When Barack Obama signed the American Recovery and Reinvestment Act into law on February 17 at the Denver Museum of Nature & Science, I was left wondering whether the “unity of purpose” that the 44th U.S. president had spoken about so eloquently at his inauguration just four weeks earlier could ever be achieved. The $787 billion fiscal stimulus plan, which Obama and his economic team had made the top priority of the new administration, passed Congress with virtually no bipartisan support (only three Republican senators and nary a House Republican voted for the bill).
The Republicans, for their part, have been fairly unified in their criticism of the stimulus bill, attacking it for being heavy on spending and light on job creation. Democrats have displayed significantly less singularity of purpose. Despite strong opposition from the Obama administration, Connecticut Senator Christopher Dodd added an 11th-hour provision to the bill restricting pay at financial institutions that receive money in the bailout.
The rule, which limits bonuses to no more than one third of total annual compensation for the 25 highest-paid executives at firms that accept more than $500 million in government assistance, is much more far-reaching than the $500,000 salary cap previously proposed by the administration (that would have applied only to the very top executives at firms that receive “exceptional assistance” from the government).
During an appearance on “Fox News Sunday,” David Axelrod, a senior Obama adviser, warned that the pay limits attached to the stimulus bill could put U.S. financial institutions at a competitive disadvantage and lead to a “brain drain,” an argument typically heard from banks.
What’s unclear, of course, is where all the brains are going to drain to. Most banks are firing, not hiring, as they scale back operations in the face of what almost everyone agrees is the worst financial crisis since the Great Depression. Hedge funds are also hunkering down, especially those that suffered sizable double-digit losses in 2008, and are unlikely to start increasing head count before next year at the earliest.
But even those hedge fund professionals who are still gainfully employed expect their paychecks to shrink this year — in some cases substantially — according to data from our upcoming 2008 Hedge Fund Compensation Report. The study, which is based on a survey of more than 800 people at some 550 hedge fund firms and will appear in the April 2009 Money Issue of Alpha , finds that everyone from junior traders to CEOs saw their compensation decrease in 2008 — not exactly the “unity” Obama had in mind.
