The Special Master of Compensation

Kenneth Feinberg, the "Special Master for TARP Executive Compensation" at the Treasury Department (aka Pay Czar), recently testified before the House Committee on Oversight and Government Reform. Most of his actions seem reasonable and defensible if you accept the premise that the government has the right to limit compensation at companies that accepted TARP bailouts. His justification for limiting executive compensation includes the following:

"1. The companies requested excessive guaranteed cash - salaries and bonuses - for company executives; 2. The companies requested that stock issued to these executives be either immediately redeemable or redeemable without a sufficient waiting period; 3. Many of the companies did not sufficiently tie compensation to performance-based benchmarks and metrics; 4. Many of the companies did not sufficiently limit or restrict financial "perks," such as private airplane transportation, country club dues, golf outings, etc., and in some cases provided excessive levels of severance and executive retirement benefits; 5. The companies did not make sufficient effort to fold guaranteed compensation contracts - entered into prior to the enactment of the current compensation regulations - into 2009 performance-based compensation."

And these are the actions he took:

"1. I greatly reduced the amount of 2009 guaranteed cash compensation made available to senior executives. On the whole, cash (which, in the past, included cash base salaries and cash bonuses) was reduced by approximately 90%. Overall total compensation was reduced by approximately 50%.

2. In place of cash, I substituted "stock salary" which, in accordance with Treasury regulations, vests immediately upon issuance but may only be redeemed in three equal, annual installments beginning in 2011, with each installment redeemable one year early if TARP obligations are repaid. The objectives are clear - to tie individual compensation to longer-term performance metrics, and to encourage senior executives to remain at the company for a period of years to maximize their personal benefit from the overall profitability of the company itself. The value of "stock salary" will depend on the companies' financial success in coming years. At the same time, I also permitted incentive payments of "long-term restricted stock." This long-term incentive stock vests only if executives remain employed for three years after grant, and it can be cashed in only in 25% increments for each 25% of TARP obligations repaid by their employer. Again, the goal is to tie individual compensation to the overall financial success of the company.

3. By implementing the ideas of "stock salary" and "long-term restricted stock," only redeemable after multiple years of company performance, I tied individual compensation to long-term company success.

4. I reined in "perks" by expressly requiring that any such perks beyond $25,000 per individual must first receive the approval of the Office of the Special Master. No longer will senior executives be entitled to excessive use of private planes and other compensation-related financial benefits.
I also prohibited additional company contributions to executive retirement programs..

5. I succeeded in almost all cases in getting the companies to agree to restructure guaranteed contracts and other forms of guaranteed compensation into prospective, performance-based compensation packages. These companies agreed, in almost all cases, to transfer guaranteed forms of compensation - entered into with company officials before the enactment of current legal requirements - into "stock salary."
I am very reluctant to even attempt to invalidate the sanctity of contracts entered into well before enactment of the current law; however, I did work closely with the companies in an attempt, cooperatively, to restructure these "grandfathered" financial guarantees by making them part of my 2009 final compensation determinations."

Feinberg also wisely advised that his powers, and the federal government's, not be expanded to companies beyond the seven (GM, GMAC, Chrysler, Chrysler Financial, BoA, Citigroup, AIG) that accepted TARP funds nor past the time necessary to repay taxpayer monies. His full written statement can be seen here.

Greed is Good, But Not When You Haven't Earned It

It was announced that the Obama administration will limit the pay of executives at the 7 companies that were the largest recipients of federal aid. It is also attempting to create strict compensation reforms. This move is in response to the overwhelming public outcry over the news of the millions of dollars in salary, bonuses, and perks these top executives received in the midst of a corporate crisis.

I applaud this measure, with reservations and amendments. The era of Golden Parachutes needs to come to an end. In a healthy economy, corporate executives need to be held accountable by their investors and stockholders, but they have not been. The financial industry tanked, employees were laid off, and these companies lobbied Washington for a bailout, which they received. As their companies have returned to profitability, these executives feel entitled to the same level of absurd compensation as the status quo. However, when they accept taxpayer money to save their sinking ship from bankruptcy, they forfeit their "right" to excessive fringe benefits and bonuses.

I'm glad that several of the banking institutions have been able to repay a significant amount of their bailouts, but until they are out of the red, they should use common sense. They have implicitly given the government the ability to limit their compensation during their period of indebtedness and should not try to push the envelope.

Nevertheless, the Obama administration should refrain from enacting permanent regulations that cap executive compensation. That level of public intrusion in the private sector is a step toward socialism. If they want to have a lasting, positive effect on this issue, the administration should push the Fed and SEC to enact regulations that give stockholders greater power to hold CEO's accountable.

Common Since: Million dollar bonuses and benefits should not be permitted for corporate executives whose companies have accepted government bailout loans. They are indebted to the American taxpayer, and returning that money must be their priority. Corporate governance reform is imperative, but should not take the form of a permanent restriction on business practices. The best solution is to encourage greater accountability between a corporation and their stockholders/investors.

Today's Deficit Insight

Food for thought on this year's $1.4 trillion deficit, courtesy of Politics Daily.

I'm a Deficit Hawk

I am to deficits like Lou Dobbs is to immigration. I will belligerently address them until something substantial is done.

Check out this article from the Wall Street Journal. And this one from Roll Call, via Real Clear Politics.

We cannot wait for a severe deficit crisis to be our "come to Jesus." If other countries, namely China, were to feel less secure about the dollar and halt buying our debt, we would be stuck between a rock and a very, very hard place. That crisis would make this recession look like a pregame warm-up.

Some members of Congress seem to take the deficit seriously, but only a very small minority have committed themselves to doing something about it. Both parties are to blame for the rising deficit, and both are to blame for their inaction on reducing it.

Let's hope that changes soon.

Worst Movie Plot of All Time

Nick Bollea, son of Hulk Hogan and a Clearwater native, has joined the list of unskilled, no-talent rich kids trying to make it in Hollywood. Bollea, who spent 6 months in jail for a street racing crash in which his best friend suffered brain damage, is unable to be present at a deposition for the civil case against him filed by his friend's parents because of his "skyrocketing" movie career.

A plot summary on the Internet Movie Database said the horror movie, called Kill Katie Malone, is about three college students who "pool their cash to buy a 'ghost' in an online auction." When the students inspect their purchase, they "unleash the vengeful spirit of an Irish servant girl who has been wreaking havoc on her owners throughout the generations."

That has got to be the worst movie plot of all time. Enough said.

Our Money, Our Choice: Vanishing Act or Balancing Act?

There exists one measure we can enact to transform the political culture of Washington, reduce our deficits, and ensure the wiser allocation of tax dollars: a Constitutional Amendment requiring the Federal Government to balance their budget.

Such Amendments have been proposed several times since 1982. In fact, the idea dates back to the founding of our republic. All attempts have failed to pass.

I am a believer in neither pure Keynesian theory nor pure supply-side theory. However, DC political hacks from both parties buy into one common tenet: deficit spending is OK. Not only only do they operate as if it is perfectly alright, but that it is acceptable all the time. This is even contrary to the basic Keynesian theory that deficit spending should be used only to lift the country out of a recession because it will balance itself out after the economy recovers. How can you pay back debt if you never cease deficit spending?

Nearly all local governments and States are required to balance their annual budgets. I'm having a hard time finding exact figures, but I believe at least 49 states must balance them by law. This is why states hit hardest by this recession/depression, such as California and Florida, are having such budget crises. They are cutting services and raising taxes and fees in order to bridge their budget shortfalls. While it is preposterous to say that anyone enjoys a chaotic budget crisis, it is the only way to deal with excessive outlays and stunted tax revenue forecasts. Reconciling with reality is far preferable to augmenting our public debt to unsustainable levels.

The most recent iteration of the proposed Balanced Budget Amendment would require that if Congress did not present a balanced budget bill to the President, he would have line item veto power to strike any appropriations in order to balance it. Raising taxes significantly would create a populist backlash, so the only reasonable solution would be to cut spending. This balanced budget requirement would therefore guarantee that the government reform healthcare, Medicare, Social Security, Defense spending, and any other bloated appropriation or entitlement. I'm not an economist, and I don't pretend to think I have all the answers, but this seems like a logical place to start.

One of the best political books I have read was "Running On Empty" by former Commerce Secretary Pete Peterson. This book was published in 2005, well before this recession started. But Peterson focused much deserved attention on the danger of our ballooning deficit. At the time, we were running a real $470 billion deficit simply on entitlements through 2014. This was before the final three years of excessive spending under W, TARP, and the $787 billion ARRA stimulus. If you want a clear picture of how serious our deficit was before the stimulus, read this book. It will scare your pants off.

Common Since: Extreme deficit spending is threatening to bankrupt this nation. Many people talk about it, but few act on it. Passing a Balanced Budget Amendment to the U.S. Constitution should be the first of several measures taken to secure our nation's finances and future.

Misplaced Civil Unrest

Last night, the St. Petersburg City Council voted to turn over a section of public sidewalk to the owners of BayWalk. This was a revote from a meeting two weeks ago where the motion failed. The sidewalk in question has been used for years as the unofficial protest location for the indignant masses of St. Petersburg. Their causes varied from anti-Iraq war to anti-poverty to African-American civil rights and beyond.

BayWalk is a retail/entertainment area built a decade ago that supposedly ushered in the revitalization of St. Pete's downtown. It has fallen on tough times the last few years, and tenancy is at about 30%. The existing tenants, including a few restaurants, stores, and a movie theater, have claimed that the protests interrupt business and bring negative attention to the development. That is an entirely reasonable assertion. By ceding the right of way to BayWalk, protesters may now be prohibited from demonstrating on private property.

I am not an advocate of limiting free speech in any way, nor of the criminalization of protesting. However, repeated and habitual protesting in one select location that punitively damages the ability of private enterprises to conduct business is completely reprehensible. By definition, protests should take place at an area appropriate to their grievances: City Hall, public parks, the National Mall in DC, etc. According to precedent set by the U.S. Supreme Court in Lloyd Corp v. Tanner 407 U.S. 551 (1972), protesting may not take place on private property that has "no relation to any purpose for which the center was built and being used."

The City Council was right to transfer the public right of way to BayWalk in order to prevent unmerited protesting. If a group wishes to protest a BayWalk restaurant's use of tomatoes grown by farmers who operate under unjust migrant labor practices, they have that right. They do not have the right to protest against abortion or war or any other cause unrelated to BayWalk that disrupts their business.

The real icing on the cake of this issue was the egregious display of misplaced civil unrest at the Council meeting last night. Following the City Council's vote, fanatical free speech advocates marched out in objection to the decision. A heated discourse then took place between two men on opposite sides of the debate, which led to a physical altercation. It should be noted that one of these men was the brother of a Councilman who voted in favor of the motion.

Local politics is nasty, period. Citizens get more enraged, rude, and out-of-line over local issues than they ever do for national issues. Don't believe me? Just attend a few city or county government meetings. This type of behavior is inappropriate and is disrespectful to every person seeking a legitimate discussion of the issues at hand. I am disappointed and embarrassed for the City of St. Petersburg for the manner in which this meeting digressed. All Americans should hold themselves to a higher standard of civilized political discourse.

(I should have prefaced this by stating that I used to work for the Sembler Company, the developer of BayWalk. However, Sembler sold BayWalk to another owner in September 2008 and therefore has not been involved in this current debate.)

Common Since: The St. Petersburg City Council was right to transfer public sidewalk space to BayWalk in an effort to impede the spiraling decline of a development critical to the success of their downtown. Fanatical free speech activists should start conducting themselves with dignity and move their assorted protests to the steps of City Hall or other public venues. Better yet, they should cease the desire to gripe about everything they don't like and involve themselves in constructive solutions.

Workplace Mannerisms

You know you've caught yourself exhibiting the following mannerisms at work. I don't know where they originated or how they became standard operating procedure, but everyone does them. You know you have.

1) The Entrance Sigh: Letting out a disaffected sigh when you enter a room. Typically occurs when you enter the copy room to grab a printout, the breakroom when you go for coffee, or when you are carrying an armful of papers. Only applies when another person is in the room, otherwise, the sigh is mysteriously omitted from your asinine task.

2) The Wide Eyes and Upward Head Lift: Socially acceptable hallway greeting. When passing a co-worker to whom you have nothing to say, a wave or high-five is excessively exuberant, but avoiding eye-contact is awkward and creepy. The common solution is to raise your eyebrows to make your eyes wide and slightly tilt your head upward, as if to say "What a day!" or "Work, work, work!". Sidenote: Stick with the facial expressions. Never, ever utter those pitiful cliché phrases.

3) The All Clear: Checking over your shoulder to see who witnesses you entering the bathroom. Why does it matter who sees you entering the bathroom? Everyone uses it during the day, sometimes on multiple occasions. But you always glance over both shoulders before entering the lavatory just to see who notices you. It doesn't matter if they did... you just want to know.

Post Hoc Ergo Propter Hoc

I really don't want to appear as bitterly anti-Obama; I'm not. But I was blindsided when I heard on NPR this morning that President Obama was awarded the Nobel Peace Prize.

To me, awarding a prize is a recognition of a clear and indisputable victor or champion. For instance, whomever crosses a finish line first wins the race and whomever sells the most thingamajigs wins salesman of the month. When it comes to awarding a prize for the works of peace, judgment is considerably more subjective and convoluted. According to Alfred Nobel's will, the Peace Prize would be given to "the person who shall have done the most or the best work for fraternity between nations, for the abolition or reduction of standing armies and for the holding and promotion of peace congresses." These broad criteria can be interpreted in multifarious ways.

Let us also not forget that the Nobel Committee has not shirked away from controversy in christening its recipient. Henry Kissinger was awarded the prize for his peace negotiations with Vietnam, in spite of his role in the escalation of that conflict. Also, they have failed to ever recognize Mahatma Gandhi, citing the fact that they only award the prize to living persons. They later awarded a posthumous prize to the Secretary of the UN who died in a plane crash. I mean, they stiffed Gandhi?! Obviously consistency has no place here and favoritism is the modus operandi.

We've established that the Nobel Committee is capricious and is swayed by their personal interests, but there has got to be some measure of accomplishment, right? The three other U.S. Presidents to win the Nobel Peace Prize are Teddy Roosevelt, Woodrow Wilson, and Jimmy Carter. The big-stick-carrying, rough-rider-leading T.R. won in 1906 for his role in mediating the end of the Russo-Japanese War in 1905. Ending a war? Peace Prize worthy. Wilson, a staunch pacifist who led the U.S. to victory in WWI, won for presiding over the 1919 Paris Peace Conference and introducing the League of Nations, the forebear of the United Nations. Creating a new forum for international diplomacy (despite criticisms of the U.N.'s institutional weakness, it is a step forward)? Prize worthy. Jimmy Carter led a lackluster presidency, and was not elected to a second term. However, in the last 30 years he has championed humanitarian causes and headed Habitat for Humanity. Building dwellings for the world's poor? Prize worthy.

President Obama has set some lofty goals for himself during his campaign and his first nine months in office. He has called for increasing diplomacy and an open dialogue among nations. He has promised movement toward nuclear disarmament. He has lobbied for Israeli-Palestinian peace. What results are there to show for these efforts? Very little.

The U.S. has not entered into formal talks with Iran to deter their pursuit of a nuclear weapon. Obama has hosted talks between Israeli PM Benjamin Netanyahu and Palestinian President Mahmoud Abbas, but no peaceful milestones have been reached. Israel continues to encourage Jewish settlement of the West Bank. Russia is as cryptic as usual in its progress toward arms reduction, although they granted the U.S. use of its airspace for military transports to Afghanistan. Whoop-dee-doo. In return, we abandoned plans for a European missile defense shield, which has drawn sharp criticism from national defense hawks. In the off-chance Iran does acquire a long-range nuclear weapon, a missile defense installment would be a much appreciated comfort to the Europeans and ourselves.

Obama's foreign policy efforts have been far from a failure, but he has achieved very little at this point in time. The complex agenda his administration is pursuing will take many international summits and diplomatic overtures to produce concrete results. To award him the Nobel Peace Prize for "for his extraordinary efforts to strengthen international diplomacy and cooperation between peoples" is premature, at best. However, the Nobel Committee admits that they utilize their prizes not just as recognition of accomplishment, but to influence to direction of international politics: "The Prize, in other words, is not only for past achievement, although that is the most important criterion. The committee also takes the possible positive effects of its choices into account. Among the reasons for adding this as a criterion is the obvious point that Nobel wanted the Prize to have political effects. Awarding a Peace Prize is, to put it bluntly, a political act – which is also the reason why the choices so often stir up controversy." And stirred up controversy they have. The 2009 Nobel Peace Prize is an incentive, not an award, for President Obama to make good on his lofty promises. Let us hope, for the sake of his sanity and our country's reputation, that he follows through.

Common Since: This Nobel Peace Prize is actually a Nobel Peace Incentive. It has not been earned by merit nor tangible returns, and now President Obama must prove himself worthy after-the-fact. Post hoc ergo propter hoc.

This Just In...

According to Politico, the ethics investigation into Charlie Rangel's (D - NY) many failures to disclose his personal income has been expanded. I was trying to find time to write about this yesterday when the House Democrats killed a resolution to remove him from the chairmanship of the House Ways and Means Committee. But now, it seems like the ethics committee may have some even juicier news, so my delay is now appropriate. So far, "the ethics panel also disclosed Thursday that it has issued nearly 150 subpoenas as part of its yearlong Rangel investigation, interviewed 34 witnesses and combed through thousands of pages of documents related to the New York Democrat’s personal finances. The vote to widen the already sprawling investigation was unanimous." This seems to me to be a clear indication that Rangel will be found guilty by the ethics committee of tax evasion. Don't forget this is the man who is in charge of the House committee that oversees the IRS, and he has been hiding perhaps $2.5 million in assets.

More to come as this develops...

Public Transportation Matters

If you live in the Tampa Bay area and are interested in the future of development, the Tampa Bay Partnership is sponsoring a regional transportation forum featuring the Mayor of Charlotte, NC as a guest speaker. Regional and local public transit is severely lacking in Tampa Bay. Florida, and especially Tampa Bay, was ill-equipped for the population influx of the last 50 years and has exceeded the maximum carrying capacity of its road networks. TBARTA (Tampa Bay Area Regional Transportation Authority) has recently adopted a master plan that calls for future light rail, commuter rail, and bus rapid transit. I firmly believe that the sustainable growth of this area depends upon a comprehensive and innovative approach to public transportation. The city of Charlotte is a compelling model of success and Tampa Bay can glean several lessons from Charlotte's approach to transit oriented development (TOD) and light rail.

Common Since: A comprehensive public transportation network can be a catalyst for smarter economic and population growth. Tampa Bay needs it like a prostitute needs antibiotics.

Rio Was the Right Choice

Rio de Janeiro was just awarded the 2016 Summer Olympics. Quite a to-do was made of President Obama's attendance at the International Olympic Committee meeting to pitch his support for Chicago. What was largely ignored in the American press was the fact that the president of Brazil, the president and king of Spain, and the prime minister of Japan also attended. It is not too common for the heads of state to make personal appearances, but I'm not all that surprised. In the midst of a global economic recession, each of these leaders wanted to score a big victory by delivering the Olympics to their citizens. To make it this far in the process, each of the four final candidate cities surely made impressive cases. But Rio was the right choice.

South America earns a large amount of international legitimacy with Brazil being awarded the continent's first Olympic games, and deservedly so. Argentina, Brazil, Peru, and Chile have been leading the meteoric rise of South America in the last 20 years, but have still been considered the "red-headed step children" of the Western Hemisphere. After suffering from centuries of slow development from colonization through the horrific dictatorships of the 20th century, South America has been rapidly reforming. The award of the 2016 Olympic Games is a direct recognition of those changes. Japan, Spain, and the U.S. have all previously hosted the Games. While there is a strong core of supporters in those countries that would have rejoiced at winning the 2016 bid, the Rio Games will energize a continent. The impact the 2016 Games would have had on the U.S. is nowhere near to that which it will have on South America.

Rio de Janeiro is a paradoxical city. There are parts of the city popular with international tourists and parts home to wealthy emerging industrialists, in contrast with several massive shantytowns where drugs and crime are rampant. Brazil is flush with cash that will be used to make much needed improvements to their infrastructure. The influx of international tourists certainly will contribute a significant amount of money to the Brazilian economy, and the citizens will benefit greatly. However, I anticipate that South and Central Americans will make up the vast majority of visitors because of the enormous pride they will take in this event. Congratulations, Rio, you're on the world stage.

Common Since: Rio 2016 will do tremendous things for South America. Rio was the right choice.

The Reel Valyew of a Publick Educashun

A Pasco county high school student sent this letter to the editor of the St. Pete Times concerning the length of school years. It is simply horrendous. I could enter into a diatribe here about how poor most public schools are, but I'm sure you already know that. At the very least, our schools should be teaching students proper grammar, spelling, and sentence structure before they leave elementary school. To think that someone got to their junior year of high school writing like that is unbelievable. Even if a student fails to grasp algebra, biology, or history, they need a fundamental understanding of the English language to be successful in just about any profession.

Education is one of my favorite topics to discuss. It is something I hope to improve, through my own efforts, in my life time. This is the first of many future postings concerning education.

Common Since: Never underestimate the value of communication skills.

Things I Love

#1) Stick Figure Family Decals

I am motivated to get married and have kids solely so I can slap a window decal on my car showing every driver behind me that I am married, have one son who plays t-ball, one daughter who dances ballet, a dog, and a cat.

#2) Old T-Shirt Seat Covers

Walking through a parking lot this morning, I peered into a car to see both front seats adorned with what looked like 25 year old Jim Beam t-shirts. Nothing does a better job of protecting the pristine fabric seats of a Pontiac Grand Am than old t-shirts. Except maybe those wooden-beaded seat covers that cabbies use. Those provide protection and comfort.