In the end, the Obama administration’s caps on executive pay for foundering financial institutions that receive major public bailout money may be largely symbolic. But it is symbolism that taxpayers and Congress, outraged at lavish pay and huge bonuses for poor performance, are demanding.
The precipitating factor was the disclosure that Wall Street paid out more than $18 billion in year-end bonuses even as it was collapsing into the arms of the federal Treasury.
The centerpiece is a $500,000 cap on annual executive pay for companies applying for bailout money. It doesn’t apply to companies that have already received public funds, but it does if they come back for more.
There are exceptions for generally healthy companies getting help, and even companies requiring "exceptional assistance" can pay more than the $500,000 but it has to be in the form of stock that the executives must hold for the long-term.
It could have been tougher. Sen. Claire McCaskill, D-Mo., who called Wall Street’s bonus recipients "idiots," would have fixed the top pay at $400,000, the salary of the president of the United States. Indeed, Wall Street has few friends at the moment. Sen. Richard Shelby, R-Ala., called "getting close to being criminal" the way some of the bailout money was spent.
Those of the capitalist disposition must hope that these restrictions are only temporary in the sense that there will come a day when the government can disentangle itself from the internal affairs of private companies. But there are indications the government may have come to stay.
In announcing the restrictions, President Obama said his administration was considering additional compensation restrictions on companies that don’t receive federal money, requiring top executives to hold onto their stock for several years and giving the shareholders a say on executive pay. There will be a Treasury conference on an overhaul of executive compensation — and who knows what that will recommend in the current climate.
Critics of the cap argue that the restrictions on pay will make it difficult to recruit and retain good executives and that their best people will head off to greener pastures. Good. If they can actually find better jobs, it would mean the economy is improving.