Cashing in Before the Music Stopped

by Lucian Bebchuk, Alma Cohen, and Holger Spamann, for The Harvard Law School Forum at Harvard Law School, December 7, 2009.

(Editor’s Note: This post is based on an op-ed article from the print edition of today’s Financial Times by Lucian Bebchuk, Alma Cohen, and Holger Spamann. The op-ed article is based on their study, “The Wages of Failure: Executive pay at Bear Stearns and Lehman 2000-2008,” which is available here. Although Lucian Bebchuk is a consultant to the US Treasury’s office of the special master for TARP executive compensation, the views expressed in the post should not be attributed to that office.)

According to the standard narrative, the meltdown of Bear Stearns and Lehman Brothers largely wiped out the wealth of their top executives. Many – in the media, academia and the financial sector – have used this account to dismiss the view that pay structures caused excessive risk-taking and that reforming such structures is important. That standard narrative, however, turns out to be incorrect.

It is true that the top executives at both banks suffered significant losses on shares they held when their companies collapsed. But our analysis, using data from Securities and Exchange Commission filings, shows the banks’ top five executives had cashed out such large amounts since the beginning of this decade that, even after the losses, their net pay-offs during this period were substantially positive…(continue reading)


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