First, Edward Liddy announced that he would be resigning from his $1.00 CEO position at AIG when a replacement was found. He felt that AIG has reached the point where a long term CEO was needed. ( See my 3/19/09 posting "congressional follies about AIG") AIG's Trustees are also requesting 6 new independent board members at the June 30, 2009 annual shareholders meeting. Earlier, Mr. Liddy had said AIG was on track to pay back the bailout money within the next 5 years. Mr. Liddy and the trustees are on the path to recovery for AIG. The USA owes them a well deserved Thank You Very Much for all your effort and endeavor to help get our economy strong again. Our fearless leaders in congress will probably berate them every chance they get. My advice to Mr. Liddy and the trustees, don't let the turkeys get you down!!
Second, Treasury Secretary Timothy Geithner will be announcing rules for executive compensation for the banks receiving bailout funds. Nothing concrete has been announced yet but there are some interesting ideas on the subject already. In a May 24, 2009 Rueters article by Dena Aubin and Corbett Daly, they quoted 2 Harvard Law professors, Lucian Bebchuk and Holger Spamann On the subject. The professors believe executive compensation should be based on more criteria than stock price. Since equity (the bank's stock) is only 5% of a bank's assets, other items such as deposits, loan portfolios & credit ratings should also be used to set performance rewards. The professors argue that if stock price is the only criteria for rewards, the stock price can be artificially boosted at the expense of the rest of the banks assets. I agree with this idea. The purpose of incentives is to reward work that makes the company more profitable, not just the stock. If the company's overall profitability improves, the stock will improve as well.
Tuesday, May 26, 2009
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