Carlson, Forbes misrepresent Obama position on executive compensation
Research ››› ››› JEREMY HOLDEN
On Fox & Friends, Gretchen Carlson and Steve Forbes suggested that the Obama administration is interested in controlling compensation at companies not receiving federal assistance. In fact, Tim Geithner has explicitly rejected the idea.
During the June 11 edition of Fox News' Fox & Friends, co-host Gretchen Carlson stated of the Obama administration's executive compensation proposals: "But what I'm asking is, do you think that this will become a policy in all companies where the government will eventually be able to come in and say, 'You can only be paid this'?" Magazine editor and former Republican presidential candidate Steve Forbes responded, "That's what they want to do." But in announcing controls on executive compensation at companies receiving government assistance, Treasury Secretary Tim Geithner explicitly rejected government control of compensation at companies not receiving federal assistance under the Troubled Asset Relief Program (TARP). In teasing the discussion, Carlson repeatedly suggested that the administration would control compensation at non-TARP companies, stating, "President Obama has appointed a new pay czar with new pay rules. Will the government control your salary for companies that never even took bailout money? Steve Forbes is here to weigh in on that." She subsequently asked: "[C]ould companies that don't get bailout money also have the government getting involved in employee paychecks?"
In fact, in announcing the appointment of Kenneth Feinberg to oversee executive compensation at financial firms still holding funds authorized under TARP, Geithner stated: "We are not capping pay. We are not setting forth precise prescriptions for how companies should set compensation, which can often be counterproductive. Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives." By contrast to the Fox & Friends discussion, a June 10 New York Times article reported, "The rules reveal a strong reluctance among some of President Obama's advisers to intrude more deeply into corporate boardrooms, government officials said."
The administration further announced support for legislation authorizing the Securities and Exchange Commission to require publicly traded companies to allow shareholders annual nonbinding votes on executive compensation, and legislation authorizing the SEC to establish rules to strengthen the role of independent audit committees at public companies. Neither proposal would give the government the right to set pay rate. A June 10 Dow Jones Newswires article reported, "The Obama administration is calling for legislation that would give shareholders more say on companies' pay practices, all part of a plan to get compensation practices to better mesh with the interests of shareholders and the long-term health of companies." The article continued:
Seeking to also boost oversight and transparency of firms' pay practices, the administration also wants Congress to pass measures that would help make corporate compensation committees much more independent.
It's time for companies' compensation practices to stand more closely aligned with sound risk-management and long-term growth, Treasury Secretary Timothy Geithner told reporters after holding a meeting at the Treasury Department with Securities and Exchange Commission Chairwoman Mary Schapiro, Federal Reserve Gov. Dan Tarulloand several compensation experts.
"This financial crisis had many significant causes, but executive compensation practices were a contributing factor," Geithner said in a statement Wednesday. Federal officials have argued that compensation practices incentivized excessive risk-taking, which ended up hurting firms as well as shareholders and the broader economy leading up to the financial crisis.
To encourage improvements, Geithner said the administration will be working with Congress to pass so-called "say on pay" legislation. That legislation would give the SEC authority to require companies to give shareholders a non-binding vote on executive compensation packages. He added that the administration will save for later an announcement on new compensation rules for firms that have received government bailout money.
"Say on pay, which has already become the norm for several of our major trading partners, and which President Obama supported while in the Senate, would encourage boards to ensure that compensation packages are closely aligned with the interest of shareholders," Geithner said.
Additionally, Geithner outlined a set of broad-based principles on compensation practices. The guidelines encourage firms to base pay on long-term value creation, not stock price.
From the June 10 New York Times article:
The Obama administration's sweeping new proposal to restrict executive pay is likely to be a humbling exercise for seven of the nation's largest companies, which have received billions of dollars in federal assistance to survive the economic crisis.
But for most other companies, the plan is expected to have only a marginal effect on pay practices for now.
The Treasury Department on Wednesday appointed a well-known Washington lawyer, Kenneth R. Feinberg, to oversee the compensation of employees at the seven companies -- the American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers.
He will have broad discretion to set the salaries and bonuses for their five most senior executives and their 20 most highly paid employees.
The new plan also calls on Congress to adopt legislation that would let shareholders vote on pay levels and require public companies to strengthen the independence of board panels that set executive pay.
But for most companies -- both those receiving taxpayer support and those that are not -- the proposal is the result of a compromise that largely lets them off the hook. The rules reveal a strong reluctance among some of President Obama's advisers to intrude more deeply into corporate boardrooms, government officials said.
From the June 11 edition of Fox News' Fox & Friends:
CARLSON: Well, President Obama has appointed a new pay czar with new pay rules. Will the government control your salary for companies that never even took bailout money? Steve Forbes is here to weigh in on that.
CARLSON: Treasury Secretary Tim Geithner says, quote, "We don't believe it's appropriate for the government to set caps on compensation" -- but he's going to do it anyway. Geithner has officially announced a new pay czar, Kenneth Feinberg. Feinberg will regulate the pay of the senior most 100 people at companies getting bailout money.
But could companies that don't get bailout money also have the government getting involved in employee paychecks? We're going to talk to Steve Forbes about that in just a couple of minutes.
FORBES: In terms of pay, they think this is a good compromise. They're just going after the seven biggest companies, but it's just part of the pettiness of this administration's approach -- appealing to populists -- but at the same time, not letting companies focus on getting out of the mess they're in, and having shareholders vote on pay.
Shareholders hire the board, which hires the management. They can't micromanage companies. What are they going to vote on next -- mascots or whatever?
CARLSON: All right. So let's explain what the situation is. These are the seven firms --
FORBES: That are --
CARLSON: -- took the TARP money --
FORBES: Took the TARP money.
CARLSON: -- from the taxpayers, and -- no wonder those 10 big banks were in such a rush to give their money back.
CARLSON: They didn't want the government coming in to say, you're going to make $300,000 a year now instead of 3 million.
FORBES: Well, this is what happens. It's the golden rule. He, who has the gold, makes the rules. Washington has the gold; they're going to make the rules even if it's just to that kind of a pettiness.
DOOCY: You're right, but, Steve, so far -- and we've talked a lot about how they were going to limit the compensation, executive compensation, at the big companies that got bailout money -- but now they're talking about going even further. They're talking about establishing committees that are independent of the board of directors on setting executive compensation. And also, forget about companies that took TARP money or bailout money; we're talking about all publicly traded companies. They would like to perhaps give shareholders a voice in how much the guy at the top gets paid.
FORBES: Shareholders have the voice on the management.
FORBES: They don't like the management, they fire the board or have somebody else take over the company. They don't need this kind of micromanaging. All of this is to divert attention from what caused the crisis --
KILMEADE: Which is?
FORBES: -- which is the Federal Reserve printing too much money. If it hadn't printed too much money five, six years ago, this thing never would have happened. This --
DOOCY: Well, look where we are now.
FORBES: This is government-induced crisis --
KILMEADE: Steve --
FORBES: -- and now they sow -- if you want pay caps, put it on Congress; put it on the Fed; put it on the people who caused the problem.
DOOCY: You're right. You're right.
KILMEADE: Steve -- and you know more than every -- most people watching and certainly on the couch -- but let me just ask you, when you look at this, don't you think that a lot of this management was looking short-term at their profits, at maximizing their bonus, and not thinking about the good of the company?
FORBES: Sure. But what allowed this situation to rise up? Why did everyone get drunk? If you -- I guarantee you, this doesn't excuse what they did, but if in that kind of environment where money is flowing all over the place, money is being given away, if they didn't do it, others would come in and have done it. So, the Federal Reserve and the federal government created these horrific conditions. If they had been doing their job, this thing never would have happened.
So, instead of just focusing on petty things, get to the root causes, so this doesn't happen again, and focus on how do we get this economy to recover again. The banking system still isn't really working again. Small businesses have a hard time still getting loans.
FORBES: Hello, guys, wake up and do the big job.
CARLSON: Steve, put it in perspective for just the average person out there today going to work. How does trying to restrict pay eventually filter down in society, or could it?
FORBES: It doesn't. This is a reaction. They feel these guys got too much pay, they're too short-term oriented, and this caused the crisis. The real thing is the government caused the crisis. So, focusing on pay -- yes, if you go to the government, you're going to get your wrist slapped.
CARLSON: But what I'm asking is --
FORBES: But in terms --
CARLSON: -- do you think that this will become a policy in all companies where the government will eventually be able to come in --
FORBES: That's what --
CARLSON: -- and say, "You can only be paid this"?
FORBES: That's what they want to do. The really believe, boy, if they can control pay, wage and price controls, start with the executives then filter down -- you've got a good point there -- that this won't happen again.
It won't happen again if the government does its job; the private sector will do its job. The private sector, clichés aside, always responds to market conditions. And if the government messes up the market, you're going to have a messed-up private sector. So, if everyone does their job right, we'll be OK.