Discussing Obama administration efforts to limit executive pay in companies that took TARP funds, on Thursday's CBS Early Show, co-host Harry Smith asked Congressional Oversight Panel Chair Elizabeth Warren: "Chuck Schumer, some others, have said...why wouldn't we...make this law across the board and put a governor on compensation for everybody in private enterprise?'"
Warren seemed very open to the idea: "Well you know, it reminds us that there is a compensation problem in American industry....executive compensation right now is - has got the wrong set of incentives in it....what we really need to do are change the basic laws to align the incentives of the executives with the long-term health of the company and ultimately the long-term health of the economy."
Smith later asked: "Honestly, do you think anybody on Wall Street is listening to this?" Warren replied: "You know, you really begin to wonder what it's going to take to get the attention of the people in charge of these very large corporations....executives want to say 'I take your money when I make mistakes and I still want to compensate myself richly because I'm the one who's in charge of this big company.' You know, being in charge also means being responsible."
Here is a full transcript of the segment:
7:00AM TEASE:
HARRY SMITH: The bonus round for some business execs is over. Find out why the White House pay czar wants to cut some top executives paychecks by 90%.
7:05AM SEGMENT:
HARRY SMITH: Now to the battle between the White House and Wall Street. The top executives of some of America's biggest bailed out companies are about to see much smaller paychecks if the Obama administration gets what it wants. CBS News senior White House correspondent Bill Plante has that story. Good morning, Bill.
BILL PLANTE: Good morning to you, Harry. Well, the government gave, you'll remember, billions of dollars to bailout failing financial firms and now the government is about to take away, slashing executive pay. In seven of the biggest companies that got the largest chunks of federal bailout money, the administration pay czar Kenneth Feinberg is about to cut the top executive salaries by 90% and cut their total compensation in half. The cuts will target the top 25 earners at each company. Insurance giant AIG, guaranteed almost $180 billion from the government, caused new outrage when it announced $165 million in bonuses. Now AIG's top financial products executives will be paid no more than $200,000 each. The CEO of Citigroup, propped up with more than $200 billion, got almost $1 million in salary last year and another $37 million or so in stock. Under the new rules, he'd still get more than $18 million.
[ON-SCREEN HEADLINE: Big Cuts for Big Shots; Obama Pay Czar to Cut Exec. Salaries]
RYAN ALEXANDER [TAXPAYERS FOR COMMON SENSE]: The public has a lot of questions about whether or not these dollars that were given to banks were wasted and whether or not they were squandered on perks and, you know, high executive compensation.
PLANTE: Other analysts are concerned that the plan to limit pay will set a precedent.
DAN MITCHELL [SENIOR FELLOW, CATO INSTITUTE]: Now that politicians have gotten a taste for trying to control the pay at some firms, what's to stop them from imposing those rules on everyone?
PLANTE: And, Harry, it's not just the compensation, the pay that's about to be cut at those companies, it's also the perks. Things like country club dues and private air charters. At all those seven companies, those will be paired back drastically. Harry.
SMITH: Bill Plante at the White House this morning, thank you. Elizabeth Warren, who chairs the Congressional Oversight Panel for TARP funds joins us now from Washington. Good morning.
ELIZABETH WARREN: Good morning.
SMITH: You know as I read through a lot that was written about this in the last dozen hours or so, somebody in the Wall Street Journal described it as an 'elaborate hoax,' as a 'PR stunt.' Is this real?
ELIZABETH WARREN: Well, it's real in the sense that it says 'guys, you have to understand you can't party on like it's 2007.' If you're going to have to take taxpayer dollars, then it means the game has to change.
SMITH: Right.
WARREN: So, yeah, in that sense it's real.
SMITH: Right. This - is this a suggestion or is this going to be literally binding in somehow? Is the government going to say 'we're going to take your TARP money back if you don't cut this compensation'?
WARREN: No, I don't think the government's going to the TARP money back, but I think the fact that the government has given so much in TARP money is going to make these executives think and think again before they don't follow the government's instructions here on pay.
SMITH: Right. And what about the suggestion in the piece that Bill Plante just ran, Chuck Schumer, some others, have said 'well, if we can can do this with these people that we, you know, bailed out, why wouldn't we make these, you know, suggestions or make this law across the board and put a governor on compensation for everybody in private enterprise?'
WARREN: Well you know, it reminds us that there is a compensation problem in American industry, but I'm going to describe it slightly differently. When the Congressional Oversight Panel did its regulatory reform report back in January, we made the point that executive compensation right now is - has got the wrong set of incentives in it so that if a company can pump up profits in one quarter short-term-
SMITH: Sure, too much risk involved.
WARREN: -then you get too much money, even if that means you could actually be doing a lot of damage to the company long-term and a lot of damage to the economy. So what we really need to do are change the basic laws to align the incentives of the executives with the long-term health of the company and ultimately the long-term health of the economy.
SMITH: And we should point out that the companies involved here are companies that got TARP money but haven't paid it back yet. This is not the companies that got TARP money and have paid it back, like Goldman Sachs and Morgan Stanley. Do you think any-
WARREN: That's right. They're still going.
SMITH: Honestly, do you think anybody on Wall Street is listening to this?
WARREN: You know, you really begin to wonder what it's going to take to get the attention of the people in charge of these very large corporations. They have taken taxpayer money, unemployment is now running at almost 10%. Millions of families are facing foreclosure on their homes. And yet the executives want to say 'I take your money when I make mistakes and I still want to compensate myself richly because I'm the one who's in charge of this big company.' You know, being in charge also means being responsible. And I think what that really means is you take - you take the pain when you've had to take - turn to the taxpayer and ask them for their money for support.
SMITH: One would think. Elizabeth Warren, thank you-
WARREN: One would think.
SMITH: One would. Thank you very much for your time this morning. Do appreciate it.
WARREN: Thank you.
-Kyle Drennen is a news analyst at the Media Research Center.