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Wednesday, February 04, 2009

This seems like a bad idea: Obama caps executive compensation


US President Barack Obama has announced a $500,000 (£355,000) limit on executive pay at US firms that need substantial fresh government aid.
In addition to the limit on basic pay, Mr Obama said if affected executives receive any further bonuses, they "will come in the form of stock that can't be paid up until taxpayers are paid back for their assistance".

Can you say "unintended consequences"? Chasing skilled executives away from companies that are already in trouble seems like a GREAT idea.

Is it time for Atlas to shrug yet? There's never a Norwegian, Aristotle-reading pirate-philosopher around when you need one.

Posted by Terrence Watson on February 4, 2009 | Permalink


Why have you forsaken us, Ragnar?

Posted by: Matthew Johnston | 2009-02-04 1:56:58 PM

Ragnar was my favorite character in Atlas for probably the dumbest of reasons: he was a bad-ass philosopher.

Plus, pirates are cool.

Posted by: Terrence Watson | 2009-02-04 2:00:11 PM

Can you say "unintended consequences"? Chasing skilled executives away from companies that are already in trouble seems like a GREAT idea.
Posted by Terrence Watson on February 4, 2009

Maybe most of them need to be chased away.

Posted by: The Stig | 2009-02-04 2:05:50 PM

Does the legislation allow for out-of-this-world bonuses if the government loans are paid back EARLY? That would legitimize the policy, IMHO. Remember, Lee Iacocca paid back Chrysler's loan ahead of schedule. Do any history buffs know if he got any extra financial reward for that feat?

Posted by: anonymous | 2009-02-04 2:12:16 PM


Maybe. But who is going to replace them? Is the result just going to be the replacement of a bad CEO with an even worse one?


I agree with you that the provision you specify would make the policy much more defensible. I'll have to look into this.

Posted by: Terrence Watson | 2009-02-04 2:23:14 PM

OR - and I realize this is a crazy idea - we could just let failing companies FAIL, rather than pumping money into them and scaring away qualified leaders. That would also save taxpayers some money and would punish an awful lot of the bad executives Obama is worried about along the way.

Posted by: Janet | 2009-02-04 2:30:14 PM


Or maybe Obama should just replace CEOs with well-intentioned government bureaucrats.

He's taking the indirect route when the shortest distance between two points is a straight line: if he wants the right people in charge of these companies, he should just appoint them. None of this pussy-footing around.

The government always achieves its goals, doesn't it?

Posted by: Terrence Watson | 2009-02-04 2:34:11 PM

While I oppose salary caps in principle, in practice I've seen that a generous compensation package on the table is no guarantee of landing competent executives. Just look at the Big Three.

Posted by: Shane Matthews | 2009-02-04 2:38:02 PM

Janet hits the nail on the head. We're discussing an idea that was ridiculous from the start. What the hell is the government doing getting involved in first, bailing them out and second, dictating policy?
This is textbook fascism wrapped in a flag that stood for freedom once upon a time.

Posted by: JC | 2009-02-04 2:56:48 PM

Big surprise! This is what happens when you let the government get involved in running your company! The answer is to not take government handouts or loan guarantees. When you take the handout, you allow the government to influence your business plans. Any CEO worth his salt should be looking for any way possible to keep his company running without government involvement. Once in, good luck trying to kick the bureaucrats out.

Posted by: David | 2009-02-04 3:06:06 PM

If the US gov't had let them fail these executives would be gone.

So when do we get to cap Ben Bernanke's salary? I think we should be thinking of that shady institution that is really running the financial industry in the US ...

Posted by: Charles | 2009-02-04 3:26:49 PM


How much does Ben Bernake make?

I have no clue. Could you enlighten us, please?

Posted by: set you free | 2009-02-04 3:49:39 PM

From what I understand he makes a bit under $200 000. But that wasn't the point of my sarcastic remark. The point was that if you are going to set arbitrary salary caps for people you feel are responsible for this crisis, why not start with him? I'd also have Alan Greenspan give half of what he's made over the years back to the taxpayers.

Posted by: Charles | 2009-02-04 3:56:25 PM

Maybe. But who is going to replace them? Is the result just going to be the replacement of a bad CEO with an even worse one?

Maybe they could replace them with unemployed / semi-employed philosophy professors. Do you know how to put everything on red?

Posted by: The Stig | 2009-02-04 3:59:36 PM

Companies are free to pay their CEO's what they want. They may not get stimulated though.

I agree that there will be some kind of unintended consequences as a result of limiting the CEO pay.

Posted by: TM | 2009-02-04 5:46:54 PM

Forget unintended consequences, what’s the intended consequence? To punish successful people? To take control of wages? To further national American industry? To scapegoat executives?

Executive pay is freely negotiated. Union salaries, on the other hand, are coerced using the power of the state and labour laws. If you're concerned about artificially high salaries, repeal the labour laws that allow unions to demand ruinous salaries and benefits like those that destroyed GM.

Corporations are greedy...right? So why would they pay anyone more than they have to? They wouldn’t.

Investors should punish companies that “over pay” executives – although there is no objective pay standard from which to determine what “over pay” looks like. despite Obama’s Soviet era-inspired $500,000 ceiling.

Obama is destroying what’s left of America’s former greatness.

Posted by: Matthew Johnston | 2009-02-04 6:30:42 PM

Any self-respecting CEO that has earned his job should resign before grovelling to the looters for spoils. If the tax payers are going to "bail them out" the failed CEOs (overpaid rent seekers / shameless carpetbaggers) deserve whatever indignities are deemed appropriate by their new masters.

There should be no bailouts. Laissez-nous faire

Posted by: John Chittick | 2009-02-04 6:33:09 PM

Always classic and a perfect opening for a Samuel Adams quote...

"If you love wealth more than liberty, and if you prefer the tranquility of servitude rather than the animated contest of freedom, then go home in peace. We seek neither your counsel nor your arms. But bend down and lick the hands that feed you; and may your chains rest lightly upon you. And may posterity forget that you were our countryman. "

Posted by: JC | 2009-02-04 6:51:43 PM

JC, awesome quote!!

Posted by: TM | 2009-02-04 7:41:59 PM

David hit the nail on the head. The reason these companies are losing control over their own affairs is because they went begging to the government for aid. Such aid does not come with no strings attached, nor should it. Why would a partner buy into something and then sit back and leave the fate of his investment to others?

Posted by: Shane Matthews | 2009-02-04 8:01:43 PM

Did I hear someone say ---skilled--- executives!! The equity markets have been handled like a bucket shop with no integrity and certainly no intelligence. These CEO's failed spectacularly. Let's get some fresh minds and hearts on the problem!

Posted by: Susan McLoughlin | 2009-02-04 8:28:00 PM

"Chasing skilled executives away from".
Would these be the same CEO's that ran the ship into the reef when even the janitors could see this coming ? Education has no bearing on intelligence. Hire the janitors to replace these greedy bastards. They could do no worse.

Posted by: peterj | 2009-02-04 8:50:48 PM

Frankly CEOs and Wall Street proved they could not behave themself and now Obama is coming in with the wooden spoon.

In any case these companies are getting taxpayer money. As a taxpayer I would pay them closer to the average US wage of $40,000.

Posted by: Faramir | 2009-02-04 11:48:36 PM

The only quarrel I have with this salary cap policy is that is doesn't go far enough. I say, any corporation that receives taxpayer dollars (excluding companies that actually provide genuine goods and/or services to the government) should have to submit to state-imposed executive wage controls. If governments are unable or unwilling to end the supply of corporate welfare, then this seems like a reasonable way to reduce the demand. Companies would think twice about sticking their heads in the taxpayer-funded trough if the top executives knew it would mean a radical reduction in compensation. If some august widget manufacturer needs massive taxpayer subsidies to stay in business, then they should be considered de-facto public servants, and their executive pay should be capped at the top level for any other public service executive. If they don't like it, nobody's forcing them to take the taxpayers' dough. I hardly think the government is "chasing away talent" by demanding a little accountability from private, for-profit corporations who suck off the taxpayers' teats. If they were so damned talented then they wouldn't need taxpayers' hard-earned cash. If implemented properly (as opposed to this silly half-measure proposed by President Obama) I think it's a very pragmatic conservative/libertarian policy, using market principles to advance the cause of good government. "You want to be treated like a responsible corporate citizen? Then raise your capital through the private sector! You want to receive taxpayer funding? Then you relinquish your independence and must submit to bureaucratic meddling. We, the people, leave the choice up to you." If resigned to the sad reality that corporate welfare cannot be eliminated, I genuinely believe that Ayn Rand would approve of such a policy as a lesser evil.

Posted by: anonymous | 2009-02-05 8:41:54 AM

"punishing successful people" someone comments. But if they were successful, they wouldn't be begging for my tax dollars, would they? And since they are, then the gov't has a perfect right to set their salaries, just as they set compensation for anyone else supported by tax dollars. He who pays the piper.... Anyway, where would they go? Who would hire banker who's presided over a loss of billions?

Posted by: BillBC | 2009-02-05 9:46:56 AM

Behind every distressed industry is a government policy that put them there, BillBC.

You wrote: "Who would hire banker who's presided over a loss of billions?"

Then why control executive salaries? By your own logic, their wages are about to come down dramatically. The answer, of course, is that some people just like the idea of the state controlling things like wages, and they like the idea of punishing the wealthy.

Posted by: Matthew Johnston | 2009-02-05 10:08:43 AM

It's not about punishing the wealthy. It's about maintaining control over the dollars that the government confiscates from the taxpayer. If we agree that we are largely helpless trying to stop the government from handing taxpayer dollars over to private business, then to then say the government has a duty to give private business carte-blanche in how it spends those taxpayer dollars. That's precisely the same as arguing that it's wrong for the government to consfiscate the wealth of individuals but it's ok for Wall Street to confiscate the wealth of individuals. I don't want ANY organization confiscating the wealth of individuals. In those instances where I cannot stop the government from confiscating wealth, I bloody well DEMAND accountability and strict oversight in how those funds are spent on my behalf. As far as I'm concerned, the second that an organization receives taxpayer dollars they waive the right to refer to themselves as a "private" organization. They have become an arm of the state, and should be treated as such.

Posted by: anonymous | 2009-02-05 11:42:09 AM

I really wish there was an edit feature for these comments --- I meant to write, "IF we agree that we are largely helpless trying to stop the government from handing taxpayer dollars over to private business, to then say the government has a duty to give private business carte-blanche in how it spends those taxpayer dollars is diametrically-opposed to conservative/libertarian principles."

Posted by: anonymous | 2009-02-05 11:44:58 AM

So one intervention deserves another, anonymous?

One crime warrants another?

One market distorting action demands another?

One act of socialism requires another?

I object. I strenuously object.

Posted by: Matthew Johnston | 2009-02-05 12:12:11 PM

Hardly. On the contrary, my vision of the policy expands the importance of choice rather than stifling it. Private corporations that do not accept taxpayer grants are free to run their own affairs as they see fit, without government interference beyond normal regulation against criminal activity, etc. They are not being FORCED by the government to accept taxpayer grants. But if those corporations come to the government begging that large amounts of money be confiscated from taxpayers to be handed over, they would be told IN ADVANCE that one consequence would be that for as long as they feed off the taxpayer teat, they no longer have the right to be considered "private". They are taking public funds, and as such are de facto part of the public sector. Whether or not to accept this contract would be the free an uncoerced choice of the corporation's executive team and/or board of directors. Ideally, I would imagine that very few corporate executives would accept this bargain, which would suit me just fine since they would have to raise capital on their own. The alternative, for private interests to receive public funds with no oversight or accountability, already goes by several different names - corruption, graft, etc. Furthermore, this would not apply only to corporations. This should apply to any organization that receives taxpayer grants - arts groups, NGOs, etc. Before a single dime is forcibly taken from the taxpayer and handed over to a non-governmental organization, that organization must waive their right of independence. The point is that it will make them think twice about asking for the money in the first place. If an individual applies for a monthly welfare cheque, they are ideally told up-front the obligations and responsibilities that will be expected of them. If they don't like it, they don't need the money that badly. I do not see why it should be different for corporate welfare. And again, I want to reiterate that this doesn't apply to businesses that provide actual goods or services to the government.

Posted by: anonymous | 2009-02-05 2:41:51 PM

Good post anonymous. Although I generally lean towards Matthews line of thinking, these are not normal times and it may be a long time before we regain a logical balance.

Posted by: peterj | 2009-02-05 8:27:01 PM

What you're proposing, anon, will expand the size and scope of government and destroy the companies receiving taxpayer handouts, ensuring that taxpayers never get their money back.

Posted by: Matthew Johnston | 2009-02-05 9:48:25 PM

MJ, I think you know once a company goes into the cap in hand abyss,it ceases as being an entity that increases the wealth of the nation. It becomes simply a ward of the state and no good to anyone.

Posted by: Faramir | 2009-02-06 12:14:15 AM

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