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Questions Remain on Fate of Disputed Exec Bonus Pay

April 10, 2009 at 6:25 PM EST
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As frustration continues over extravagant pay to executives of companies receiving billions of dollars in taxpayer aid, Paul Solman travels to AIG headquarters and Washington to explore options for getting some of the money back.
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JUDY WOODRUFF: And a second take on the economy, a look at the growing calls to take back some of the money paid to corporate executives in high salaries and bonuses. Economics correspondent Paul Solman has our report.

PAUL SOLMAN, NewsHour Economics Correspondent: Wall Street, for years proud bastion of American economic might and expertise; now a symbol of pay for non-performance, with us taxpayers picking up the tab.

Can we get any of the money back, so-called “clawbacks”? Can we reform the system?

First stop on our quest for answers: the AIG office in Connecticut that tanked the firm the day after news broke of millions in bonuses here. Those working in the same building didn’t know whether to laugh or cry.

BILL FLANAGAN: Good fodder for jokes for us, because being downstairs from them.

PAUL SOLMAN: What’s the best AIG…

BILL FLANAGAN: We’ll see the money floating down outside the windows.

DAVID LUXEDER: I kind of blocked it out mentally — just from a morale standpoint, I think the human spirit can only take so much.

PAUL SOLMAN: What’s so demoralizing: personal gain, public loss to the tune of billions at AIG alone.

But AIG is just one of many, says lawyer Dan Pedrotty, head of the AFL-CIO’s Office of Investment.

DAN PEDROTTY, AFL-CIO: The top five investment banks in the five years leading up to the current crisis awarded $145 billion in bonuses.

PAUL SOLMAN: Billion?

DAN PEDROTTY: Billion dollars in bonuses. And this is larger than the GDP of countries like, you know, Pakistan and Egypt.

PAUL SOLMAN: Even normally two-handed economists have lost the use of their other hand.

PETER MORICI, University of Maryland: It was because of the compensation and the bonuses on Wall Street that executives did reckless things, which destroyed the value of their companies. That’s why most of have 201(k)s when we used to have 401(k)s.

PAUL SOLMAN: Peter Morici is at the University of Maryland; Richard Freeman, Harvard.

PETER MORICI: … the only thing that matters in these peoples lives is pure, unadulterated greed.

PAUL SOLMAN: But this is one of the fundamentals of economics, incentives matter.

RICHARD FREEMAN, Harvard University: Yes. Exactly. But there’s also — we didn’t realize there was huge incentives to cheat and to misreport things, and that’s what seems to have occurred.

PAUL SOLMAN: Even American Bankers Association CEO Edward Yingling doesn’t dispute this argument.

EDWARD YINGLING, American Bankers Association: There is broad agreement within the financial sector that the compensation policies are — have been misaligned, would be the word.

The clamor for clawbacks

PAUL SOLMAN: OK, but then is there any way to get back the misaligned compensation? That's what we wanted to ask the folks at AIG, whose ever-climbing losses, mostly due to credit default insurance it sold from here, we taxpayers are now making good on.

Hi. This is Paul Solman from the NewsHour with Jim Lehrer.

AIG lost $99 billion last year, dwarfing total profits over the past decade. Now, not everyone in this unit was implicated, and the real culprits have mostly disappeared, it's said.

Hello? Hello?

But it wasn't being said to us, even though we'd called ahead for an interview.

SECURITY GUARD: There's nothing that we can tell you in terms of who you can talk to.

PAUL SOLMAN: Though we didn't know it, the folks behind the door were already receiving death threats. Comedian Bill Maher had even joked about capital punishment.

BILL MAHER, Host, "Real Time": If we killed two random, rich, greedy pigs, I mean, killed, like blew them up at halftime at next year's Super Bowl...or left them hanging on the big board at the New York Stock Exchange...

ANDREW CUOMO, New York Attorney General: I think it's an egregious wrong for people to now get multiple-million-dollar bonuses for failed performance.

PAUL SOLMAN: With Wall Street critic New York Attorney General Andrew Cuomo threatening to name the AIG bonus recipients, I guess I wouldn't talk to a TV crew, either.

SECURITY GUARD: So we're going to have to ask you guys to leave.

PAUL SOLMAN: OK. Thank you. Bye-bye.

AIG, of course, isn't the only target of the clamor for clawbacks.

While giving a speech in Washington, D.C., this week addressing government bailouts of Wall Street, Goldman Sachs CEO Lloyd Blankfein was blindsided by a pair of silent protestors, who presented him with a graphic appeal, "We Want Our Money Back."

LLOYD BLANKFEIN, CEO, Goldman Sachs: Everybody have that now?

PAUL SOLMAN: Blankfein, who earned more than $40 million last year, did not offer restitution.

Contracts are a problem

PAUL SOLMAN: Steve Waters was for years an investment banker with Goldman's chief rival, Morgan Stanley.

He left in 1991 to found his own global firm, Compass Advisers. Does he think we'll get the money back?

STEVE WATERS, Founder, Compass Advisers: I think probably the only way that will happen is there will have to be a big judicial mess, right? My guess is you'd spend a lot of effort and probably get modest amounts back, because people will say, "Well, I already spent it or whatever I did," so the ability to get it back is probably limited.

PAUL SOLMAN: But the AFL-CIO's Dan Pedrotty takes a more sanguine view.

DAN PEDROTTY: If we have the outcry from the American people that, you know, we should recoup this money that was essentially stolen, then we'll find a way to do it.

PAUL SOLMAN: The House recently passed a bill taxing current financial pay above $250,000 at 90 percent for those at firms getting bailouts, though it's now stalled in the Senate. The idea made Richard Freeman a bit hopeful about the future.

RICHARD FREEMAN: People will pay it. Or else what are they going to do?

PAUL SOLMAN: Can we get the money back from executives, do you suppose, that they took on the basis of what now appears to be a great charade with respect to both earnings and profits?

RICHARD FREEMAN: I doubt it, to be honest. But the problem is with the contracts in the very first place. We've got to change the way people are paid. Making fees off transactions when, in fact, if the transaction goes bad, their fee money is, you know, is still paid.

Some have returned bonuses

PAUL SOLMAN: So far, the only tactic that seems to be working is shame. Fifteen of the top twenty bonus recipients at AIG's Financial Products unit have agreed to return the money, including those visited on the recent "Lifestyles of the Rich and Infamous" bus tour.

ACTIVIST: Well, this is one of the AIG execs that received a bonus. And I've heard that he's returning that bonus, and we came here to thank him for it.

PAUL SOLMAN: And though the protestors at the D.C. conference were prevented from taking the podium and proved a source of considerable discomfort...

PROTESTOR: Are you for socializing...

PAUL SOLMAN: ... Lloyd Blankfein seemed to feel it best to sympathize with their outrage.

LLOYD BLANKFEIN: I think that reflects a prevailing view in the world. And if it's not articulated well and if it's not articulated in -- you know, in a -- in a considered -- in a manner that's considerate of the people here, it's nevertheless real, and visceral, and felt by every -- you know, most people in the country, maybe everybody in the country, and I don't exclude myself from that.

Market integrity was lost

PAUL SOLMAN: But beyond the public pressure on Goldman, AIG lies a key question: Is regulation of Wall Street pay likely to succeed? Bank lobbyist Edward Yingling says the industry will regulate itself.

EDWARD YINGLING: The industry is working on new policies that would align compensation with success long term. And I think there's a consensus building that that's the way to go, that compensation policies have gotten out of whack.

PAUL SOLMAN: But Richard Freeman says we can't leave it up to the industry.

RICHARD FREEMAN: You want to have strong regulations. You want to have huge penalties if they commit -- found to commit financial crimes. And then you want to build it up so that these guys don't even think of this kind of stuff.

PAUL SOLMAN: But how are you going to write the regulations in ways that Wall Street, which its enormous incentives and savvy, won't figure out a way around?

PETER MORICI: Wall Street is 25 percent finance and 75 percent legal maneuvering. They approach financial regulation the way most people approach the IRS regarding their taxes.

PAUL SOLMAN: And they're good at it.

PETER MORICI: And they have the money to pay for the very best lawyers, and they have been abusing the American people in the process.

PAUL SOLMAN: So Wall Street's Waters has his own proposal: pay the top regulators substantial salaries to make it a fair fight.

STEVE WATERS: Regulation is not a glamorous career, doesn't pay well. You could probably say, you know, the smart folks will go to Wall Street and figure out how to beat the SEC as opposed to go to the SEC and figure out how to control Wall Street, right?

Ultimately, what we lost was the integrity of the markets. And to restore that integrity of the markets, you know, you ought to be willing to pay something for that.

PAUL SOLMAN: Because if not, how will the Obama administration recruit the best and savviest to write and enforce the pay rules and tough regulations it has promised, all in the interest of restoring a measure of integrity on Wall Street?