The "Pay Czar" Will See You Now
Washington took charge of executive pay on two fronts yesterday.
First, as expected, the Treasury Department's Special Master for Compensation Issues --- Kenneth Feinberg --- announced that the 25 top executives at the biggest companies that still owe the government billions in bailout money will have their salaries reduced by 90% and their total compensation cut in half.
Says Feinberg, "Hopefully, we've put in place a compensation structure which will incentivize corporate officials at these seven companies to promote long-term financial improvement in these companies' balance sheets --- so that the day will come sooner rather than later when they'll be able to repay the taxpayer."
And the other front, as Chip Reid reports, "For the first time ever, the Federal Reserve plans to give itself the power to regulate compensation at the nation's banks."
The Fed's announcement yesterday covers a lot more banks and people than the seven big companies pay czar Feinberg is cracking down on, says Chip Reid.
"The proposed rules would apply not just to top executives, but to any employee who could expose a bank to big risk --- including some traders and loan officers," says Reid.
The plan divides banks into two categories.
Reid: "The nation's 28 largest would have to present their compensation plans for review. If the Fed finds a plan encourages too much risk, it could order changes. The nation's nearly 6,000 smaller banks would not have to submit their pay plans, but the Fed would conduct regular reviews."
Law Professor Jay Brown of the University of Denver says he understands the government's objectives.
"I think you have to wonder whether the U.S. Government should be the one primarily responsible for policing pay inside these financial institutions, and whether they really have the capacity to do it," says Brown.
Change Vs. The Compensation Culture
The top executives at those seven companies whose pay the government has ordered substantially chopped were amazingly tone deaf, didn't understand --- or perhaps didn't care --- how the taxpayers would feel about them taking billion of taxpayer bailout dollars, and then giving themselves billions in bonuses.
But taxpayer wrath is voter wrath, as anybody elected to office realizes --- whether they're in Congress, or in the White House.
President Barack Obama says, "We don't begrudge anybody for doing well --- we believe in success. But it does offend our values when executives of big financial firms --- firms that are struggling --- pay themselves huge bonuses, even as they continue to rely on taxpayer assistance to stay afloat."
Whatever you call Kenneth Feinberg, the Treasury Department's Special Master for Compensation --- or "Pay Czar"...
President Barack Obama: "He was faced with the difficult task of striking the proper balance of standing up for taxpayers and returning a measure of stability to our financial system."
And he didn't pull any punches about tying executive income to performance.
Kenneth Feinberg says "The days are over when officials can receive guaranteed cash payments. We tie together the corporate official with the overall long-term financial performance of the company."
The government and its agencies have always been loathe to regulate bankers' pay. But look what happened, says University of Maryland economist Peter Morici, "The banks must be regulated --- because if bankers pay themselves too much and the institutions fail, we have to bail them out --- or the economy fails."
Brown says, "The Fed has a lot of authority to close down banks. The Fed has a lot of authority to deny lending to banks. So, if the Fed finds practices it doesn't like, it will be able to get them undone."
"Right now, they're not up to speed --- and then I think it will eventually simply become one more thing they look at when they do an inspection --- and will likely not have a dramatic effect on practices," said Brown.
A Reset For America's Space Program?
To review NASA's plans for human space flight --- which include a revisit to the Moon, for which two new rockets and a capsule are being developed --- President Obama appointed an independent panel headed by Norman Augustine, former CEO of Lockheed Martin. Yesterday, Augustine told us what he thinks.
"The current plan, as you probably know, focuses on going to the Moon," says Augustine.
Been there, done that, he says, "We believe that Mars is the clearer goal of the human space flight program..."
In his plans for future manned space flight, the Augustine panel thinks NASA is aiming too low --- a lot of what it wants to do, Augustine thinks, could be done in the private sector.
"We think this is the time to create a commercial market for commercial firms to transport both cargo and humans to the Earth and low-Earth orbit," says Augustine.
Not that that will be easy for anybody.
"While that is certainly not simple, it's much easier than going to Mars or other places one might go," says Augustine.
With Mars as the focus for NASA, says Augustine, "There are a lot of things that one could do along the way that are very interesting, let you build up gradually to the immense undertaking of the Mars program."
For example...
"One could fly circumlunar missions, you could circumnavigate Mars. You could land on an asteroid --- a low-Earth object. You could land on Phobos or Deimos, the Martian moons --- and do some very exciting science from there. And it seems to us that that is a more sensible program than to wait 15 years or so for the first really major event," says Augustine.
Back to the old drawing board...
Dwindling Dollars and Rising Energy Prices
What's going on with the price of oil?
Phil Flynn, energy analyst says, "In the last two weeks, oil prices have absolutely exploded."
"We have already seen in some parts of the country the price of gasoline go up ten cents in a week. We could repeat that in many parts of the country, if not a little more."
That is mostly not because oil is worth more, but because the dollar is worth less.
"We have a situation in the marketplace, where the price of gasoline and heating oil really isn't being dictated so much by supply and demand, but it's being dictated by the value of the dollar," says Flynn.
Only a couple of months ago, the price of gasoline had been falling. But just as the world recovers from recession, our currency is sinking like a stone.
Flynn says, "The weak dollar is impacting everyone in this country. It's probably adding, you know --- who knows --- maybe 10 to 15, maybe 25 cents a gallon or more to the price of a gallon of gasoline. And it's going to cost us some heating oil, as well."
Why is this happening? .
Flynn says, "Some of the medicine that the government's used to try to keep the economy going helped. But now, we're seeing the negative effects of all that economic stimulus and government spending. It comes down to the confidence in the U.S. dollar abroad."
Oil is a commodity, after all.
Flynn says, "We've seen the dollar hit a 15-month low against the euro and other major currencies, and this is causing commodity price inflation in this country."
So, if you think gasoline and heating oil is expensive now...
Flynn says, "What you're paying for a gallon of gas today may be 10 cents cheaper than a week-and-a-half from now or two weeks from now."
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