big financial companies (over $1 billion in assets) the boards don’t get to set executive pay – the unconnected regulator essentially does.
It makes the worthy effort to mandate all public companies allow “majority” votes for directors seem a bit beside the point.
Again, it’s easy to blame the boards, many of whom weren’t up to the task of truly aligning performance with pay, though a lot of lip service has been paid to the concept. But putting the government in charge of such an essential element of a free enterprise system doesn’t resonate as the right answer.
Maybe it would be better to suggest, or even force, some actual practices that likely would better align performance with pay, rather than giving regulators the veto gun.
Stop short termism by tying bonuses and other payouts to a years long system, with the caveat that if the corporate profits reverse because of overly risky or otherwise unsustainable strategies, so does the incentive pay.
New York Attorney General Cuomo’s report said “bank compensation structures lacked consistent principles and tended to result in a compensation system that was all ‘upside.’”
Granted, but the people likely to solve that issue are those with the most directly at stake: large shareholders and directors. Not Uncle Sam.
The global currency markets are enjoying (or enduring, depending on one’s point of view) a period of extraordinary stability, with major currencies like the dollar, euro, yen and sterling locked in tight trading ranges, according to an analysis by Katie Martin of Dow Jones Newswires. This reduced volatility – after a period of wild swings during the worst moments of the global financial crisis – is good news for companies seeking to plan ahead, but bad news for currency market professionals (foreign exchange traders tend to make more money during periods of high volatility). Another benefit for the corporate world is the cheaper price of hedging against future currency volatility. Katie quotes an analysis by Nomura, which calculated that currencies have been in an unusually tight trading range for a period of 90 days. In the past, there have been only two longer periods of such stability, the Japanese bank says, of 95 and 99 days. Indeed, the euro has been quoted close to $1.41 and the pound close to $1.63 for several weeks.