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Should government cap executive pay?

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February 13, 2009

Should the federal government tell companies how much they may pay their executives? The Obama administration plans to do just that. The president announced Feb. 4 that companies receiving "extraordinary" levels of bailout money from taxpayers would be forced to limit top salaries to $500,000 a year.

Rep. Barney Frank, the Democratic chairman of the House Financial Services Committee, then suggested Congress might seek to extend those pay caps to all financial institutions — and perhaps even all U.S. companies.

Are pay limits an outrageous imposition on free markets? Or are they a responsible method of reining in the financial risk-taking that helped cause the country’s economic problems? RedBlueAmerica columnists Joel Mathis and Ben Boychuk jump into the fray.

JOEL MATHIS

Pity the poor CEO. He’s spent the last few years making tens of millions of dollars while running his business into the ground — helping destroy retirement accounts, explode the unemployment rolls and generally devastate the economy. Now he goes hat in hand to the federal government for help and he’s supposed to take a pay cut? To only $500,000 a year? As the saying goes: Cry me a river.

President Obama is right to insist on pay caps for executives at companies receiving federal assistance. Taxpayers shouldn’t have to subsidize, say, Merrill Lynch’s $1,200 wastebaskets as the cost of saving the country from a new Great Depression.

That’s not to say Americans should completely give in to their populist rage. Capping the compensation of executives at thriving companies might feel good for a moment, but it’s almost purely punitive and it probably won’t revive the economy. That’s where our focus should be.

Executives at businesses getting a federal handout, though, have already failed. In a real free market economy they’d be out of work, their companies shuttered. They’re lucky taxpayers are helping them survive; they shouldn’t also expect to get ultra-rich in the process.

BEN BOYCHUK

Don’t pity any company that went to the U.S. government in search of a handout. There are always strings attached to receiving tax dollars. Always. It doesn’t matter whether you are on food stamps or whether you are the CEO of a multinational bank. Often, the strings are unacceptable, which is why Goldman Sachs is scrambling to repay the $10 billion the Treasury loaned the investment bank last year as soon as possible. Extra government regulation is bad for business, and the financial institutions know it.

As a matter of principle, however, government has no business dictating the salaries of corporate executives — or the salaries of doctors, lawyers, university professors, grocery clerks or newspaper columnists, for that matter. Ultimately, the market will determine wages. When government tries to intervene with wage and price controls, as it did in the early 1970s, the results are always to the detriment of the economy.

But leave it to liberal regulators in the Obama administration and Congress to overreach. Barney Frank might succeed in extending executive pay caps to all U.S. firms, but it is highly unlikely that he will be held accountable for the predictably disastrous results.

If Frank and his liberal colleagues do get their way, they will hobble the economic recovery and depress federal tax revenues. Conservatives often refer to the law of unintended consequences. Americans will now have a chance to see the law in action.

According to a new Congressional Budget Office report, Obama’s executive pay cap will cost the U.S. Treasury about $11 billion in lost revenues over 10 years. How is that? For starters, pay caps reduce taxable income. And smart companies will look to adopt other forms of compensation that are not subject to higher taxes.

By sticking it to those fat cat CEOs, in short, liberals are really sticking it to the country.

(Ben Boychuk and Joel Mathis blog daily at http://www.infinitemonkeysblog.com and http://politics.pwblogs.com/.)

8 Responses to Should government cap executive pay?

  1. dbumRob

    February 13, 2009 at 8:46 am

    Boychuk sounds like a radio pundit! Those were pure bullet points with no proof from history, or economics.

    Let’s ignore the last century, and just look at what the last eight years of tax cuts have given us, and the incredibly high levels of CEO payouts: the absolute need for a recovery of a failing economy. With all those high salaries, where are the taxes from them? Hidden in off shore accounts and tax loopholes, CBO report or not. Remember, the report is a possible projection, a speculation. Boychuk must think it’s a fact.

    Listening to how brain dead conservatives are on economic issues is getting annoying. The greatest growth periods in this country happened during high tax periods; the most recent one being the time right after WW2. Corporate taxes and taxes on high wages were very high, and growth didn’t stop. Now as the result of deregulation and tax cuts we have what? A disaster. Unemployment getting worse every month. Sometimes every week. A housing situation that is in crisis, in many different ways. A poorly managed bank system and auto industry, both on the brink of extinction unless they receive money from my pocket.

    Maybe Boychuk doesn’t mind handing out money with no strings attached, or no accountability. Or he has some magical thinking that that makes the tax money no longer his because an inert entity we call the government has it. But he and his fellow conservatives are the last people I would give a penny to. They had demonstrated two things only for the last eight years: incompetence in financial matters, and greed.

    As long as my dime is being used, I support a temporary pay cap. And if there aren’t immediate results, an immediate firing with a severance package that resembles what the rest of the unemployed are getting.

  2. doneck

    February 13, 2009 at 10:35 am

    They were responsible for their firms’ immense losses. Their “leadership” was not creative; it was groupthink. If they had any honor, they would have resigned, waiving any golden parachutes. Their corporate boards were also complicit in the mismanagement: first, because they allowed it to happen and, second, because they didn’t fire the big cheeses after it happened. If I were Philosopher King, I would have had them fired; that would give them all a pay cap of zilch, which is appreciably less than $500K. Capitalism should not reward failure.

  3. AustinRanter

    February 13, 2009 at 12:18 pm

    Capitalism, in and of itself, isn’t rewarding failure. The Congressional members who are owned by these corporations are using their access to the citizens’ credit card to subsidize these corp failure out of pure self-interest…and I might add that they are doing so without guilt, shame, or remorse because there’ll be no significant consequences for doing it.

  4. doneck

    February 13, 2009 at 2:10 pm

    The corporate boards, who are supposed to represent the stockholders, are rewarding failure by being too cozy with the CEOs, rather than overseeing them – and cutting their pay or dismissing them as appropriate.

  5. adamrussell

    February 13, 2009 at 2:26 pm

    The shareholders should ALWAYS determine executive pay. If we are shareholders we should have a say.

  6. AustinRanter

    February 13, 2009 at 3:23 pm

    I guess the shareholders’ views about their responsibilites to the welfare of the corporations are about the same as the electorates of this nation whose responsibility it is to oversee and maintain the health of our government via electing individuals who abide by their duties as outlined in the Constitution.

    If the argument is that that shareholders “always” detemine executive pay..then they’ve failed just as the voters of this nation.

  7. Thomas Bonsell

    February 13, 2009 at 6:15 pm

    Let’s knock off this crap about the “free market” determining what is best for everyone. It doesn’t work, and letting boards of directors determine a CEO’s pay is likewise falacious. CEOs appoint board members, who set a CEO’s pay and CEOs reward board members who reward CEOs. They all serve on each others’ boards and reward each other the same.

    There is a better way.

    Use the tax codes to set the highest-paid person at a company an amount greater than the lowest paid. Say CEOs get the historic level of 25 times that of the janitor and tie that directly to the profit the company earns. That’s real profit, and not stock-price manipulation. If the CEO directs the company to huge profits, his or her compensation will be high with no predetermined figure, as will the janitor’s pay. If the CEO fails, his pay will plummet.

    This way the CEP will receive what he has earned; nothing more, nothing less.

  8. almandine

    February 13, 2009 at 10:29 pm

    “Use the tax codes to set the highest-paid person at a company an amount greater than the lowest paid.”

    Actually, the tax codes are not necessary to make the highest paid person have a greater income or pay more taxes than the lowest paid person – a fait accompli, but what the heck. However::: exactly WHY should the government be involved in private business decisions? What makes YOUR solution more righteous than that of the owners/stockholders of the company involved? Wanting to play a little God are we?

    Hell, even Vladamir Putin knows better: http://www.therightperspective.org/?p=1472