Will compensation cop 'claw back' TARP-paid bonuses?
Kenneth Feinberg -- AKA the comp cop -- is the point man for deciding how much top executives at financial institutions (FIs) with TARP money will get paid. Not only can he decide how much the top 25 executives at these FIs will make, but he can attempt to get them to disgorge the money that they've already paid themselves. But should the comp cop "claw back" those TARP- paid bonuses?
It's not exactly clear how he'll decide. It seems to me that his job balances the need to sop up the populist rage against these FIs for using taxpayer money against the risk to that same taxpayer of losing his or her investment if the FI in question loses its money-making employees who bolt when they are forced to repay their bonuses or get better paying offers elsewhere.Take Citigroup (C), whose oil trader Andrew Hall is set to make $100 million in pay. Citi has $45 billion in TARP money and another $301 billion in loan guarantees from the U.S. Bloomberg News reports that the U.S. is trying to get Hall to take his compensation in stock rather than cash for his rumored-to-be-profitable Phibro unit. But it looks like if the comp cop forced Hall to take stock, rather than cash. he would bolt to another FI that would pay him the $100 million he thinks he deserves. Does that mark the end of Citi's ability to make money trading oil?
It depends on whether Citi's oil trading desk has any bench strength. By that, I mean that there may be other people trading oil for Citi who could come up with trading ideas that make just as much money or more than the ones that Hall has dreamed up. I would be a bit surprised if any one person is so important to such a big FI that losing him or her would severely damage its profits.
Now CNBC reports that the comp cop not only can determine how much people like Hall get paid this year, he can try to get them to repay their bonuses from 2008, when their employer first got the TARP money. Feinberg goes so far as to suggest that he could try to get Goldman Sachs Group (GS), which paid back its $10 billion in TARP money, to repay the billions in bonuses that it paid its people.
Companies that lose money should not pay bonuses to their employees. So I think the comp cop should claw back the bonuses of those TARP institutions that can't earn a cash profit and force them to pay their bonuses in deferred stock options until they actually do earn a profit. I doubt that these FIs will lose talent that has not already bolted to a hedge fund or other FI that is not subject to the risk of "clawback."
And the political popularity of getting back those ill-gained taxpayer-funded bonuses will do wonders for those seeking re-election.