Posted by: goalpath | June 19, 2009

Should the Government Set or Cap Executive Compensation at American Corporations?

I believe we have another nominee for my 2009 WTF award. I believe it is okay for the government to have a say in the executive compensation for those companies that the government has propped up with federal funding, but in the private corporate sector that is not okay. Some members of Congress are testing the waters with talk about reigning in executive compensation for all private sector companies, not just the companies taking federal assistance.

How does a company get away with giving out exorbitant bonuses to executives when they are drowning in red ink? It happens. Apparently the government was asleep at the wheel and unaware of AIG’s executive bonus plan. There were other instances of large year end bonuses paid to executives at some of the other companies that were on the federal dole. Should the government begin setting executive compensation limits for all large American corporations? I don’t think so.

Yes, I realize that there are a number of executives out there who are certainly overpaid. I have seen my share of Peter Principal Candidates working as upper level executives and CEOs for mainstream public corporations. It was very obvious that they had risen above their level of incompetence. However, if the Board of Directors of one of these private sector companies determines that their executives should receive an exorbitant salary,  and/or stock options, bonuses, golden parachutes, then so be it. If the company is underperforming, then these board members have risen to a higher level of incompetence, as well. In the long run, incompetence is self correcting and the board members will get what is coming to them – removed.

Even the most inept private sector companies are not fair game for government regulation, with the possible exception of discrimination or anti-trust issues that might arise and be tied to a particular company. The bailouts and rescues will prove themselves or not, but let’s be prudent about any additional regulations.  Free enterprise and capitalism should be left to regulate itself via market forces. I understand the public anger at paying bonuses to under performing of non-performing company executives, particularly if we have to use taxpayer money to keep them in business. If you are on the government dole, then you get what you deserve.

On the other hand, if you run a company that is meeting or exceeding its expectations and paying off its investors in spades, then the government has no place in governing that compensation for its staff.  The market will determine an appropriate compensation level for this company’s executives. Just like separation of church and state, let’s see to it that America maintains separation between the regulation of public sector and private sector entities.

If you are a Baby Boomer and haven’t joined my web community, www.boomer-insight.com, then please consider it. It only takes a minute to sign up. You can participate in polls, forums and discussions on the most pressing issues facing America and Boomers.

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Responses

  1. While I think there are overpaid executives, I don’t like the reliance on Socialism to curb things in this area. First, I hate the insult of Big Brother Government’s pseudo-paternalism- it goes against the grain of self-determinism, which thread runs through the formation of our Constitution. Second, it sets a dangerous precedent which says that my resources belong to other people- more than the current tax rate defines. It’s a slippery slope. And let’s face it, we’re not in our dire economic straits because of the actual dollar amounts overpaid execs have been paid, we’re in the toilet for many other reasons. It’s incompetence and greed, to be sure, that are to blame, but it’s not something a salary cap can fix- yesterday or tomorrow.


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