Limits on Executive Pay

Current Events Economic News
1

In a news article this morning, Obama et al want to limit the pay to executives of those companies accepting TARP loans from the government.

Last week, Obama called it “the height of irresponsibility” for employees to reap the billions in bonuses they got last year. A report from the New York state comptroller found employees of the New York financial world earned about $18.4 billion in bonuses last year.

Which ties in the moral with the practical – i.e. the morality one accepts determines what one thinks is practical.

The administration will also propose long-term compensation restrictions even for companies that don’t receive government assistance, the official said.

Basically, this action will limit executive pay to that of the pay of the President. Compensation envy?

2

I don’t know how I feel about his proposal. Since bailouts are immoral and should not exist, period, and businesses have been actively advocating these programs, I think it is appropriate that people understand what exactly the bailout is. It is altruism: taxpayers are being forced (at gunpoint) to sacrifice themselves for the sake of others. The companies do, unlike taxpayers, have a choice: they can value their exec compensation packages higher than the free money that will save the company and refuse the money, or they can sacrifice their personal economic status at least in the short term for “the greater good”.

The real evil is the camel’s nose in the tent, of limiting all executive compensation, independent of receiving a bailout. This is the point that I think we need to research and combat, because it represents a fundamental break with our free-market past. I bet such a restriction would be held unconstitutional.

3

…

Basically, this action will limit executive pay to that of the pay of the President. Compensation envy?

Yeah, 'cause those wage & price controls worked so well for Nixon. <_<

Except in this case, there are no price controls, so the only possible justification is envy. :dough:

4

I would agree whole-heartedly with a law that limits pay to 500.000, or even less, to every employee of the government, and every employee of any company that is the (future) beneficiary of taxpayer-money, for a set time from the moment the last dollar was delivered (let’s say 3 years).

Such a measure would make it so painful for a company to accept a bailout, that both the leadership and the creditors would prefer bankruptcy, and those few companies that do accept such a bailout, would see their leadership and most competent workers just leave, and the company fail in months.

However, that’s not what this is: this piece of “legislation” will leave it up to the executive branch of the government (White House, Treasury, regulators, etc.), to decide who fits into the category of limited pay and who doesn’t, based on their subjective judgment. It will also require companies who are not beneficiaries of any assistance, to submit to certain rules that limit compensation, and it might also force all companies (including the ones who never received any money), to ask direct permission from regulators and/or other bureaucrats, before deciding on any type of pay.

Such a bill, in its worst incarnation, would practically deliver the whole of the economy under the control of the Executive Branch of the Federal Government.

In the least, it would be retroactive, and thus break with a long legislative tradition.

[edit] What this also does is answer, once and for all, the question of Obama’s pragmatism: if he was a principled man, he would’ve simply went for the strict limit on pay I describe in the first paragraph. After all, he has a moral justification for this bill, and that applies to all those who receive money from people making far less than 500 grand.

Only a pragmatist would instead try to pass a bill that will appease his “principled” political base, but at the same time give himself enough room to be able to keep the bailout program alive, by just ignoring the principle behind the legislation.

5

The real evil is the camel’s nose in the tent, of limiting all executive compensation, independent of receiving a bailout. […] I bet such a restriction would be held unconstitutional.

“Would” is a key word there. It certainly would be held unconstitutional in the kind of nation that the Founders intended America to be–but Obama will be working to make sure that, if such ideas still linger in the minds of any Supreme Court Justices, they get changed as soon as possible.

And once all executive pay has been limited, the next step will be to limit all pay–yours included. Well, all pay other than that of politicians, of course. And when they’ve got the maximum wage in place alongside the minimum wage, it isn’t difficult to guess what the next step will then be: to bring them closer and closer together, until any difference between them vanishes. I guess they would have preferred a great worldwide proletarian revolution, but if they can get the same goal accomplished democratically, by little change after little change, they’ll take that as the next best thing.

This is why it is so crucial to make people understand that a democracy is antithetical to individual rights. As long as people keep thinking that the Soviet Union was a bad place because “it wasn’t a democracy,” America will remain on course to becoming just the kind of nation the Soviet Union was.

6

It looks like Obama has made this as a law, perhaps under the Executive Orders ability.

“WASHINGTON – President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with “executives being rewarded for failure.””

And further, the President and the Treasury are trying to limit all executive pay:

The administration also will propose long-term compensation restrictions even for companies that don’t receive government assistance, Obama said.

Those proposals include:

• Requiring top executives at financial institutions to hold stock for several years before they can cash out.

• Requiring nonbinding “say on pay” resolutions — that is, giving shareholders more say on executive compensation.

• A Treasury-sponsored conference on a long-term overhaul of executive compensation.

This is government intervention where it has no right to be. Looks like we are heading towards policies in which the Treasury and the President can set terms to executive pay on their whim.

7

Wow, less than a month in power and Obamasatan has managed to eliminate freedom in America.

“Intellectual freedom cannot exist without political freedom; political freedom cannot exist without economic freedom; a free mind and a free market are corollaries.” Ayn Rand

How long will the people in this particular mineshaft (America) continue to say “it’s not that bad!” while the canaries pile up like corpses at Gettysburg?

8

It will be interesting to see how these banks “recover” by scraping the bottom of the CEO barrel. <_<

From http://www.breitbart.com/article.php?id=CN…;show_article=1 :

Wall Street and the business community gave a lukewarm response Wednesday to the US administration’s plan to cap executive pay, fearing it may lead to a talent exodus and delay recovery in the finance sector.

and

Douglas McIntyre at the financial website 24/7 Wall Street said the limits could make it more difficult for troubled banks to retain their best executives.

Ya think?! :dough:

9

This is only going to apply to companies that *take* tax money, right?

If so, then they already lost the right to act freely by agreeing to take it.

If they want to be free (as much as possible) from such restrictions, then let them be so only if they refuse money taken by force.

10

Thomas had posted this quote;

The administration will also propose long-term compensation restrictions even for companies that don’t receive government assistance, the official said.

but I searched the article he linked (http://www.foxnews.com/politics/first100days/2009/02/03/obama-plans-cap-executive-pay-government-assisted-financial-institutions/) and couldn’t find it.

So I think you are correct Greebo, unless Thomas can point out where that quote came from…

Thomas?

But to be clear, I think that even if that distinction is clear now (only the ones who took money will be held to the cap) I don’t hold out hope that it will continue to be so.

11

“WASHINGTON – President Barack Obama on Wednesday imposed $500,000 caps on senior executive pay for the most distressed financial institutions receiving federal bailout money, saying Americans are upset with “executives being rewarded for failure.””

Why do people not understand that there are consequences for denying that A is A?

12

Well, *especially* in the political realm, denying that A is A is often rewarded. At least for a few years, which is all that matters.

13

This is only going to apply to companies that *take* tax money, right?

The precise answer is: No.

The 500G limit itself yes. (and that limit on those execs who took money, can be set apparently at the whim of the executive, since they already have permission to distribute the 700 bn as they wish. And they intend to set it quite selectively, the criteria they mentioned is about as vague as it can get.)

However, limits will be placed on everyone. At first, the rules will change, mandating that shareholders have to vote on the executive’s pay (a non-binding vote, for now). Second, the executives won’t be allowed to cash out on their options for years, and then there’s the possibility of further limits, which may be set by the Treasury, apparently. No one mentioned what those may be.

[while this second part is not yet a law, Obama said it himself, and I don’t see how it could be stopped: it is a popular measure, and his party controls both chambers]

All this info came from the article Thomas is linking to in the first post.

14

My 2 cents: I have no problem with it unless it is extended to all CEOs of all private companies. If these companies have been begging for tax money and receiving it, I say let them reap what they sow.

15

Yes, but weren’t some banks forced to take it? Why should their execs suffer for it?

16

The details are unclear, but it appears that this might be restricted to:

  • Those who took “exceptional” amounts under TARP (Not sure what that means, many billions of dollars were forced upon some banks… are billions unexceptional?. We’ll have to wait and see how many billions it has to be before Obama considers it an “exceptional” waste of tax-payer money)

  • Those who take amounts in the future

Further, Marketwatch reported that a provision in the law will allow a company’s shareholders to pass a resolution over-riding the limit, and allowing pay over $500k.

The government needs to get out of the bail-put business, instead of getting deeper into it, with more rules and limitations.

17

Regardless of the specifics of this plan, the basic idea isn’t good.

When you limit executive pay, it results in the best and brightest not taking the jobs and the result is that corporations are led by dumb guys. Oh, that that’s great for the bottom line. I mean, think about this. It has massive repercussions throughout the entire economy. The guys at the top affect the quality at the bottom in a major way. A smart guy will make better decisions, resulting in higher quality goods and services, better overall company performance, more jobs, and better jobs. Multiply this by all of the companies in the economy and the effect is amplified massively.

When executives makes tons of cash, that’s a good thing, not a bad thing. Conversely, when you have dumb guys at the top, it means a poorly performing economy.

Disparity in income is actually an engine that drives the economy, the bigger the disparities, the more power in the economy.

18

Regardless of the specifics of this plan, the basic idea isn’t good.

When you limit executive pay, it results in the best and brightest not taking the jobs and the result is that corporations are led by dumb guys. Oh, that that’s great for the bottom line. I mean, think about this. It has massive repercussions throughout the entire economy. The guys at the top affect the quality at the bottom in a major way. A smart guy will make better decisions, resulting in higher quality goods and services, better overall company performance, more jobs, and better jobs. Multiply this by all of the companies in the economy and the effect is amplified massively.

When executives makes tons of cash, that’s a good thing, not a bad thing. Conversely, when you have dumb guys at the top, it means a poorly performing economy.

Disparity in income is actually an engine that drives the economy, the bigger the disparities, the more power in the economy.

I think the argument here is that large amounts of money did not attract people who managed the businesses well…otherwise, this mess might not exist.

I agree that, in general, this would be a bad idea…though, as I already said, if these businesses are going to accept taxpayer funding, they have no right to complain when the government starts trying to control them.

19

Yes, but weren’t some banks forced to take it? Why should their execs suffer for it?

That was my thought today when I heard the limits.

Why put in the effort? Why not walk out with what you have and let someone else do a multimillion dollar job for $500k…if they can? Or just sit in the position and do “$500k” work…

20

I think the argument here is that large amounts of money did not attract people who managed the businesses well…otherwise, this mess might not exist.

In a free market quality rises to the top, but when the government provides money (by looting the citizenry) it ends up going to everything except what makes sense for business. Usually it goes to unscrupulous people who have influence in Washington, rather than people who know how to run a particular kind of business. So, this is the problem.

I agree that, in general, this would be a bad idea…though, as I already said, if these businesses are going to accept taxpayer funding, they have no right to complain when the government starts trying to control them.

What is clear here is that tax payer funding of business is a bad idea from top to bottom. It’s immoral and it’s impractical.