Category: Diversity

Fed hits banks with sweeping pay limitsThe Wall Street Journal – Oct. 23, 2009
(Copyright (c) 2009, Dow Jones & Company, Inc.)

By Aaron Lucchetti, David Enrich and Joann S. Lublin In a one-two punch at the pay culture of banks and Wall Street firms blamed for the financial crisis, the U.S. government announced plans to aggressively regulate compensation at thousands of lenders and impose steep pay cuts at seven companies that received billions in federal aid.

While the moves had been anticipated for weeks, Thursday’s separate announcements by the Federal Reserve and Treasury Department represent unprecedented federal intervention in pay decisions traditionally left to boards and shareholders.

The crackdown is likely to influence how financial firms pay top executives, traders, loan officers and others whose actions could threaten the soundness of the institutions. Compensation experts said it would be hard for companies to escape the new oversight, though individuals could do so by jumping to hedge funds, private-equity funds and other financial firms beyond the reach of the new curbs.

The central bank moved to incorporate reviews of compensation into its routine regulatory process, a step that will affect large and small financial firms across the U.S. as well as American subsidiaries of non-U.S. financial companies. Some state regulators said they plan to issue similar requirements for state-regulated banks not covered by the Fed plan.

“I think it will make an important difference” because many banks have been reluctant to change their pay practices unilaterally out of competitive worries, said New York’s banking superintendent, Richard Neiman.

As expected, Treasury official Kenneth Feinberg said cash salaries paid to the highest-earning executives at seven companies getting exceptional federal aid will be capped at $500,000, while the group’s total pay level, annualized, will be 50% lower than a year before.

Some bankers and outside experts said Mr. Feinberg was overstating the extent of the cuts. Many bankers will continue to enjoy seven-figure pay packages, including one who will receive $9.9 million. Of the 136 employees whose pay Mr. Feinberg reviewed, 29 are on track to collect total 2009 pay of at least $5 million, according to documents released by Mr. Feinberg. And his calculations of 50% cuts in total pay for the top 25 at each firm from a year before depend partly on departures of certain highly paid employees.

The rulings will be effective for just November and December; employees won’t have to repay salaries already received. But the rulings will become the starting point for next year’s salary figures and until the companies repay their government aid.

To make sure firms follow the new rules, Mr. Feinberg imposed reporting requirements on top executives and directors. He said he hopes the standards “will be voluntarily picked up” throughout corporate America.

The rulings cover the highest-paid 25 employees at each of the seven heavily aided companies: Citigroup Inc., Bank of America Corp., American International Group Inc., General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial.

Mr. Feinberg said he will have to approve pay for the next chief executive at Bank of America. He already pushed outgoing CEO Kenneth Lewis into giving back $1 million he received so far this year and forgoing the rest of his $1.5 million salary for 2009.

Some critics said that Mr. Feinberg was too soft on the banks and that his main accomplishment — forcing firms to use more stock and less cash when paying employees — didn’t go far enough to rein in compensation. “We’re worried that it’s shifting from one form of compensation to another and still letting people get away with some pretty outrageous things,” said Sarah Anderson, an executive-pay analyst with the left-leaning Institute for Policy Studies in Washington.

While the Fed didn’t propose pay caps, it said it will review compensation policies at “28 large, complex banking organizations,” which it didn’t identify. It will be a “horizontal review” that in effect compares them to one another. The Fed also proposed that pay of traders and other employees be linked to the risks taken to achieve returns. So if two people generate $1 million in revenue each, one who took more chances could be paid less.

Analysts noted that one surefire sign of risk — bets that use a lot of borrowed money — could stay out of style if the Fed uses risk-adjusted returns to assess how employees should get paid.

Morgan Stanley, Credit Suisse Group and some other Wall Street firms already have moved to overhaul pay, including shifting more of it to salary.

Some small-town bankers are resentful of the coming scrutiny by the Fed, blaming many of the foolish loans and reckless trades that led to the financial crisis on larger institutions. “We’re all having to pay for the sins” of the big banks, said Rusty Cloutier, CEO of MidSouth Bancorp Inc., Lafayette, La.

Since the spring, banks have been fretting over the effect of a provision in the economic-stimulus law that restricts bonuses — historically the lion’s share of top bankers’ compensation — to a fraction of salaries. The worry has been that the combination of this provision, inserted by Sen. Christopher Dodd (D., Conn.), and coming salary curbs by Mr. Feinberg would severely depress overall compensation.

At Citigroup, some executives were relieved Mr. Feinberg’s demands were not tougher. While salaries will be paid more in stock than cash, their total values aren’t expected to shrink in most cases, said people familiar with the matter.

Citigroup executives have been worried that severe curbs could spark an exodus of top traders and bankers. That hasn’t happened. Citigroup has suffered many high-ranking defections, but those executives say their departures didn’t stem from dissatisfaction with pay.

Citigroup said it is “pleased this decision has been issued and we will now work to comply with the plan’s requirements.”

Bank of America officials reached out to those affected by the Feinberg ruling to reassure them pay is “still very healthy,” said a person familiar with the situation. But some remain concerned the firm may face trouble recruiting in its global banking and markets group, run by Thomas Montag — who was identified by people familiar with the matter as the person with the $9.9 million pay package, one of the largest disclosed Thursday by Mr. Feinberg.

By its very nature, life is dynamic. That makes it impossible to truly stand still.
If you’re not moving forward, you’re falling behind. So every day, in some way or another, take action to move your life forward.
Just a small improvement, just a subtle positive step, is infinitely preferable to doing nothing. Always, there is some little something you can do to better your life and your world.
What can you do right now to solve a problem that’s been frustrating you? What step can you take in the next few minutes that will bring you closer to the accomplishment of an important goal?
There is something you can do, and those small efforts quickly add up as time goes on. So instead of complaining that you can’t get it all accomplished at once, do a little bit, and then do it again.
Always, your life is filled with energy, and is moving in one direction or another. Harness that energy, align it with your highest purpose, and proceed constantly in the direction of your dreams.

Opposites attract….We use very little of our brainpower….American culture teems with commonly accepted pop-psych beliefs. They’re embedded in TV talk shows, self-help books, websites, movies, magazines, radio talk shows, and, of course, everyday conversation. In a new book, 50 Great Myths of Popular Psychology (Wiley-Blackwell), Scott Lilienfeld and his coauthors explore the gulf between what millions of people say is so and the truth. While some of these myths are just plain fascinating, others may lead to bad decisions with unfortunate consequences. U.S. News spoke to Lilienfeld, a professor of psychology at Emory University in Atlanta, about five of the myths exposed in the book:

Opposites attract. This widespread assumption has almost certainly provoked people to seek out mates who are as different from them as possible, says Lilienfeld. But not only do opposites not attract in romantic relationships, but being too different from a partner in personality, beliefs, and attitude is a good predictor of a future breakup, says Lilienfeld. For the most part, similarities attract (although 100 percent carbon-copy couplings can go stale). Pairing up with someone who is a yin to your yang may make life more exciting in the short run, but it’s unlikely to be a recipe for long-term love, he says. (Learn more with the Triple A’s of a Good Relationship.)

We use only 10 percent of our brains. Who wouldn’t like to believe we have a fabulous stockpile of untapped potential? That 90 percent of our brains lie dormant, waiting to be unlocked? There’s no good evidence to suggest that’s true. To the contrary, says Lilienfeld, nearly all of our brain is constantly humming. So much for gadgets promising to boost brainpower. (Try these 4 Exercises to Sharpen Your Brain.)

Mozart makes infants smarter. Hike a baby’s IQ by aiming the Jupiter Symphony at mom’s expanding abdomen? Lilienfeld chuckles. The original study flicking at this notion, he says, wasn’t even based on babies but on college students who performed better on a spatial reasoning test after listening to Mozart for 10 minutes. And that probably was due to a boost in alertness, akin to the effect of coffee, not the classical tunes, he says. Still, the market exploded with Mozart-effect products for infants. Even the governor of Georgia was swayed, Lilienfeld recalls: He added money to the budget so that every Georgia newborn could get a free Mozart CD or cassette.

Low self-esteem is a key to future psychological problems. “The self-help industry has probably persuaded people who don’t have the highest self-esteem [to believe] they can’t amount to much in life,” says Lilienfeld. It may hurt people whose confidence is at basement level, but in general, he says, the link between self-esteem and “mental adjustment” is modest at best. Nor is high self-esteem, the obvious flip side of the belief, always good. A subset of people brimming with self-esteem could be considered narcissistic and are at heightened risk, says Lilienfeld, of aggression if challenged or insulted.

Full moons trigger wacky behavior. Murders, suicides, admissions to psychiatric hospitals, biting dogs, car accidents–all have been blamed on a full moon. But researchers have unearthed no good evidence of a “lunar effect,” says Lilienfeld, despite earlier flawed findings and ideas promoted by writers and psychiatrists. Why has this myth–and others about purely coincidental relationships–persisted? People tend to remember events that confirm their beliefs and ignore those that don’t, says Lilienfeld. If a tree smashes through your Volvo’s windshield on a night the moon is full, you might connect the two and blame the orb in the sky; if nothing odd happens during a full moon, you’re not likely to log that into your mental diary. That hasn’t stopped some police departments from putting more cops on the street when the moon is full, says Lilienfeld.