As a reminder, the Obama Administration has proposed a new approach to the companies seeking bailouts: Top executives at these companies must cut their pay to $500,000 (excluding stock) The average reader may think "That's a nice piece of change!" until you realize that these cuts are very, very deep. However, extraordinary circumstances warran extraordinary ideas. Obama's plan is creating, at least on the surface, even conservative political allies on this idea:
"In ordinary situations where the taxpayers' money is not involved, we shouldn't set executive pay," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
"But where you've got federal money involved, taxpayers' money involved, TARP money involved, and the way they have spent it, with no accountability, is getting close to being criminal." Source
Supporters of his move on executive pay included the leader of the Republicans in the U.S. House of Representatives, John Boehner. Many Republicans in the Democrat-controlled Congress have been resistant to government bailouts, even when fellow Republican Bush was president.
"I think if anybody is looking to the taxpayer to help bail their company out, these kind of executive compensation limits are appropriate," Boehner said.
Republican Representative Mike Pence, who said he had opposed the finance sector bailout to begin with, said, "maybe it is going to wake up American business -- that there is a cost when you invite the 800 pound gorilla of government into your boardroom." Source
I think executive pay restrictions is a good way to make the private industry think twice before heading to the feds for public funds. But there's more--as I mentioned above, the 500,000 cap excludes stock. The Obama Administration wants to allow companies to pay their top executives past the 500,000, but it has to be in frozen stock. By frozen, I mean they cannot cash out that stock until they pay the government back, then all caps (including the salary) will be lifted. How is this "good"? Well, if the executives has enough strategy to turn around a company, the stock price will most likely rebound, and the CEO is rewarded for..let's say it together now...PERFORMANCE!
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What do think about the opinions that suggest it produces a lower pool of good CEOs
I think such an opinion is based on fear--that if their CEO's pay is cut because he went to the government for a bailout, then he or she will leave; thus it's important to pay them tens of millions of dollars to keep him. I think pay-for-performance is important from the bottom of the org chart all the way to the top.
I think it would be troubling for the CEO and other Executive-level employees if a they tried going elsewhere--smart companies would hesitate to hire a CEO who headed a company that lost billions of dollars and ran off after asking the government to bail them out.
There are plenty of strong visionaries who would lead these companies out of the wilderness who probably make far less than 500,000 a year. Plus, the 500,000 is only the cash portion. The CEO will also be paid in stock that they can cash out if they turned the company around. And if they do turn it around, the salary cap would be lifted.
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