We live in interesting times. How many are actually aware of this “little” provision in the Stimulus Bill known as “Title VII”, which creates what is basically a maximum wage,and compensation caps on every single employee in any company that receives government funds:
The rules apply to “senior executives” plus the 20 “most highly compensated” employees. They prohibit any incentive compensation of any kind — bonus, commission, whatever — unless it is paid in restricted stock that doesn’t vest until the TARP money is paid back to the government. And the amount of the restricted stock is limited to 50% of your salary. So if you make $200,000 a year, the most you can get in restricted stock is $100,000.
United Socialist States of America
Here are the relevant excerpts from the article SmartMoney
Consider a little time bomb planted at the last moment in the stimulus bill. It wasn’t hard to smuggle it on board: In total the bill was 1,071 pages, published as two enormous documents on the web site of the House Rules Committee late last Thursday night. It was voted into law on Friday, first by the House and then by the Senate, and it’s virtually inconceivable that a single congressman or senator actually read the entire thing before he voted.
Especially the final 12 pages. Those pages — the very last ones anyone would read before voting — had even less to do with “stimulus” than the rest of the bill. That’s were a law known as Title VII was strategically placed — a law that drastically curtails the compensation of employees of most of America’s major banks and brokerage firms.
If you’re like a lot of people, you’re outraged that a few bank CEOs are taking huge bonuses at a time when their own past mistakes had driven their firms to beg for government rescues. Fair enough. But Title VII goes way beyond that. It’s aimed at anyone in these firms who makes big money — makes no difference whether you were a bad guy who didn’t deserve a bonus, or a good guy who did. Either way, you’re screwed.
Just how do we expect any talented person to work like a dog to put our banks back together if we don’t pay him?
Here’s how Title VII works. Any bank that participates in any way in TARP is subject to the new law. The more TARP money you take, the more people in the company to whom the rules apply. For the biggest banks who took the most money, the rules apply to “senior executives” plus the 20 “most highly compensated” employees.
The rules prohibit any incentive compensation of any kind — bonus, commission, whatever — unless it is paid in restricted stock that doesn’t vest until the TARP money is paid back to the government. And the amount of the restricted stock is limited to 50% of your salary. So if you make $200,000 a year, the most you can get in restricted stock is $100,000.
Typically, highly compensated people on Wall Street earn fairly low salaries, but then get large annual bonuses — usually based on performance. Title VII turns that upside down. No more pay for play. It’s all about salary now. So if a bank normally pays a superstar trader a nominal salary of $200,000 — and in a home-run year he earns himself a $10 million bonus — the only way to pay him the same total amount is to raise his salary to about $6.6 million. He’d then get that salary even if he did a lousy job in a given year.
And can you imagine the howling from the Congress and the media if we paid huge salaries to these people? There’d really be no choice but to drastically cut back their total compensation.
Who cares, perhaps you are wondering, since at most it would affect 20 or so people. Who cares if they make a lot less money for a while? But stop and think. If the rule affects the top 20 people, then by definition it affects potentially thousands of others. Because if you lower the compensation of the top 20, then they’re not the top 20 anymore. So you then have to lower the next 20 — and so on, and so on, and so on — until just about everyone is making the same thing. Nothing.
And I haven’t even told you the worst part: Title VII applies retroactively to every bank that ever took any money at all from TARP, all the way back to last October — banks that had no idea this would be imposed on them. Most of these banks were healthy institutions, encouraged by the Treasury to take TARP money to stimulate the economy. Talk about no good deed going unpunished.
