The Daily Switch

War on Executive Pay

Posted by Ender on March 22, 2009

We are going to be starting a new segment on The Daily Switch.  It will be exclusively devoted to covering Obama’s War on Business.  All of the articles will be filed under that category “War on Business” on the left.

This week’s article is from the New York Times, the title pretty much says it all “Administration Seeks Increase in Oversight of Executive Pay.”

Obama’s new plan, which will be revealed this week, will give the Government the role of oversight of executive pay at “[ALL] banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.”  Not only that but it will seek to give the Fed more power than it already has.  (Learn More Here) The Fed will “oversee large companies, including major hedge funds, whose problems could pose risks to the entire financial system.”

I was and always have been against any Government control over parts of the Free Market, including salaries.  Salaries are a private contract between the individual and the employer.  The Government is lacking two things in this area:

1.  The right to take part in this contract and…

2.  Any knowledge of how the business works and how much anyone should be paid.

If anyone would like to debate either of these two points leave a comment.

Can anyone explain to me how controlling executive pay will help the economy?

Making calls to cap your pay

Making calls to cap your pay

This action will only accomplish one thing.  It will drive the best and the brightest away from these positions.  Is that what we should do during a economic crisis?  Strive to put second rate executives in charge of banks and investment firms?  Like it or not, executives work for money and they are going to want to get paid like the best that they are.  They want the American dream just like you and I, they want to strike it rich in the most prosperous nation in the world.  They are shooting for the stars and are not going to settle for whatever amount the Government says they should be getting. How long until it’s not just executives anymore?

But maybe that’s the point, maybe Obama wants to drive the top tier executives away so that these institutions fail and the Government can step in and expand its power.  Devious…

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11 Responses to “War on Executive Pay”

  1. Randy said

    The people that have been running these companies hopefully are not the best and brightest. If they are God help us. Bonuses should be performanced based, if your company loses money, the execs should not get any bonuses. The fact that these companies do pay these bonuses says alot of how they ended up in the mess they are in.

  2. Ender said

    Randy, Your statement isn’t an argument it’s a gripe. Do you know how big companies like AIG are? If I’m an executive or sales dude in the life insurance division or whatever, which was very profitable, why should I not get a bonus because the mortgage side screwed up? It doesn’t make sense. The fact that these companies do pay these bonuses says nothing about how they ended up in this mess.

  3. Randy said

    Ender,

    My wife works for a bank doing marketing. This bank did not recieve any tarp money. They are not doing well so no one in the bank is recieving raises this year. My wife gets praised and her review recieved the highest grades across the board. The bottom line is the company has to do what is best for the company. They know they can’t afford to give raises or they will be in more financial trouble.

    I worked for a small computer company. My job was to go out to local businesses, churches, schools, governemnt agencies etc.. and fix computers. One year I was there the company wasn’t as profitable as it could have been. Bottom line, no one got raises.

    Companies should be fiscally responsible. Especially ones that just recieved a large amount of money from the government. They are using our money to pay out million dollar bonuses. Most of us who are paying for these bonuses don’t even sniff a million dollars in a year, let alone a bonus. They want to take our money to save themselves they should play by our rules.

  4. Randy said

    I guess what I am trying to say that if they can afford to pay these bonuses, then give us back the tarp money. If they weren’t paying these huge bonuses, would they have needed bailout money?

  5. Ender said

    The highest estimate of bonus amount I can find is $218 Million, the bailout total was $173 Billion. Which means the bonuses were a grand total 0.1% of the total. So, to answer your question the bonuses have virtually no impact on the reason they needed the bailout.

    The problem is that these bonuses are part of the contracts they have. The Government has no right to interfere in the contract ex post facto (after the fact). If the Government had been a little smarter they could have let AIG go into bankruptcy, which would have voided all existing contracts. Thus removing the obligation to pay the bonuses.

    What do you mean by “They want to take our money to save themselves they should play by our rules”? They are playing by our rules, the law says they have to pay. You can’t go changing the law to impact people ex post facto just because you are filled with populist rage. It’s illegal and immoral.

  6. Shooter McGavin said

    Randy, typically you would be right in that bonuses should only be given if the company is doing well. You and your wife in your stories were not contractually obligated to get raises. I work for a unioned company and so despite the company having to lay people off, we still get our raises at the designated times (this is also a reason why unioned companies fail eg. the big three automakers). In our contract we have to get the raises. AIG had similar contracts for the bonuses for the people in the company. They are obligated to do it, despite having the financial difficulties, which is what I think Ender is trying to make clear.

  7. Randy said

    I think most people including myself thought the bailout of AIG was a necessary evil. I wasn’t really in favor of the bailout but feared the ramifications if it had failed. Hindsight is 20/20 as they say, but now I wish we would have let them fail.

    The question has to be asked, how did this company get so big that we were told they were too big to let fail. That is my main concern about conservatism. Too many of these companies are allowed to get this big. There should be regulation regarding this. There should be anti monopoly rules to prevent this. As I heard it today, AIG got to chose who which company would regulate them. And that was a company with no real knowledge of insurance companies.

    In my best estimate, if there were regulations, this company could just bankrupt and go away saving tax payers billions of dollars and leaving the idiots who caused the company’s demise high and dry where currently the American people find themselves.

    I welcome anyone who can educate me where my thinking is wrong. But it seems to me this is exactly why we need more government regulation.

  8. Randy said

    Ender,

    What I mean by my comment you quoted above, is that if AIG would have failed, these bonuses would not have been paid, or could not have been paid. Had they needed to claim bankruptcy, there would be no money to pay these bonuses. So where Joe Schmo would be out of a job on the street, thank you for playing, these execs can have there cake and eat it too. They get theirs at our expense.

  9. Ender said

    AIG was not a monopoly and was not even close to being one. There are many, many laws against monopolies and trusts we don’t need anymore. AIG was not too big to fail. There were a lot of people who thought this and said so prior to the bailout. The Government’s action of bailing out AIG caused the tax payer to be more involved than was necessary. Sure, there would have been some pain if they had to go through bankruptcy but it would have been shorter lived and caused less of a financial impact on the individual. I say let’s have a Government that doesn’t have the ability to bailout companies.

    Also, you keep talking about the executives as if they were receiving the whole bonus amount. You do realize that a large portion of the bonuses are going to regular individuals, not just the executives and all the executives have forfeited their bonuses right?

  10. […] Debate: Executive Pay […]

  11. […] Debate: Executive Pay […]

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