Ken Feinberg, Bankers’ Best Friend

Remember Ken Feinberg? He was the “pay czar” President Obama gave the job of setting executive compensation at the seven companies that received the most federal bailout money during the financial crisis. The guy was nothing if not a man with big plans for Wall Street: “I’m hoping that,using these seven companies as a template,” he announced in late 2009 when he made his final decision on who’d get how much, “that other companies will voluntarily see the wisdom of the way we’ve structured compensation–less cash, more long-term stock tied to the financial future of these seven companies.” Yes, more stock and less cash. That would be the ticket! He even came up with a buzzword for what he had in mind: “salarized stock.” Executives wouldn’t just get their year-end bonuses mainly in stock;some of their regular paychecks would come that way, too. The assumption (at least as I inferred it at the time) was that cash was too good for these Wall Street fat cats, and that it was high time they ate some of their own cooking,and got crammed down with shares. And so another sordid corner of Wall Street would be cleaned up at last.Anyway,Feinberg came to mind this morning when I turned to page C1 of today’s Wall Street Journal and saw this:

Bankers’ Stock Awards Jet Higher Goldman Sachs Group Inc. employees are sitting on more than $600 million in extra bonus money, for the past year alone, thanks to the bank’s surging stock price. The paper windfall-based on calculations by The Wall Street Journal of the rise in the value of Goldman stock the employees were awarded a year ago in their pay packages-shows how the banking industry’s shift toward more-stock-heavy bonuses at the urging of regulators has paid off for its troops. Before I go on, allow me to pass along the following pieces of data. In October 2009, when Feinberg gave the gift of his “template” to Wall Street, JPMorgan Chase was trading at $42 per share. Today it is almost $60. Wells Fargo traded around $28; today it’s at $46. Granted, many large bank stocks are essentially the same price now that they were in late 2009. Then again, several big banks saw significant price declines in the meantime, in 2011 particular. That year, for instance, Bank of America bottomed at just over $5, vs. $17 now. Goldman touched down at $89, on its way to $175 lately. And yet as the stocks were headed down, down, down, the government-promulgated Feinbergian compensation model remained in place, so that bankers ended up getting paid inordinately in ever-cheaper stock. On the one hand, hooray for the bankers! There’s nothing quite as heartwarming as a tale of a Goldman managing director waking up and finding he’s gotten an unexpected windfall. But as a shareholder, I’d just as soon the government get out of my company’s grill, thanks very much. When bank stocks made their lows in late 2011, we now know, they were classic stressed, contrarian values-exactly not the sort of security I’d want my company handing out willy-nilly. People who hadn’t given in to panic knew that the stocks were making major cyclical lows (the recession had already been over for two years), and must have suspected that that was exactly the wrong time to lard up pay packages with extra-large stock awards. But thanks to meddling by the feds, that’s exactly what happened. In the end, the government got precisely what it didn’t want: outsized compensation for Wall Street big shots. And shareholders got what they didn’t want, either: needless dilution. Your government at work. Ken Feinberg, the pay czar, was supposed to be the scourge of Wall Street. Er, no. If the people at Goldman and elsewhere have any sense of gratitude, they’ll put up a statue to him at the corner of Broad and Wall. What do you think? Let me know!