Joined by Tom Gardner, the CEO and Co-Founder of Motley Fool, the traders take a look into the question of how Wall Street executives should be compensated. He puts it into perspective: “What we are looking at here are people making a lot of money while destroying their companies. The incentive plans were set up that way, they had people focusing incredibly on the short term, and it set the companies up for failure… we have to have claw backs, we have to have restitution.”
But how to approach this? Tom Gardner points out that the incentive structure is set up in a short term format, which allows individuals to move accounting rules aggressively which has the potential to destroy the company. He suggests setting up compensation measures which focus more on the long term, such as bonuses that would be determined years in advance for current performance.
Karen Finerman says she is in favor of claw backs, as well as multi-year payouts, so you can see how investments play out over time. It is still a question of whether the good bank/bad bank argument is the solution to this problem, as some of these companies have been mortally wounded by the actions of its employees.
Gardner points out that there is danger of instability, as many parts of the country are feeling large amounts of animosity for the events on Wall Street. He suggests that the solution to this problem could be with the shareholders, having the top 3-5 executives faced with the prospect of claw backs in a multi-year payout on bonuses to ensure their compensation is not a determent to the company.
Also check out Tom Gardiner’s book, The Motley fool Million Dollar Portfolio, where books are sold.
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Trader disclosure: On Jan 30, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Najarian Owns (EEM), (BMY) Calls, (FCX) & (FCX) Short Calls, (MSFT) & (MSFT) Short Calls, (MS) & (MS) Short Calls/Put Spread, (SQNM) & (SQNM) Short Calls, (GDX) Call Spread, (GE) Put Spread, (STP) & (STP) Short Calls; Seymour Owns(AAPL), (BAC), (EEM), (F), (FXI); Finerman's Firm Is Short (IYR), Short (IJR), Short (IWM), Short (MDY), Short (SPY), Short (COF),Short (USO), Owns (DNA) & (DNA) Call Spread, Owns (MSFT), Owns (UNH); Adami Owns (AGU),(C),(BTU), (GS), (INTC),(MSFT),(NUE)
Montley Fool Owns Shares of (PG)
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