# Cap Executive Pay **URL:** \ **Category:** Great Debates\ **Created:** [April 3, 2009, 5:10pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888 "2009-04-03T17:10:29Z")\ **Posts on this page:** 10\ **Page:** 10
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 14, 2009, 8:00am UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/181 "2009-04-14T08:00:10Z")
> [@Shodan](#): > > I was hoping for a somewhat more serious cite than a cartoon animation. I consider it a serious cartoon without a serious mindedness. The animation cheerfully presented the dismal truth. > [@Shodan](#): > > Again, I am not following you. You seem to be saying that wealth ought to be transferred to the government, because they are more incorruptible. Yet the first two examples on your not-terribly-respectable cite were two corrupt politicians - Jefferson and Delay. I have made my point, **Shodan**. It seems unlikely that you will be satisfied with more clarification of the same position. DeLay no longer needs a government position. He discovered a natural talent for television and now works as a political analyst (pundit) for cable news. Maybe Jefferson will land a similar gig after exhausting his court appeals. Like CEOs, politicians appear to have golden parachutes, but, instead of a pre-negotiated excessive severance package, politicians are rewarded with lucrative media or consulting contracts. Wall Street, media, and K Street will work together to protect their shared financial interests. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [April 14, 2009, 3:17pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/182 "2009-04-14T15:17:54Z")
> [@IdahoMauleMan](#): > > Do I have that right? Wow…not even close. In 8+ years around here I am unsure I have ever been so thoroughly misrepresented. > [@](#): > > 1. Yes, IdahoMauleMan, the $800 billion stimulus bill was bad. I wrote my Congressman and told him not to do it. > > But they went ahead and did it anyway. That’s just the way it is. Can’t you accept that? That ‘that’s just the way it is?’ > > I tried to have my say. The ‘will of the people’, so to speak. But it just didn’t work this time. > > But now…now, that we have the chance to cap CEO’s pay…Now! That will work. Now my Congressmen will listen to me. Now I will have my say. Now the ‘power of the people’ will come to bear. They will do exactly what I want. This time. > > I’m going to throw good money after bad, and grant Congress yet more power to control and regulate. This time, it will work. Because I - Whack-A-Mole - have the power. Not Congress. Congress will do exactly what I want. Even though they didn’t do what I wanted to before. > > Somehow, some way, they got corrupted by special interests and lobbyists in the previous instance. But that won’t happen this time. This time, the ‘power of the people’ will prevail. Writing my Congresscritters is the only thing about what I said you got correct. You had also told me to just not give them my money but failed to point out how I keep my money from the IRS without being guilty of tax evasion. Regardless of what I wrote to my reps Congress did, in fact, go ahead with the bail out. Is this in dispute? And where did I say or even imply, “Now my Congressmen will listen to me. Now I will have my say. Now the ‘power of the people’ will come to bear. They will do exactly what I want. This time.”? Maybe you missed it but this is Great Debates. We talk about lots of things here. We toss out our ideas and hash them out with other Dopers. Nowhere and nowhen do I see it suggested “they will do what I want” because I posted here. Perhaps this is all just mental masturbation for the lot of us. Perhaps we have some small effect on adjusting opinions of others. Perhaps those ideas take root and grow or, more likely, no one but the few of us reading these things ever considers it and nothing changes. We do it anyway and your assertion is a flat out misrepresentation of anything I have said. > [@](#): > > 1. There were ‘Knock on’ effects from the banking system that require government involvement. > > IdahoMauleMan asked me to explain in detail how ‘knock on’ effects work. I didn’t answer him. > > Even though ‘Knock on’ effects are the underpinning of my whole argument as to why the government needs to get involved. Oh but I did. Credit markets froze practically overnight. The grease of the business world dried up which has all sorts of profound and unhealthy impacts generally summed up as the inability of businesses to do business and civilians inability to get loans for all sorts of things (so they cannot buy stuff which keeps business in business). Again this is not in dispute. Pick up a newspaper sometime and read it. Hard to miss these past few months. It is what happened. Period. End of story. How you keep hand waving this away is nothing short of shocking. It’s like you are arguing that the sun does not rise in the east despite the evidence of your own eyes that it does. Here lies your “cognitive dissonance”! > [@](#): > > ‘Knock on’ effects somehow didn’t come to pass in the Enron bankruptcy, the bankruptcies of Aloha, Braniff, Piedmont and a bunch of other airlines. Along with Bethlehem Steel. > > As well as the Delphi auto parts BK of 2005. Somehow, in all of those other business failures, the assets were redeployed, resources were reallocated, and customers still managed to get their product at more-or-less the same price. Or even a better price, since industry resources were being used more efficiently. > > The ‘Knock on’ effects didn’t come to pass in those cases. Those cases also happened to be businesses that weren’t nearly as regulated as much as the banking and financial sector. > > But now, when large banking institutions fail, the ‘Knock on’ effects come into play. And it’s absolutely, positively certain that the free market is to blame when ‘knock on’ effects make a dent on me and my wallet. Jeebus… - “The US unemployment rate has soared to 8.1%, its highest level since December 1983.” ([cite](http://www.independent.co.uk/news/world/americas/us-unemployment-rate-hits-81-1665989.html)) - "The number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier, \ Nationwide, 649,917 homes received at least one foreclosure-related filing in the first three months of the year, up 112 percent from 306,722 during the same period last year, RealtyTrac said. Story continues below ↓advertisement | your ad here The latest tally also represents an increase of 23 percent from the fourth quarter of last year." ([cite](http://www.msnbc.msn.com/id/24359826/)) - "U.S. retail sales dropped a seasonally adjusted 1.1% in March, the Commerce Department reported Tuesday, \ In the past year, sales are down 9.4%. The figures are not adjusted for price changes. Retail sales in the first quarter were down 1.2% compared with the fourth quarter of last year, raising the possibility that real consumer spending may have fallen again in the first three months of 2009 after plunging at a 4% annual rate in the final six months of 2008." ([cite](http://www.marketwatch.com/news/story/us-retail-sales-slump-11/story.aspx?guid=%7B716055E7-5AB4-40F9-BD4F-164079839EC8%7D&dist=msr_15)) - "Business failure rate soars as credit crunch starts to claim victims The gloomy picture is further supported by the latest CBI report, which reveals that business volumes fell to a balance of -30%." ([cite](http://findarticles.com/p/articles/mi_6717/is_65/ai_n28522754/)) - “The government’s financial bailout will be the most expensive single expenditure in American history, potentially costing around $7.5 trillion – or half the value of all the goods and services produced in the United States last year.” ([cite](http://abcnews.go.com/business/economy/story?id=6332892)) Take that figure of $7.5 _trillion_ for the bailout. Now consider there are 105,480,101 households in the US ([US Census cite](http://quickfacts.census.gov/qfd/states/00000.html)). Do a little math and you get $71,103.46, per household, to pay for that. Median household income, 2007 – $50,740 (same census cite above). Yep! You’re right! No knock on effects! No different than Braniff going under! Nothing to see here! Move along! :rolleyes: Good grief man…what rock are you living under? Your comparisons are sooooo far off base from actual reality of what is happening that it boggles the mind you try and make Braniff and this remotely equivalent. And I have cognitive dissonance? Not enough “rolleyes” for that. > [@](#): > > It couldn’t be the government to blame. ‘Knock on’ effects aren’t the result of government intervention. It couldn’t be that ‘Knock on’ effects are the result of government guarantees of depositors’ funds and government use of fiat money and poor regulation of banking reserves and asset quality. > > The failures are the result of the free market. That much is clear. > > Even though ‘Knock on’ effects didn’t seem to happen in those non-banking sectors as described above, where the government is less involved. > > The fact that ‘Knock on’ effects are happening in the banking sector, where the government is so involved you can’t swing a dead cat without hitting a government regulation, isn’t the government’s fault. It’s not the fault of a poor regulatory environment. > > It’s the fault of the free market. That is obvious to all. So let’s give more power to the government. Because after all, now the ‘power of the people’ will come to bear, and we’ll all have our say. It is the fault of a poor regulatory environment. Good god… Here, I’ll just give you the following quote. He says it better than I can anyway. He is not by any means alone in this assessment. > [@](#): > > America’s financial system failed in its two crucial responsibilities: managing risk and allocating capital. The industry as a whole has not been doing what it should be doing … and it must now face change in its regulatory structures. Regrettably, many of the worst elements of the US financial system … were exported to the rest of the world. > > \ > > It was all done in the name of innovation, and any regulatory initiative was fought away with claims that it would suppress that innovation. They were innovating, all right, but not in ways that made the economy stronger. Some of America’s best and brightest were devoting their talents to getting around standards and regulations designed to ensure the efficiency of the economy and the safety of the banking system. Unfortunately, they were far too successful, and we are all — homeowners, workers, investors, taxpayers — paying the price. > > SOURCE: [Joseph Stiglitz, Professor of Economics, Columbia University](http://www.guardian.co.uk/commentisfree/2008/sep/16/economics.wallstreet) ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 14, 2009, 5:27pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/183 "2009-04-14T17:27:55Z")
> [@Sam\_Stone](#): > > As for what Golden Parachutes and other high CEO pay does… The historical reason for the Golden Parachute was to align the incentive structure of the CEO with the incentive structure of shareholders. > > \ > > So, the theory is that by giving the CEO an ‘out’ if things go to hell, the CEO will be more free to act in the best interests of the company rather than in his own best interests. You are saying that corporations have to bribe a CEO with a golden parachute so he doesn’t sabotage the shareholders for personal gain. Essentially, the motivation to pay corporate executives is fear of fraud. This is a sweet deal for the CEO who walks away richer no matter how he manages a firm. Considering the typical amount of a golden parachute, shareholders also have to bribe the CEO with higher pay so he doesn’t just walk away with his parachute guarantee. ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 14, 2009, 5:49pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/184 "2009-04-14T17:49:13Z")
> [@Sam\_Stone](#): > > And scapegoating CEOs has consequences: My heart aches for corporate executives. :rolleyes: [Mr. Nardelli’s](http://www.post-gazette.com/pg/07004/751268-28.stm)experience is a good example of the consequences a CEO can expect for poor performance. ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 14, 2009, 5:59pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/185 "2009-04-14T17:59:30Z")
> [@Whack-a-Mole](#): > > Pot, meet kettle. :rolleyes: > > You and Sam repeat your mantra like a religion and have about as much to back it up. \*\*Sam \*\*and **IdahoMauleMan** are communal reinforcement for each other. 😉 ---
**Author:** ![mazinger\_z](https://avatars.discourse-cdn.com/v4/letter/m/5f9b8f/32.png) [@mazinger\_z](https://boards.straightdope.com/u/mazinger_z)\ **Post date:** [April 14, 2009, 6:33pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/186 "2009-04-14T18:33:00Z")
> [@Whack-a-Mole](#): > > Oh but I did. Credit markets froze practically overnight. The grease of the business world dried up which has all sorts of profound and unhealthy impacts generally summed up as the inability of businesses to do business and civilians inability to get loans for all sorts of things (so they cannot buy stuff which keeps business in business). Again this is not in dispute. Pick up a newspaper sometime and read it. Hard to miss these past few months. It is what happened. Period. End of story. Not exactly true. The finance division of my company would still loan, as was confirmed by my banking friends, that banks would still loan out money if you have good credit. Several banks didn’t need TARP money. Frankly, I think this was a prime time for local banks to expand, but thanks to the Fed Gov’t, assets were bought and moved around before local banks had a chance to act. Additionally, not everyone thinks that the economy needs a bailout. Capitalism requires a business cycle. The numbers are scary, but in context, it could be a lot worse. And, there are significant dangers from over-bailing out these industries, as well as the general intrusion of government in the market. But, hey we have to try something right? The minuscule dollars that these executives make is just the solution that this country needs, right? Let’s have a passively accountable entity like the government, with little market expertise define “long term” goals of CEOs, so that those goals can be objectively aligned from a subjective decision-making process. What would happen is that CEOs would only make short-term decisions align to these long-term goals and any type of long-term planning which requires risk of loss would be totally avoided. This could have the strange effect of prolonging business cycles and stagnating the economy because the lack of risk leaders would be willing to take. ---
**Author:** ![Whack-a-Mole](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/whack-a-mole/32/141_2.png) [@Whack-a-Mole](https://boards.straightdope.com/u/Whack-a-Mole)\ **Post date:** [April 14, 2009, 7:49pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/187 "2009-04-14T19:49:25Z")
> [@mazinger\_z](#): > > Not exactly true. The finance division of my company would still loan, as was confirmed by my banking friends, that banks would still loan out money if you have good credit. Several banks didn’t need TARP money. Frankly, I think this was a prime time for local banks to expand, but thanks to the Fed Gov’t, assets were bought and moved around before local banks had a chance to act. I have no doubt some loans were being made here and there but far too few to run the economy well. I cannot speak to what opportunities smaller banks may have had but were prevented from doing by the bailout. That said how much time did we have? Businesses need these loans to operate (very normal, very common loans). In the absence of these loans the businesses can fail in a matter of weeks being unable to pay workers and such. Did we have months for smaller banks to get in the game in a big way? > [@](#): > > Additionally, not everyone thinks that the economy needs a bailout. Capitalism requires a business cycle. The numbers are scary, but in context, it could be a lot worse. And, there are significant dangers from over-bailing out these industries, as well as the general intrusion of government in the market. Certainly that is a question with lots of healthy debate. I think the consensus is among economists and business is while the bailout sucks not bailing out these companies would be worse. More a lesser of two evils calculation. > [@](#): > > But, hey we have to try something right? The minuscule dollars that these executives make is just the solution that this country needs, right? Minuscule? Last year Wall Street execs pulled down $18 billion ([cite](http://www.huffingtonpost.com/2009/01/29/obama-18b-in-wall-street_n_162305.html)). And that despite many of them sucking up tax payer dollars for their failed companies. That was not the highest ever either being the sixth highest on record. IIRC (I’d have to look for the cite) the record compensation was $40+ billion in a year. I don’t know what your definition of minuscule is but that does not fit my definition and especially not when that money is being paid by me out of my taxes. > [@](#): > > Let’s have a passively accountable entity like the government, with little market expertise define “long term” goals of CEOs, so that those goals can be objectively aligned from a subjective decision-making process. What would happen is that CEOs would only make short-term decisions align to these long-term goals and any type of long-term planning which requires risk of loss would be totally avoided. This could have the strange effect of prolonging business cycles and stagnating the economy because the lack of risk leaders would be willing to take. Sorry…not following that. I am not having the government tell anyone what their long term goals should be. Just trying to align executive compensation with healthy growth of their companies and not rewarding short term decisions that spike the company’s balance sheet up and thus the executive compensation only to have it be an unsustainable spike and it all falls to shit (but why should the CEO care…they toddle off with a stunning payday anyway). The executives have NO down side. They are incented to make short term, unsustainable decisions. That is goofy. Again I use the example of someone who is paid to lose 20 pounds and the sooner the better. They can dehydrate 20 pounds off in a day or two, collect their pay and walk. Of course that is not the kind of weight loss envisioned, it will all come crashing back and has undesirable health consequences. Better is to eat healthy and exercise and lose that 20 pounds over the course of a few months. The resulting person will be FAR better off for it than the dehydrate route. So, pay the person who loses weight for losing 20 pounds that comes off and stays off some months down the road. ---
**Author:** ![Ocean\_Annie](https://avatars.discourse-cdn.com/v4/letter/o/8797f3/32.png) [@Ocean\_Annie](https://boards.straightdope.com/u/Ocean_Annie)\ **Post date:** [April 14, 2009, 9:17pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/188 "2009-04-14T21:17:02Z")
> [@IdahoMauleMan](#): > > Like Ocean Annie, your posts have become a jumble of cognitive dissonance. You claim over and over again that you want power for yourself and for the ‘people’, and your answer to get there is…to disempower yourself. To give government more power. To willingly hand them rights that you now possess for yourself. In this case, the power for the government to determine the wages that someone else should earn. meh I empathize with Winston Smith and understand his world. The fact that G.W. Bush, the proud free marketeer, based his presidency on a theory that amounts to a totalitarian executive branch is overlooked by market fundamentalists. There hasn’t been a country, with the exception of maybe Bolivia which still used force to suppress dissent, with a democracy and a laissez-faire economic philosophy. To me, the real disconnect is with market purists who refuse to acknowledge or are unable to recognize that human beings are not usually rational in their market behavior. When you suggest that people should make decision for themselves and the free market is nothing more than choice, it ignores the complexity of human behavior and the evidence that demonstrates how easy it is to manipulate behavior. The drive for profit in corporate media tends to marginalize any competing ideas to the free market but [Dan Ariely’s work](http://en.wikipedia.org/wiki/Predictably_Irrational) challenges free market assumptions about behavior and received some attention in print media. He also has a fun website: [Predictably Irrational](http://www.predictablyirrational.com/) ---
**Author:** ![YogSothoth](https://avatars.discourse-cdn.com/v4/letter/y/8edcca/32.png) [@YogSothoth](https://boards.straightdope.com/u/YogSothoth)\ **Post date:** [April 14, 2009, 10:16pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/189 "2009-04-14T22:16:45Z")
Ugh, executive pay is disgusting, especially considering all they need is a couple of years, a slight increase in stock, and suddenly they pocket millions. Meanwhile, the long-term health of the company is completely ignored for the sake of short-term gains. I’m not an economist, but a pay ratio that hinges on their worker’s standard pay seems a good idea. ---
**Author:** ![Garula](https://avatars.discourse-cdn.com/v4/letter/g/ea666f/32.png) [@Garula](https://boards.straightdope.com/u/Garula)\ **Post date:** [April 14, 2009, 11:07pm UTC](https://boards.straightdope.com/t/cap-executive-pay/491888/190 "2009-04-14T23:07:09Z")
> [@Ocean\_Annie](#): > > To me, the real disconnect is with market purists who refuse to acknowledge or are unable to recognize that human beings are not usually rational in their market behavior. When you suggest that people should make decision for themselves and the free market is nothing more than choice, it ignores the complexity of human behavior and the evidence that demonstrates how easy it is to manipulate behavior. The thing is, most of the free market advocates I know do understand this. People make irrational choices all the time. Hell, if they didn’t then it would be damn hard to make any money investing. The problem is, everyone thinks that it’s all the other guys making the irrational choices, not themselves. It’s all well and good to say we should get the smartest and most knowledgeable guys writing regulations and guiding the market, but no one can agree on who those guys are. Most of them of them will have biases of their own, too. And if they’re wrong, they can really fuck things up, much moreso than if they were just a private actor. The thing about human complexity is that this point of view argues against excessive meddling, due to the unpredictable nature of it. [Previous page](https://boards.straightdope.com/t/cap-executive-pay/491888.md?page=9)