Graef Crystal: Bailout and executive pay limits are both bad ideas

Here’s another take on executive compensation and the bailout from someone that I really respect, Graef Crystal. For many years, Crystal wrote a column on executive compensation for Bloomberg. Now he’s launched his own Web site where he’s providing some in-depth analysis on issues that touch on executive compensation.

Crystal just posted his view on the debate on the bailout and executive compensation. In sum: Crystal things the bailout and limiting executive pay are both bad ideas:

“How about this for a deal: We don’t bail out the banks to the tune of $700 billion. And we don’t have pay controls on executives, either.”

His concern is that without the proper incentives, the banks won’t be able to attract the talented managers they need to turn themselves around. He also worries that companies will still find loopholes in any new restrictions, and the result will be unintended consequences.

Crystal also tallies up Treasury Sec. Henry Paulson’s total pay during the 7.5 years he ran Goldman Sachs: $196 million, or $26.2 million a year. Was that pay justified? Crystal:

“Think for a moment about the widest time window, the one covering the period beginning May 3, 1999 and ending June 28, 2006. Goldman’s cumulative total return was 192 percent for the entire period. The cumulative return for the S&P 500: Just 2.9 percent. I have to put a clothespin on my nose when I stand too close to pay numbers this high. But, hey, if you believe in pay-for-performance as I do, and the CEO’s got the performance, well, then, you have to accept, if grudgingly, the results.”


Tags: , , , ,


Share this Post

  • Robert Furniss

    I agree with Crystal’s general argument but the bailout goes far beyond Goldman Sachs and Henry Paulson.

    We are bailing out companies who made unwise investments prodded by our public representatives who apparently put taking contributions far above the public interest. Is an asset sale fair? Is prison time fairer? Should we be bailing out the house flipper who took out a cheap mortgage or just the families who way overeached themselves?

    I would feel better about the bailout if I thought all corporate managers and all our representatives took care of public and investor funds at least as well as their own money. Many do!