Pay Czar Cuts Comp: Can Women Help Correction?
By Liz O’Donnell (Boston)
The recent announcement that pay czar Kenneth Feinberg would cut executive compensation for the 25 most highly paid employees at seven Troubled Asset Relief Program (TARP) recipients (AIG, Bank of America, Citigroup, General Motors Co., GMAC Inc., Chrysler Group LLC and Chrysler Financial) drew strong opinions from Wall Street observers. Most industry insiders feel strongly in favor or against the move. Many believe it demonstrates an over confidence in government. This from a recent op-ed in The New York Times by David Brooks:
“Examples of this overconfidence abound. But let us pick just one: the effort to cap financial compensation…the Obama administration has decided it should take control of compensation reform. Nobody seriously believes high pay caused the financial meltdown; it was bubblicious groupthink. But cutting executive pay just polls so well.”
Certainly, a number of different factors contributed to our current economic situation from out of whack pay, to lack of regulations to blind greed. Executive pay, however, is an easy one for outsiders to grasp and allows the government to take clear, specific action. But critics are concerned the move will leave to a “talent drain” as the industries best and brightest go elsewhere for rewards and recognition. More from Brooks:
“In advance of the current new pay restrictions, 12 out of the 25 highest-paid executives have already left AIG, and 11 out of 25 have left Bank of America. We’ll never know how much future talent was dissuaded from working at these ailing firms.”
Irv Becker, National Practice Leader for the Executive Compensation practice at management consultancy the Hay Group says, “This plan will drive the most talented employees out of these organizations. The government is already starting to predict we won’t get our money back from AIG – and pay was likely a key factor for many talented people who left that company. Now shareholders and taxpayers alike have to worry about the other remaining TARP companies”
Becker touches on another common reaction to Feinberg’s move –that the pay cuts will also disenfranchise up and coming talent in the lower ranks. “With the planned restrictions on pay in place, best performers, traders, deal guys, etc. have a disincentive from getting promoted up to top management. This could have a dramatic impact on the future performance of these firms.
Todd M.Schoenberger, Managing Director of Texas-based LandColt Trading, LLC. agrees. “Once you begin capping pay, even at TARP involved companies, you begin to see a trickle-down-effect take place with all salaries. Don’t be surprised if you begin seeing salaries drop across the board for middle-manager jobs at financial services firms. Second, you will see people leaving. But, here’s the scenario: Who do you want in charge to fix the mess? After all, if your top investment minds leave these companies due to caps–or lack–in pay, then where is Wall Street going to get the highest IQs to come up with new credit-easing products, or new fixed income issues for local governments?”
One place Wall Street could look: at women. As we have reported in the past, women are sorely lacking in any substantive way from the highest echelon of the financial industry. And many believe, had we had a better mix of gender at the top, the industry may not have collapsed the way it did. Women bring a different perspective to the board room, a necessary diversity in thinking, a typically different approach to risk management and a longer term view of investing. Dr. Sasha Galbraith, partner at Galbraith Management Consultants, says research shows that companies with more women in management have suffered lower share price declines, had higher ROE and claim higher total return to shareholders than those companies with fewer women in management. In fact, studies from Ernst & Young, McKinsey & Company, Pepperdine University and Columbia University all show a correlation between women in management and strong corporate performance.
Sadly, women are already used to lower salaries (on average white women earn .77 cents for every dollar a man earns and minority women earn even less). However, those who have made it to the top of the industry, are role models for others willing to overcome any obstacle in their way, whether it be unfair wages, non-existent work/life policies, gender discrimination, or government intervention..
