Former American International Group Inc. chairman Maurice R. Greenberg criticized the Obama administration’s steps to restrict executive compensation for firms that receive federal aid, saying the move will result in an exodus of talent.
“What kind of people are you going to get for $500,000? Anyone with real talent will just go elsewhere,” Greenberg told an audience in New York on Thursday, February 19.
He spoke as part of a panel discussion, sponsored by New York-based Source Communications, on the current financial crisis.
Greenberg said any move to cap executive pay on Wall Street will backfire.
“The best managers will move to private companies that are not receiving government funds, and therefore do not face pay caps,” he said.
The $787 billion stimulus package signed by President Barack Obama on Tuesday, February 17, includes a provision to limit bonuses for senior executives at banks that receive more than $500 million from the Treasury Department’s Troubled Assets Relief Program.
The law does not include salary caps, but last month Obama proposed capping the pay of executives of bailed-out banks at $500,000.
Greenberg, who is chairman and CEO of C.V. Starr & Co., also noted that the current market dislocation may also give rise to a wave of startups, and those companies “will outperform the companies that are owned by the government.”
During the discussion, Greenberg railed against a presidential administration that he views as “anti-corporate” and predicted further government ownership of failed institutions.
“That scares me quite a bit. Free enterprise is what built this country,” he said.
Greenberg said he is worried that under government control, bailed-out banks and firms that, like AIG, are part-owned by the government face dim prospects. He also expressed skepticism that the government would recoup all the funds that it had lent such companies.
AIG is in the process of selling various noncore assets to repay funds it has borrowed from the government.
Greenberg—who resigned as chairman and CEO of AIG in 2005 amid investigations of its accounting practices—has been highly critical of the government’s $150 billion AIG rescue package and its related nearly 80 percent stake in the company, calling it the “wrong approach.”
Greenberg reiterated his criticism of AIG’s effort to sell off assets as part of its reorganization, mentioning AIG’s announcement last week that it was looking for a potential buyer of its Tokyo headquarters.
“If you sell that building, the loss of face to every Japanese employee would be profound,” he said.
Greenberg also contends that any sale of assets by AIG in the current market will only yield a fraction of their real value.
“That will not generate enough to repay the terms of the loan,” he said.
Greenberg was joined by two other big financial names—Peter Peterson, co-founder and former co-chairman of private equity firm Blackstone Group, and J.C. Flowers, chairman and CEO of J.C. Flowers & Co.