# Limits on Executive Pay. **URL:** \ **Category:** Great Debates\ **Created:** [November 6, 2008, 12:46am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383 "2008-11-06T00:46:07Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![LouisB](https://avatars.discourse-cdn.com/v4/letter/l/dfb087/32.png) [@LouisB](https://boards.straightdope.com/u/LouisB)\ **Post date:** [November 6, 2008, 12:46am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/1 "2008-11-06T00:46:07Z")
Regarding the story found here: [http://www.msnbc.msn.com/id/27555714/](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. ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [November 6, 2008, 1:12am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/2 "2008-11-06T01:12:18Z")
[QUOTE=LouisB] 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. [/QUOTE] Why? What specific problem is being caused by highly paid executives? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 6, 2008, 1:23am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/3 "2008-11-06T01:23:04Z")
> [@Simplicio](#): > > Why? What specific problem is being caused by highly paid executives? 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 6, 2008, 1:26am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/4 "2008-11-06T01:26:05Z")
> [@LouisB](#): > > Regarding the story found here: [http://www.msnbc.msn.com/id/27555714/](http://www.msnbc.msn.com/id/27555714/) (I wish to heaven I knew how to create a link\*) > \*I wish a kind mod would fix that link situation so that the word “here” becomes a pretty blue underlined link. Links do seem to be broken in Firefox, at least. Links should look like [url = \] 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. ---
**Author:** ![An\_Arky](https://avatars.discourse-cdn.com/v4/letter/a/87869e/32.png) [@An\_Arky](https://boards.straightdope.com/u/An_Arky)\ **Post date:** [November 6, 2008, 1:33am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/5 "2008-11-06T01:33:50Z")
I’d be more interested in seeing limits on executive power rather than pay. I want the “I don’t like this rock, bring me another rock” Type A Ubermensch model of management to go away. ---
**Author:** ![Simplicio](https://avatars.discourse-cdn.com/v4/letter/s/c37758/32.png) [@Simplicio](https://boards.straightdope.com/u/Simplicio)\ **Post date:** [November 6, 2008, 1:35am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/6 "2008-11-06T01:35:53Z")
> [@Voyager](#): > > 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. 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. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [November 6, 2008, 1:37am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/7 "2008-11-06T01:37:50Z")
> [@LouisB](#): > > 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. 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. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [November 6, 2008, 1:50am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/8 "2008-11-06T01:50:49Z")
> [@Simplicio](#): > > 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. 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. ---
**Author:** ![Fuzzy\_Dunlop](https://avatars.discourse-cdn.com/v4/letter/f/848f3c/32.png) [@Fuzzy\_Dunlop](https://boards.straightdope.com/u/Fuzzy_Dunlop)\ **Post date:** [November 6, 2008, 1:51am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/9 "2008-11-06T01:51:07Z")
> [@Voyager](#): > > 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. 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. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [November 6, 2008, 2:09am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/10 "2008-11-06T02:09:49Z")
> [@LouisB](#): > > Regarding the story found here: [http://www.msnbc.msn.com/id/27555714/](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. I don’t see where Congress would have the constitutional authority to limit salaries. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [November 6, 2008, 2:19am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/11 "2008-11-06T02:19:13Z")
> [@Magiver](#): > > I don’t see where Congress would have the constitutional authority to limit salaries. 😕 Same place they get the constitutional authority to set federal minimum wage levels, right? Commerce Clause? ---
**Author:** ![flickster](https://avatars.discourse-cdn.com/v4/letter/f/7bcc69/32.png) [@flickster](https://boards.straightdope.com/u/flickster)\ **Post date:** [November 6, 2008, 2:19am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/12 "2008-11-06T02:19:52Z")
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? ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [November 6, 2008, 2:56am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/13 "2008-11-06T02:56:07Z")
> [@Kimstu](#): > > 😕 Same place they get the constitutional authority to set federal minimum wage levels, right? Commerce Clause? You’re going to have to enlighten me on this one. Where does it say it can set maximum levels? what would the criteria be? ---
**Author:** ![BJMoose](https://avatars.discourse-cdn.com/v4/letter/b/5fc32e/32.png) [@BJMoose](https://boards.straightdope.com/u/BJMoose)\ **Post date:** [November 6, 2008, 2:59am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/14 "2008-11-06T02:59:47Z")
> [@Magiver](#): > > I don’t see where Congress would have the constitutional authority to limit salaries. What **Kimstu** said. 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. . . . ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [November 6, 2008, 3:05am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/15 "2008-11-06T03:05:11Z")
> [@BJMoose](#): > > What **Kimstu** said. > > 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. ---
**Author:** ![Kimstu](https://avatars.discourse-cdn.com/v4/letter/k/ecd19e/32.png) [@Kimstu](https://boards.straightdope.com/u/Kimstu)\ **Post date:** [November 6, 2008, 3:06am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/16 "2008-11-06T03:06:27Z")
> [@Magiver](#): > > You’re going to have to enlighten me on this one. Where does it say it can set maximum levels? what would the criteria be? 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](http://greenpartyusa.tribe.net/thread/f96bd0f6-3b65-44ba-8075-675708a1787c) for a summary (from a Green Party slant, but AFAICT, factually accurate): > [@](#): > > [The Act] actually sets a significant new precedent in the struggle against the outrageously excessive corporate executive pay that has turbo-charged inequality in America over the past quarter-century. > > This hidden provision explicitly limits executive pay, for the first time ever in federal law, to a fixed multiple of the pay that goes to average workers. > > No company in bankruptcy, under this provision, can lavish upon its executives any “retention” bonus or severance pay that runs over ten times the average bonus or severance awarded to regular employees in the previous year. 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. ---
**Author:** ![Fish](https://avatars.discourse-cdn.com/v4/letter/f/bc8723/32.png) [@Fish](https://boards.straightdope.com/u/Fish)\ **Post date:** [November 6, 2008, 3:12am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/17 "2008-11-06T03:12:50Z")
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. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [November 6, 2008, 3:22am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/18 "2008-11-06T03:22:20Z")
> [@Kimstu](#): > > 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](http://greenpartyusa.tribe.net/thread/f96bd0f6-3b65-44ba-8075-675708a1787c) 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. 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. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [November 6, 2008, 3:26am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/19 "2008-11-06T03:26:26Z")
> [@Fish](#): > > 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. Comrad, you’re being rewarded for making your quota of tractors this month. You and all your workers shall each be given a rice cooker. ---
**Author:** ![FoieGrasIsEvil](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foiegrasisevil/32/16638_2.png) [@FoieGrasIsEvil](https://boards.straightdope.com/u/FoieGrasIsEvil)\ **Post date:** [November 6, 2008, 3:27am UTC](https://boards.straightdope.com/t/limits-on-executive-pay/471383/20 "2008-11-06T03:27:54Z")
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. [Next page](https://boards.straightdope.com/t/limits-on-executive-pay/471383.md?page=2)