Obama Looks to Regulate Executive Compensation
This is not only outrageous, it’s a very bad idea.
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.
The outlines of the plan are expected to be unveiled this week in preparation for President Obama’s first foreign summit meeting in early April.
Increasing oversight of executive pay has been under consideration for some time, but the decision was made in recent days as public fury over bonuses has spilled into the regulatory effort.
The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.
Let’s start with the obvious… government regulation of compensation packages is a violation of the property rights of the owners of the companies. If I want to start Owen’s Corn Dog Emporium and pay my CEO $14 trillion dollars a year, it is no business of the government’s.
But economically, government control of executive compensation would be disastrous to our economy. I’m a hardcore capitalist when it comes to compensation. If a CEO is successful, then pay him or her a fortune. If a CEO is a failure, then sack him or her and get someone else. The problem is that terms like “successful” and “failure” and “fair” are highly subjective. Let’s say that my Corn Dog Emporium is bleeding $10 million a day because it is run inefficiently and it’s a bad economy. There’s a new diet craze that forbids corn dogs. I hire a new CEO who manages to cut my daily losses to $2 million. Is my new CEO successful? He has certainly helped the company, but it’s still in the red. The real question is, who gets to decide? Me, the owner, or the government? What if my new CEO achieved these results by firing a third of the staff? Is some grandstanding politician in Washington going to get outraged that he fired people and dictate that I cut my CEO’s compensation?
This has real world implications. Let’s move away from my fictional example and into the real world. Think about the executives at a company like GM. GM has an unsustainable business model for the 21st century economy, but they are contractually locked into that business model. What if the CEO did what needs to be done - declare bankruptcy, shed the legacy obligations, and reorganize the company? This would result in hundreds of thousands of workers and former workers losing their benefits, pensions, etc. At the same time, that CEO may make $10 million. Does anyone really think that the politicians in Washington would consider that fair compensation? Given the feeding frenzy taking place over AIG, I’d be dollars to doughnuts that GM’s CEO would be sitting in Congressional hearings and being told to forfeit his salary even though he did the exact right thing.
Yes, there are ridiculous compensation packages out there, but inserting politicians into the mix will only make it more absurd. Leave compensation between the owners and the employees.
Looks like he will get a double-dip on this one: it will give satisfaction to the “populists” in our country & it’s a suckup to the French & Germans to get their cooperation at the G20 summit. He wants to encourage more government spending, so he will sell out our companies & economy to do that.
The Obama administration has urged European nations to do more to restart their economies through financial stimulus. Mr. Obama is hoping that by showing a serious commitment to tighter regulation he can more easily persuade other countries to increase government spending and stimulate demand by consumers and businesses that would help pull the global economy out of a serious decline.
The guy is a M-O-R-O-N! Imagine a future global economy (not in recession or depression) & think about where it will make sense to start up a new corporation - definitely not America or Europe.
Here’s another thought - sometimes those lottery payouts are way huge - tell the American people we need to cap those - i.e, 50M tops, and the rest goes to the government.
Posted by .(JavaScript must be enabled to view this email address) on March 21, 2009 at 1840 hrs
It sounds like some of the bankers are ready to go Galt: http://www.ft.com/cms/s/0/4ff2f77e-1584-11de-b9a9-0000779fd2ac.html
Bankers on Wall Street and in Europe have struck back against moves by US lawmakers to slap punitive taxes on bonuses paid to high earners at bailed-out institutions.
Senior executives on both sides of the Atlantic on Friday warned of an exodus of talent from some of the biggest names in US finance, saying the “anti-American” measures smacked of “a McCarthy witch-hunt” that would send the country “back to the stone age”.
Posted by hsgbdmama on March 21, 2009 at 1845 hrs
Hmmmnnnhhh….
This is not the place to start the discussion of whether financial gerrymandering is “wealth creation,” but it certainly is tempting.
As you know from your military training, targets usually present themselves at one time or another. And the banks & investment banks presented themselves as targets.
Man, what a mess.
Posted by dad29 on March 21, 2009 at 2109 hrs
Someone better take mr. O aside and start explaining the facts to him.
Can you image what the market is going to do on Monday morning? We’ll be lucky if it stays above 5000 by the end of the week!
Posted by .(JavaScript must be enabled to view this email address) on March 21, 2009 at 2155 hrs
The new law only taxes bonuses for companies that accept billions of bailout money. And it only applies to employees who make more than $250,000.
What Owen isn’t taking into consideration is that for some of these companies, we have taken such a huge stake in them through bailout funds that we (the government) are now the owners (or at least until the original owners get around to paying us back.)
We are bailing out these huge financial institutions so that they will take this money and start lending it out to small businesses and such…. not so that they can stuff their pockets and feather their nests a little more.Posted by Mike Thomas on March 22, 2009 at 0033 hrs
Mike,
Read what the administration is floating here:
increased oversight of executive pay at all banks, Wall Street firms and possibly other companies
This proposal goes beyond just those companies who have received a financial bailout.
Posted by Owen on March 22, 2009 at 0610 hrs
It was one thing to toss around the idea of capping pay for companies that take bailout money. That water is so muddy because private companies should never get bailout money in the first place.
But to begin to discuss regulating pay of private industry? Are you kidding me?
Thats not a step onto the slippery slope, its a jump off of the cliff into the abyss of communism and command and control.
Food for thought. The Brewers accepted a publically funded stadium. Shouldn’t taxpayers have the right to demand pay caps on the pay of brewers players? Lets try that and see how competitive the brewers become.
The movie shot here “Public Enemy”. They accepted huge lucrative tax credits from the government. Should the state of wisconsin then have a legitimate arguement that we are justified in limiting the pay johnny depp got for the movie?
Can you imagine the uproar amongst the liberal bastions of hollywood?
Stop throwing public money at private industry and let the market decide. That goes for baseball stadiums, private companies and everyone else.
Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 1015 hrs
This proposal goes beyond just those companies who have received a financial bailout.
Exactly. It’s part of The Anointed One’s war on prosperity, success, achievement and capitalism itself. The Left has talked about imposing a maximum wage in America for years. And it fits neatly into what Our Lord and Savior said on The Tonight Show (when His foot wasn’t in His teleprompter):
But the larger problem is we’ve got to get back to an attitude where people know enough is enough, and people have a sense of responsibility and they understand that their actions are going to have an impact on everybody. And if we can get back to those values that built America …
Sorry, but those values were not part of anything that built America. This is pure collectivism, the mantra that “my success comes at the expense of someone else,” the ultimate in guilt trips.
The message is clear: if you succeed too much and refuse to limit yourself, government will limit you. By any means necessary.
Posted by Peter on March 22, 2009 at 1354 hrs
Food for thought. The Brewers accepted a publically funded stadium. Shouldn’t taxpayers have the right to demand pay caps on the pay of brewers players? Lets try that and see how competitive the brewers become.
Same deal with the Packers ...
Posted by hsgbdmama on March 22, 2009 at 1407 hrs
The problem here is that you are acting as if people have a right to incorporate, Owen. They do not. Incorporation is a grant, not a right. It grants the recipient many things, including limited individual liability for the actions of the corporation. In return for those grants it is entirely appropriate for limitations to be imposed upon the corporation.
Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 2107 hrs
Again… “other companies.” There is no assumption that they are only talking about corporations.
Posted by Owen on March 22, 2009 at 2116 hrs
Companies generally do not include the unincorporated, and I think the meaning here would clearly include only the incorporated.
Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 2133 hrs
The problem here is that you are acting as if people have a right to incorporate, Owen. They do not. Incorporation is a grant, not a right.
I’m not so sure about that. (that people don’t have a right to incorporate) Now I know that liberals (and I’m not calling you one) view the constitution much different than I do. But I think on many levels not-withstanding the 9th and 10th amendments, I don’t think the government has the right to deny us the ability to incorporate. Obviously like anything else the government “of the people” has an obligation to protect rights. As such regulation of the activities of a corporation is certainly ‘fair game’ but just at the whim and will of the legislator.
I will say that perhaps a GOOD change to corporate law would be in the area of limited liability. Maybe its time to stop letting people incorporate, make a bunch of money, insulate their assets from the corporation and leave creditors holding the bag. Maybe its to to have stockholders, officers, boards of directors have some financial obligation to when their companies go belly up.
Maybe thats the way to make people pay attention to what the boards of the companies they invest in do. Maybe thats the way to keep executives from gambling their comanies on next quarters numbers.
But then again… in a free market, any bank that loans a company money does so at their own free will. Any person who invests in a company does so at their own free will. Anyone who works for a company does so at will. In reality, the people who get burned when a company goes down made a choice to do business with them.
For me… until we started pumping all this bailout money into private companies, non-involved individuals rights were being protected just fine.
Posted by .(JavaScript must be enabled to view this email address) on March 22, 2009 at 2212 hrs
The whole point of allowing corporations is that they can accomplish things for society that individual owners either can’t do or have great difficulty doing, such as the pooling of resources and the undertaking of tasks that are simply of too great a scale for an individual. I think the limited liability is both necessary and beneficial to this end.
As to compensation, however, the large personal compensations we are talking about, such as those received by AIG execs, are historically connected to large personal risk. We have divorced the two and that is inappropriate. If we are going to limit liability, and therefore limit personal risk, then it is appropriate to limit compensation, and thus limit personal reward.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 0818 hrs
As to compensation, however, the large personal compensations we are talking about, such as those received by AIG execs, are historically connected to large personal risk. We have divorced the two and that is inappropriate. If we are going to limit liability, and therefore limit personal risk, then it is appropriate to limit compensation, and thus limit personal reward.
I agree 100%
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 0834 hrs
But the owners still take that risk. Remember that the executives are just employees. It’s the owners who take the risk. As an investor of Bear Stearns or AIG or CitiGroup if that risk worked out for them.
Posted by Owen on March 23, 2009 at 0837 hrs
That should be “ask an investor…”
Posted by Owen on March 23, 2009 at 0839 hrs
It is indeed the investors who are most at risk. It was the executives, however, who received the reward. A reward received with virtually no risk except the risk that they might not get the reward.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 0857 hrs
Government meddling in compensation just throws up so many scenarios of unindended consequences. If they want to be truly helpful on this front, you simply need to require than compensation plans all be ratified by the majority of stockholders. That will kill the really obnoxious plans, and give power back to the actual owners.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 0951 hrs
Government meddling in compensation just throws up so many scenarios of unindended consequences. If they want to be truly helpful on this front, you simply need to require than compensation plans all be ratified by the majority of stockholders. That will kill the really obnoxious plans, and give power back to the actual owners.
I agree with this is principle, but have issue with the fact that a majority of large corporations are staked mostly by large mutual funds… How do we handle that?
Ford - 55% Held by Mutual Funds
Microsoft - 61%
IBM - 61%
Boeing - 70%
UPS - 70%
Pfizer - 68%
GE - 57%How do we allow votes for those holdings?
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1014 hrs
Stockholders in corporations are also granted limited liability. They have a greater risk, but they do not represent society. Society has a right to expect something in return for the grants awarded corporations, their officers, and their stockholders.
I make no implication as to the ability of Congress to successfully determine any such compensation for either society or for corporate officers.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1020 hrs
Society has a right to expect something in return for the grants awarded corporations, their officers, and their stockholders.
Society in general always reaps benefits from this. From $20 DVD players to medicine to air travel to car safety to everything. Think where we’d be without corporations… would we have MRI machines, the drugs we have, men / machines in space, the internet, cable television, etc… ?
I doubt it.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1105 hrs
I have nothing against corporations as I made clear in comment 14. Society, however, is entitled to analyze the costs and benefits of corporations (and there are costs) and act accordingly. Compensation of corporate executives is part of that analysis.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1114 hrs
I have nothing against corporations as I made clear in comment 14. Society, however, is entitled to analyze the costs and benefits of corporations (and there are costs) and act accordingly. Compensation of corporate executives is part of that analysis.
That makes more sense, and also lines up with your statement about not implicating congress is the ability to competently fill that role.
Posted by .(JavaScript must be enabled to view this email address) on March 23, 2009 at 1132 hrs
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