ABC Actually Examines Economic Effects of Ending CEO Bonuses
On Saturday's "Good Morning America," co-anchor Bill Weir and reporter Gigi Stone actually took a look at whether or not it's a good idea to tax CEO bonuses and what effect it could have on Wall Street. While much of the mainstream media have been playing off populist anger over bonuses, Weir teased the segment by wondering, "With tempers flaring over executive payouts, Congress considers cutting off bonuses at all institutions receiving taxpayer money. But without incentives, why would any smart banker work to fix Wall Street's mess?"
He followed up by querying, "But, could the corporate crackdown, all this righteous anger, actually backfire and make it even harder to rescue our system?" (Of course, "righteous anger" is certainly editorializing on Weir's part.) Reporter Stone talked with several financial experts who posed the same question. Scott Talbott, senior vice president for the Financial Services Roundtable, insisted, "By taking away bonuses, you remove incentive for employees to work harder." Stone added, "So, if taxpayers want their money back, they want the best and brightest working."
She then explained, "Many fear if companies taking bailout money can't offer bonuses, the most talented employees will simply leave for firms that can. And many of those are owned by foreign countries." Weir also discussed the issue with former investment banker William Cohan, author of the book "House of Cards" (a tome on the Bear Sterns collapse). He asserted that many Wall Street companies are profitable and successful and to link their CEOs with those of Bear Sterns and AIG isn't fair.
Over on CBS's "Saturday Early Show," legal analyst Lisa Bloom talked with Bloomberg TV anchor Deirdre Bolton. She sounded a similar theme and claimed, "This is how they compensate their people for taking risks and, essentially, the question at heart here is do we want a capitalist system or not?" The issue of what effect banning bonuses would have on Wall Street was mostly glossed over on NBC's "Today" show on Saturday.
A transcript of the first March 21 "Good Morning America" segment follows,
BILL WEIR: This morning, banning the bonus. With tempers flaring over executive payouts, Congress considers cutting off bonuses at all institutions receiving taxpayer money. But without incentives, why would any smart banker work to fix Wall Street's mess?
WEIR: And those AIG bonuses are now under investigation in 20 states. In Connecticut alone, 11 AIG employees believed to have received those bonuses have been subpoenaed or ordered to appear at a banking committee hearing this week. One angry group is organizing a bus tour of their neighborhoods. But, could the corporate crackdown, all this righteous anger, actually backfire and make it even harder to rescue our system? ABC's Gigi Stone takes a look at the bonus backlash.
GIGI STONE: As Americans lose homes and jobs, millions of dollars are being paid to the very people some blame for causing the mess. Now, the word itself, has become a sort of toxic asset, bonus. But many say it's a necessary part of corporate America, especially now.
SCOTT TALBOTT (Senior VP, Financial Services Roundtable): What we're trying to achieve is restoration of the economy. By taking away bonuses, you remove incentive for employees to work harder.
STONE: The argument goes that bonuses motivate employees to do their best and make a company profitable. And that very few people have the skills to turn these failing companies around. So, if taxpayers want their money back, they want the best and brightest working. Many fear if companies taking bailout money can't offer bonuses, the most talented employees will simply leave for firms that can. And many of those are owned by foreign countries.
STEVEN HALL (Executive compensation consultant): I don't want to see it turn into a ghost town because all of the good people have left. And we're left with a situation where we can't create- we can't dig ourselves out of the mess that's there.
STONE: And bonuses are part of the culture on Wall Street. Banning them could just lead to higher up-front salaries, without any incentive for performance.
ROBERT FRANK (Wealth reporter, Wall Street Journal): Well, Wall Street is a very unique place. It's probably the only industry of the world that pays out half of its net income in salaries and bonus. And the bonus is for most people, you do a fantastic job and you get a bonus. Well, on Wall Street, a bonus was really like an implied base salary.
STONE: Experts argue that bonuses need to go back to their original purpose, to reward good work. Walmart sparked little anger this week when it paid out more than $900 million in performance-based bonuses. But, it had a profitable 2008, and didn't take any taxpayer money. For "Good Morning America," Gigi Stone, ABC News, New York.