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Tuesday, March 10, 2009

When should the taxpayers "allow" high executive compensation? 


If the CEOs of banks that take federal money, including those who took federal money only after Hank Paulsen essentially ordered them, have their salary capped at $500,000, under what principle do we allow universities that request federal funding to pay their own presidents much more money? Is there a rational basis for the distinction, or is it simply that the Democrats do not want to go after one of their most important constituents?

CWCID: Marginal Revolution.


24 Comments:

By Anonymous Anonymous, at Tue Mar 10, 02:46:00 PM:

Be careful, TH, because one could envision a Federal law that requires companies who sell to the Federal government to have a compliance program pursuant to which the top person at a company may not make more than say 20x the lowest-paid full-time person, with a fortified Department of Labor serving to enforce compliance. It's hard not to sell to the Federal government if you're a company of any size (remember when Home Depot wanted to stop selling to the Feds because of what it thought was an onerous burden of complying with the Affirmative Action laws -- their cashiers said that they thought it was un-American to refuse to take government credit cards). Just what we need, right?

As to the point of your post, it's a good one, especially given Senator Grassley's prurient interest in the tax exemptions that universities enjoy. Congress could pinch the universities on both fronts and require public disclosures there, too.

What a world.

The Centrist  

By Anonymous Anonymous, at Tue Mar 10, 02:52:00 PM:

What about football coaches?  

By Blogger TigerHawk, at Tue Mar 10, 02:56:00 PM:

Well, TARP banks are still allowed to pay high salaries and to traders and other non-senior executives. I'd say football coaches fall into an analogous category. Other highly compensated academics include professional school professors (top doctors, usually). Same idea.  

By Blogger Fritz, at Tue Mar 10, 04:33:00 PM:

I'd be perfectly fine with capping the pay of university presidents and other top executives, after they successfully run their universities into the ground, taking a substantial chunk of the economy with them.

Oh wait.  

By Anonymous Squealer, at Tue Mar 10, 04:41:00 PM:

Maybe it's because these bankers failed their companies, harmed American citizens, and put the country in its most precarious position since 1939? I mean, come on. They're lucky to have the shirts on their backs, let alone 500 grand a year. It is remarkable and fortunate we have not seen a Reign of Terror to rival the one 3 centuries ago.  

By Anonymous Anonymous, at Tue Mar 10, 06:09:00 PM:

There's a difference between a demand for a gigantic loan for which the government gets basically nothing, and federal loans or grants that at least theoretically produce something of value, however dubious. Still, I doubt there's any legal bar to the feds saying if you want federal money, you can't pay employees more than X. It would be interesting to see the unintended consequences that ensued (not that I want to).

The real problem here isn't the pay cap so much as it's application to (in at least some cases) innocent bystanders. The pay cap should actually be minimum wage, and it should apply to people who were top execs of TARP recipients in the 6 months prior to receipt of TARP funds, regardless of where they work now, until every penny is paid back.  

By Blogger joated, at Tue Mar 10, 07:47:00 PM:

"...or is it simply that the Democrats do not want to go after one of their most important constituents?"

Why ask the question if you're going to give the answer as well?

Having Congress set the cap on salaries for anyone is a joke from the get go.

Let's save te American taxpayer a great deal of $$ by establishing a minimum number of years in the house or senate before a pension can be drawn and then limit that pension to, oh, say a fraction of the average of their last five year's salary computed as years of service divided by 55 (or 60). Lets also set a maximum number of years of service at 30. (That is no person could serve for more than 30 years in any combination of elected office within the house and senate.)

And healthcare...Bethesda is okay while an elected member of Congress but once out of office, it's VA or nothing from the government. And that, too, will be restricted based upon the number of years of service.  

By Anonymous tyree, at Tue Mar 10, 09:07:00 PM:

The trolls never blame Barney Frank.  

By Blogger Penny, at Tue Mar 10, 11:32:00 PM:

"When should taxpayers allow high executive compensation?"

Oh I guess when their favorite sports team wins the Superbowl or the Stanley Cup, maybe?  

By Blogger TigerHawk, at Wed Mar 11, 07:00:00 AM:

Maybe it's because these bankers failed their companies, harmed American citizens, and put the country in its most precarious position since 1939? I mean, come on. They're lucky to have the shirts on their backs, let alone 500 grand a year. It is remarkable and fortunate we have not seen a Reign of Terror to rival the one 3 centuries ago.

A few small observations. First, Most of the CEOs now running troubled banks, investment banks, AIG, etc. were not the ones in charge when they went south. Second, TARP money was essentially forced on plenty of strong banks that did not want it, including JP Morgan, Wells, and Northern Trust, because the government did not want to stigmatize the weak banks. Third, none of this would have happened were it not for borrowers taking more money than they could pay back, more often than occasionally by lying on their documents.  

By Anonymous Anonymous, at Wed Mar 11, 10:05:00 AM:

I just wanted to add a comment from a friend at a big bank about how idiotic the $500,000 cap is. All the banks have to do is fire the high paid banker and arrange for him to come back as a private contractor.  

By Anonymous A.W., at Wed Mar 11, 10:08:00 AM:

the real problem here is this. These distressed companies need really good managment right now. So, why does anyone think that they will get them on the cheap?

Its like saying, "I have a particularly difficult legal case and i need to win it. But I am only willing to pay my lawyer $10 an hour." Its lunacy. Sorry, good CEO's cost more than $500K. bitch and moan about it all you want, but that is reality.  

By Anonymous Anonymous, at Wed Mar 11, 10:15:00 AM:

I guess the logic is that as the Universities are tax free the only way to get money (back) from them is via income tax on highly paid Regents. Its kinda like a "stimulus"...the more the government gives the colleges and the less it taxes them the more highly paid the top guys can be. That mean that they pay more income tax and IRS revenues rise. That then must lower the deficit...right??So...Stim 3.0 will be $5.7 trillion for the colleges which will balance the budget...whatsamatter? You never had college math???  

By Anonymous Anonymous, at Wed Mar 11, 10:16:00 AM:

>>>It is remarkable and fortunate we have not seen a Reign of Terror to rival the one 3 centuries ago.

Yeah, because the usual punishment for making bad business decisions is guillotines and torture. Y'know, like the French Reign of Terror of three centuries ago, which actually only occurred 215 years ago. But who's counting? Not us peasants with pitchforks, fur shure.  

By Blogger Brian Karpuk, at Wed Mar 11, 10:42:00 AM:

Its not just the universities, why do 40-some employees at the Smithsonian make more than members of Congress?

http://newsburglar.com/2009/02/04/smithsonian-executive-pay/  

By Blogger David, at Wed Mar 11, 11:09:00 AM:

the public service money starts to run out in 15 months. we can't hold up al the bankrupt states every year.  

By Anonymous Anonymous, at Wed Mar 11, 12:03:00 PM:

This "limiting compensation" argument is a specious one, since I would expect that most of these executives (banking or academic) are hired under an employment contract that specifies how much they are compensated and under what terms and conditions, performance-based (I would hope) or not. That contract is approved and tendered by the shareholders, or in the case of the academics, by the trustees of the school. The ability of the federal govenment or anybody else to alter a contract previously agreed to by the parties involved without agreement to the alteration by both of those parties is not going to happen without violating contract law.  

By Anonymous Anonymous, at Wed Mar 11, 01:48:00 PM:

That contract is approved and tendered by the shareholders

As a stockholder is many public companies, I've never been presented with such a contract for approval.

The best you get is indirect representation through the BOD and its compensation committee.  

By Blogger davod, at Wed Mar 11, 04:23:00 PM:

I heard one differnece between education money and the industry/finance money is that the education money arrives in the form of loans to students therefore the money is not passed directly to th education institutions.  

By Blogger Kev, at Wed Mar 11, 05:16:00 PM:

This comment has been removed by the author.  

By Blogger Kev, at Wed Mar 11, 05:21:00 PM:

(Sorry, had to fix some embarrassing typos in my first version of this comment...)

Let's save te American taxpayer a great deal of $$ by establishing a minimum number of years in the house or senate before a pension can be drawn and then limit that pension to, oh, say a fraction of the average of their last five year's salary computed as years of service divided by 55 (or 60). Lets also set a maximum number of years of service at 30. (That is no person could serve for more than 30 years in any combination of elected office within the house and senate.)

I agree with this concept in principle, but 30 years is too long for anyone to "serve" in the first place. I propose a limit of ten years, max, for anyone in government--lawmaker or bureaucrat alike. Nobody starts a career there, and nobody ends it there unless they meet their untimely demise. That way, people start out in the productive class, where they pick up experiences in real-world activities, use that experience in government for a brief period of time, and return to the productive class again. Nobody suckles at the government teat for the duration of a career.

And healthcare...Bethesda is okay while an elected member of Congress but once out of office, it's VA or nothing from the government. And that, too, will be restricted based upon the number of years of service.

Amen. Any health care legislation must be binding upon members of Congress as well; no more "two Americas" in this respect. (And get Pelosi off those Air Force planes and onto a commercial flight, for crying out loud; enough is enough.)  

By Anonymous Anonymous, at Wed Mar 11, 05:27:00 PM:

Obviously the shareholder is only ostensibly tendering the contract through their "elected" representatives, the BOD. I agree that the BOD may only be a questionably effective representation of the wishes of the shareholders, depending on the corporation's by-laws. In that regard, the movement toward "shareholder primacy" rather than "director primacy" might be a welcome antidote to BOD malfeasance. That being said however, the point is still valid- a contract is a contract, and any outside party trying to change ther terms of that contract after the fact is going to run smack into a legal wall.  

By Blogger gbarto, at Thu Mar 12, 02:56:00 AM:

Forget about college president pay. I want to recoup damages. Where did all those MBAs and quants get the idea they could change the rules of money and life with big equations? Not many people with an associates from the local community college involved the creation of all these hotshot financial instruments.

I say we bill the Harvard and Yale endowment a billion for every failing bank president or vice-president who got a degree from them. If you're going to be punitive, do it right.

As for Congressional pensions, I think we should only grant them for people who serve less than ten years. If you stay around longer than that, you ought to be able to provide for your retirement on your own between the kickbacks and those surprisingly favorable real estate deals.  

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