Regarding the story found here: http://www.msnbc.msn.com/id/27555714/ (I wish to heaven I knew how to create a link*) the main thrust is that President Obama (I love typing that) and Congress should act to impose a cap on the salaries of CEOs, COOs, CFOs, etc., etc. I completely agree that something SHOULD be done to curb executive pay but I am in doubt that anything COULD be done under existing laws.
The debate, if there is one, is if a cap on the pay of executives should be in place and, if so, what that cap should be in terms of a multiple of the average hourly pay of the people below the executive level.
I personally think such a cap should exist and that it should fall between 10 to 15 times the average hourly pay of the little people.
*I wish a kind mod would fix that link situation so that the word “here” becomes a pretty blue underlined link.
Neglecting the ethical issues, very high pay can cause distortion of company strategy in order to increase the bonus of the executive. For instance, the CEO might cause the company to take excessive risks (and ignore the advice of the Risk Management dept.) in order to make short term gains that will inflate his paycheck. There have been plenty of cases where the C level execs misstated income or expenses in order to make certain goals - though Sarbannes Oxley is supposed to make this riskier. The problem is that if the risks cause a disaster later, the CEO is not penalized. Some of the proposals I’ve seen involve being able to reclaim bonuses if the gains don’t hold up, or deferring them long enough for the gains to be shown to be real.
Clearly fewer unreasonable risks would be taken if the reward were reduced.
Links should look like [ url = <url of link> ] Text [ url ] without the excess spaces. When I automatically insert links the url gets duplicated in both places. I just delete the second instance and insert the text there.
That would seem to be more of a problem with the way in which pay is linked to the successs/failure of the company rather then the simple size of the paycheck (and also with the ability of stockholders to control their CEOs). The ways you suggest to fix this problem seem much more straight forward then simply reducing the total amount of money earnable by managers.
There are arguments pro and con for the executive-pay-cap idea, but I think your estimate of what would be feasible as a reasonable level of pay cap is off by at least an order of magnitude.
Even the selfconsciously “anti-corporate” folks at Ben and Jerry’s abandoned their 7x pay cap, where the highest salary was held to seven times the average salary. A 10x or 15x pay cap just doesn’t sound possible to impose on American CEOs. 100x or 150x they might stand still for, and even then I’d bet that they wouldn’t.
Personally, I’m more for strong labor rights and stakeholder board membership than I am for legally imposing arbitrary salary caps. If the board membership represents average shareholders and workers as well as high-paid executives, there’ll be a stronger voice in favor of reasonable moderation when it comes to setting executive pay.
If the CEO can make a persuasive case to the union reps that it’s reasonable to pay him a thousand times the average worker’s salary, then let them award it to him; who am I to say they can’t? But he’ll have a tougher time making that case to a more diverse board of directors than he now does making it to (what is usually) a cozy little group of fellow high-paid CEOs.
But unlimited pay leads to unlimited risk. if you can make $50 million a year, say, you might decide that it doesn’t matter if you get fired the next. If you’re limited to $5 million, policies leading to continued performance (and employment) are going to look a lot better. Those numbers are just as examples and not what I think the numbers should be. In any case, deferred payments that are at risk are usually considered part of exec pay caps.
Wouldn’t more reasonable risks be avoided because there is no reward for undertaking them? Isn’t that outcome at least as likely as yours? So why shouldn’t shareholders have the liberty to determine how best to incentivize and compensate their top managers? I think shareholders should take a more activist role in ensuring their boards represent their interests, but capping compensation doesn’t make sense.
First off, I think you would need to take a serious look at the politicians you’re expecting to pass something like this and their TOTAL compensation. :dubious: You don’t think they invest millions of dollars to get elected to only receive their official compensation do you?
If you don’t like that approach, maybe we could go back to the income tax system we had thirty years back, where the top marginal rate was seventy percent. Not much point in raking in as much as you possibly can if the gummint will just take it all. . . .
Bought anything made in the United States lately? Jobs and investment capital are easily transferred to countries looking for it. Unintended consequences of people who think they can control other people.
I don’t know, but I assume the reasoning would be the same as that behind the existing pay-cap legislation in Section 331 of the 2005 Bankruptcy Abuse Prevention Act. See here for a summary (from a Green Party slant, but AFAICT, factually accurate):
AFAICT, there have been no constitutional challenges to Section 331, so I don’t see why broader pay-cap legislation wouldn’t also be constitutional.
Note that I’m not saying that pay-cap legislation would necessarily be a good thing, just that it doesn’t appear to violate constitutional limits on legislative authority.
I don’t know about the ability to limit executive pay, but Congress certainly has the ability to grant tax credits for the corporation that agrees with executive pay guidelines.
You’re talking about bankruptcy rules which is a different topic entirely. It would apply equally to the janitor. A company couldn’t declare bankruptcy and expect a court resolution in their favor if liquid assets were hidden from creditors through excessive wages and golden parachutes.
I like the idea of deferred payments. Kinda like a pro athelete’s “incentive-laden contract”.
You get a nice hefty annual salary as your baseline, but anything beyond and above that is purely paid as a bonus when certain metrics are met and sustained for a predetermined period of time. Shoot, that’s how I get paid right now, except on a much smaller scale of course. Works for me. I want that extra money, and I have to push myself and my employees in order to earn it.
Same place they get the constitutional authority to set federal minimum wage levels, right? Commerce Clause?