Treasury Department Compensation Master Kenneth Feinberg now plans to tie employee compensation to their TARP-funded company’s stock price, reports the New York Times. Should business falter, bonuses would not be administered. Incidentally, those restrictions were made as part of Merrill Lynch’s compensation plan in 2006, two years before the company collapsed and was purchased by Bank of America. One weak spot in Merrill’s plan was that employees were not deterred from taking unwise risks, causing the brokerage giant to fall into the hands of Bank of America. NYT writer Louise Story questions whether Washington can really control pay on Wall Street and whether Feinberg and federal regulators can back up their efforts to ensure their plans work. “Hindsight in these plans is 20/20,” said Charles M. Elson, a professor of corporate governance at the University of Delaware. “Feinberg is going to be coming up with a model for the bailed-out banks, and the question is, will he use a model like this? He can’t possibly know what the next few years will bring for these companies.” In January, the Merrill plan will expire and stock held within it will be awarded to executives who are still at Bank of America or those who have retired. Most executives have broken even and the top six executives will if Bank of America’s share price reaches $30 by January, from its current value of $17.35 now. Regular investors couldn’t expect to break even unless the stock price quadrupled.
Feinberg May Rein in Employee Pay
Kenneth Feinberg may extend his compensation limits to other employees at TARP-recipient companies.
October 8, 2009