Is terrible for America and shows just what ignoramouses the Democratic representatives are. At first blush this seems like the populist position to take! Screw The Man at the banks who has been screwing the little people for too long! WTF to go! Yeehah! About time! Why should CEOs whose banks are failing and who are getting bailed out by the taxpayers make so much money!?
From the WaPo: “The stimulus package Congress passed last night imposes new limits on executive compensation that could significantly curb multimillion dollar pay packages on Wall Street and goes much further than restrictions proposed by the Obama administration last week.”
“The bill, which President Obama is expected to sign into law next week, limits bonuses for executives at all financial institutions receiving government funds to no more than a third of their annual compensation. The bonuses must be paid in company stock that can be redeemed only when the government investment has been repaid. With the measure, lawmakers seek to address public outrage over extravagant Wall Street paydays even as taxpayers bail out the industry… ”
But as usual the populist position is exactly the wrong thing to do. First, the CEOs of banks did not cause the problem we are in. All banks did not just happen to fail all at once because all the CEOs just happened to run their companies into the ground at once. This is a systemic world-wide problem.
Next, while the goal of limiting the obscene salaries that CEOs make might be laudable, having the Government limit the amount is the wrong solution to the problem. Banks now more than ever need the best and the brightest to guide them through this crisis. The best will leave for greener pastures if their pay is cut by artificial and arbitrary limits set by Congress. It is not the banks’ fault that they need bailout money. Well at least not totally. Some banks were worse than others, but some just were more exposed to areas of the country that were hit harder by the burst of the housing bubble. My own bank, Wachovia, had just swallowed up a bank in California that came with a lot of loans there just at the peak of the bubble. Barring that merger the bank arguably would not have failed.
The Government is bailing out the banks out of self-interest. If the banks fail, the Government has to pay their depositors who lose money. The Government is not bailing the banks out due to the goodness of their hearts. Otherwise, they would bail out every business that goes under. So there is no room for this populist “hey, if you are accepting taxpayer money, you have to cut CEO salaries” crap.
This sets a terrible precedent. The Government should not be in the business of dictating what private companies pay their CEOs. What is next? The Government limiting salaries of Presidents of colleges, because colleges receive so much Government money? The Government limiting salaries of CEOs of defense contractors because they receive all their money from the Government’s purchases of weapons? This is the proverbial nose of the camel coming in the tent, with the ultimate goal of these socialists to destroy capitalism and to eventually have the government control all salaries. These elitists think they know how best to run a country, a private company, and eventually, your life.
Our success as a nation is due in large part to the initiative and genius of great CEOs. Where would the country be without the Henry Fords, the Warren Buffetts, the Michael Dells and the Steve Jobs and Bill Gates of the world? If the USA starts limiting the pay of great people they will direct their energies elsewhere and we will suffer. Instead, we should let them earn whatever the market will bear. Further, many of the best who earn the banks the most money will likely flee to companies that are not limited by the amount that they can pay their employees. This will weaken the banks that the Government is trying to bail out, defeating the purpose of the bail-out.
Now, all that said, the real cause of the problem with executive compensation is that the CEOs and the Boards of Directors of companies are all in bed together. Too often the members of the Boards are on many different Boards of Directors, and they aren’t accountable to shareholders. As a stockholder myself I often feel the burn of frustration when the stock price goes in the tank while the CEO makes millions. But being a tiny shareholder my say is never heard. I admit, I don’t even vote by proxy. It is helpless. Something needs to be done about the very structure of companies to bring more accountability to the shareholders. What exactly? That is “beyond my pay scale.” But that is where the problem lies. No more golden parachutes, no more exhorbitant salaries and bonuses when the company loses money. But the companies, the shareholders and the Boards of Directors should be responsible for that, not the Government. EVERYTHING the Government touches, they screw up.
As that article concludes:
“Even some who have long pushed for executive pay reform are concerned that the new rules do not provide enough incentive to executives. Because executives payouts would not be significant, they say, the executives might not be inclined to work hard to return the government money.”
“The people who work on Wall Street are motivated by money,” said Nell Minow of the Corporate Library. “And we should make sure we hold that carrot in front of them until we get the last dime.”