As the U.S. government’s historic Wall Street bailout has inevitably led to efforts to curb executive pay, employment lawyers find themselves in a new world. On October 14th, Professor Samuel Estreicher and four distinguished panelists met in Vanderbilt Hall to discuss New Initiatives in Regulating Executive Compensation. “If five years ago, I would have stood before you and told you there were federal laws and regulations that limit compensation, you might have thought we were in another country,“ began Michael Delikat, partner and chair of Orrick, Herrington & Sutcliffe’s Global Employment Law Group, “but what a difference a financial crisis makes.” The ensuing two-hour debate brought together unlikely allies and provided the audience with many more questions than answers about the future of executive compensation.
Executive pay, the panelists found, has touched a nerve. “I view what’s happening in the United States as schizophrenic,” said Barbara Bishop, consultant and former senior managing director of Bear Stearns, “Congress, the Treasury and the Federal Reserve are not in agreement with anything but that people are being paid too much on Wall Street.” Professor Jeffrey Gordon of Columbia Law School expanded on Bishop’s characterization, noting that while many regulators are simply concerned with the relationship between executive compensation and systemic risk, others are motivated by a sense of moral outrage.
Delikat was quick to identify Obama Pay Czar Kenneth Feinberg ’70 as a member of the ”moral outrage camp” during a discussion on efforts to expand the scope of compensation regulation beyond companies that received substantial assistance from the American taxpayer. “Ken may admit he doesn’t have the power through regulation, yet,” said Delikat, “but he will find a way to get done what the President says needs to get done.” This revelation sparked some outrage of its own, most notably from Estreicher who admitted, “I’m not a crazy libertarian but it bothers me that he feels he has this authority.”
Wayne Outten ’74, founding partner of employment law firm Outten & Golden, echoed these objections, raising further legal concerns, “I know it’s scary when I find myself agreeing with management lawyers…but the AIG brouhaha illustrates what happens when the government takes action in response to populist ire. It is awful legal and public policy for the pay czar to say to a company and a company to its employees, ‘Yes, we entered into a contract… but no, we won‘t pay because the public is upset.’”
But for all the worry about the rule of law and government intervention into private contracts, Bishop reminded the other panelists that realistically speaking, executive compensation regulation may be futile. “If you look carefully at each one of the rules under TARP, there is a way around them. The one thing I can tell you is that everyone is moving around those rules. People are leaving Goldman and they’re going to Citi or Bank of America, and they’re not going for less pay.”
Posted on October 22, 2009