The Suite Life

I share much of the public outrage concerning recent spending by bailed-out financial institutions on swank events and excessive bonuses. The government invested taxpayer funds in these institutions to stabilize and free the credit market for the sake of all citizens and not to fund the lavish lifestyle of a few.

Government and public reaction to media reports of lavish spending by bailed-out financial institutions increasingly call to cease all spending that appears excessive. Discouraging spending by these institutions based on appearances, however, is reckless. Consider last week’s attack of Wells Fargo for planning an employee recognition conference for its top brokers at The Wynn Las Vegas and Encore Las Vegas. Wells Fargo planned this event having received a reported $25 billion from the Troubled Asset Relief Program, or TARP. Once news of the posh event surfaced, Wells Fargo immediately became the target of media, government and public condemnation for what was labeled to be irresponsible corporate spending using taxpayer funds. There are two major problems with this seemingly appropriate reaction.

Firstly, if institutions that take money from the government cannot use it to recognize and compensate its performing staff, they will see a rapid decline in their businesses. Lavish spending at a time of dismal performance and economic weakness looks terrible, but the consequences of not recognizing top performers is worse. Top performers have options even in bad economic times. If Wells Fargo is unable to compensate its top performers due to public perception or government restraints, these individuals will leave to work for a company whose spending is not under such scrutiny. Shareholder value will dissipate quickly as top performers leave bailed-out financial institutions hamstrung by government policies and public perception.

Secondly, scrutiny on business travel spending will cause a further negative shock on an already weakened economy. Travel and tourism is one of our country’s largest employers. The American Hotel and Lodging Association provides some useful numbers for the importance of business travel alone on its recent statement on this subject. Business-related travel generates 2.4 million jobs in America, $244 billion in spending and $39 billion in tax revenue. The Department of Labor reports a loss of nearly 200,000 travel related jobs in 2008 and the U.S. Commerce Department predicts the loss of an additional 247,000 travel related jobs in 2009. So, in the same week that our elected officials are crafting a monstrous economic stimulus with a primary goal of job creation, they are inadvertently dealing a blow to one of our most important employment sectors. In fact, The Wynn Las Vegas underscored this point ironically by announcing its own “efficiency initiatives” to save between $75 million and $100 million the very same week that Wells Fargo was shamed into canceling its event at the property. The Wynn cut employee compensation through reductions of salary, scheduled hours and others benefits.

The public should insist financial institutions that accept taxpayer funded government loans invest these resources in an appropriate manner. I do not defend such events as AIG’s ill fated junket to the St. Regis in Monarch Beach days after receiving $85 billion in federal funding. However, the public, government and media must resist overreaching in their zeal to curb what they deem to be excessive spending in a manner that destroys shareholder value at bailed-out financial institutions and further harms the economy by further harming an already weakened travel industry.

Travel is an important part of our economy and will play an important role in its recovery.

- Eric Jeck, CEO Perfect Escapes