Northern Country

How globalization changes capitalism, the economy and politics

CEO needed for some – historic bonuses for others

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Ramifications from the credit crisis have reverberated around the World. Millions have already lost their jobs and many more will do so in the months and years to come. Even the Federal Reserve admits that unemployment will increase further from already painful levels.

While certainly nobody sheds a tear about high paid CEO’s the WSJ takes it up and reports on the difficulties of firms in the financial-services industry to find replacement for their vacant CEO positions. About 18 percent of the 2500 biggest firms in the US have lost their CEO in 2008, the highest rate of forced succession in any industry.

This is a unique situation which goes counter to anything the industry has experienced in the last couple of years where high paying jobs were in strong demand. After Lehman the strain of the credit crisis, curbs on executive compensation and the specter of government scrutiny have cut short this once rosy scenario. Some of the most venerable applicants for open CEO positions are also tarnished with a reputation of being responsible for the problems that have emerged since September of last year.

"Let’s face it: There is no one" . Obviously people inside the struggle for CEO succession at BofA and Citigroup face a dilemma. These mighty institutions are left with lack of interest in their highest job openings, something that is either very sad or very dumb.

According to the WSJ, Jerry Grundhofer, the former chief executive of regional bank U.S. Bancorp, hesitates to take the lead at Citi. He expressed concern about the relatively low pay that likely would come with the job. By the way he seemed also worried about the government’s involvement in the firm, most likely because of limited compensation measures. Robert Steel (former Treasury Department undersecretary), John Thain (former Merrill Lynch CEO) and David Moffett (exCEO of Freddie Mac) are among the most lucrative CVs being handed down to the boards of American International Group, Hartford Financial Services Group, mortgage company Freddie Mac, BofA and Citi.

But there are also those who can only smile and shake their head in disbelieve at this problem. Employees and executives at investment firm Goldman Sachs are faced with the specter of the largest bonus program in the firm’s 140 year history. Last week, after Goldman paid back all TARP money it received in the wake of the bail-out, it has paved the way for this stunning development. The firm’s second quarter results will not be known until next month but a jump in earnings is expected and that despite the company’s pay back of $10 billion to the US government. This has led some to speculate that GS never needed government funds in the first place but was forced to participate in the TARP program (Was TARP just a ruse?; see video-center).

The fact that some of the biggest financial institutions are being able to pay their highest bonuses in history and reap the profits of a crisis they helped to create is deplorable. It certainly is the wrong signal at the wrong time.

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Written by Alfred

24. June 2009 at 1:39 pm

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