CEO Pay Curbs: A Great Idea

My colleague Matt Lewis has an article on why President Obama's decision to limit executive pay is a bad idea. While I agree with him in principle that in ordinary circumstances these decisions should be left to the marketplace, I fear that his analogies do not apply to the specific case we're talking about. No one is advocating reaching a governmental hand into the pocket of those CEO's (or football coaches) who have not received billions in bailout money from taxpayers. The plan to limit executive pay extends only to those institutions who are already deeply in U.S. taxpayer debt, or who will be receiving a large government handout in the near future. It also does not forbid a corporation from paying its CEO's whatever it deems appropriate, but if that figure goes above $500,000/year, then the company would have to use corporate dividends to fund any additional compensation. Here's Obama:

"If the taxpayers are helping you, then you've got certain responsibilities to not be living high on the hog."

What galls so many Americans is the idea that taxpayers are footing the bill to help, while corporate bonuses abound, and new private jets are ordered. U.S. taxpayers are now playing banker to these troubled institutions (including the banks themselves), and for as long as they are being asked to do so, are right to want to set limits on the high-flying salaries of those who have run them into the ground. GM chief Richard Wagoner for instance, earned $8.5 million in 2008. At the end of that very same year, GM asked Uncle Sam for $18 billion.

And as many executives at these financial institutions should know, sometimes you have to jump through a few hoops if you want to get a loan.

For an opposing view, read: CEO Pay Curbs: A Bad Idea