President Obama is saying that companies that accept government bailout money can pay executives no more than $500,000 a year.
I too am irked by C.E.O.s of failing companies making so much money, especially when it comes in the form of bonuses. The heads of companies that perform so terribly do not deserve the rewards that should go only to success. But still, I recoil at the thought that state power is now mandating how much private companies are allowed to pay their employees.
This will become a major disincentive for companies to ask for a bailout. That would be for the better. But still, it is apparent that the government is not just concerned about injecting money into the economy to solve its problems; rather, it is using this economic crisis as a means of increasing its power. For its money, the government is achieving both ownership and control of the private sector. This is socialism.
Meanwhile, look at the unintended consequences of these government attempts to rule the free market. This executive compensation diktat is causing panic in New York City, where lots of executives make more than that in the city with an astronomically high cost of living. Such pay restrictions could mean a brain drain from America’s leading companies, as well as one of America’s leading cities.
What other unintended consequences could the stimulus plan lead to?
UPDATE: This article gives more details, along with the startling news that plans are underway in Congress to limit executive pay in ALL companies, even those that do not take bailout money!
Broader executive compensation rules could already be on the way. House Financial Services Chairman Barney Frank (D-Mass.) said a consensus in Congress is building to give the Federal Reserve the authority to police threats to the financial system, including by limiting compensation awarded to corporate executives for excessively risky behavior.
Such restrictions would apply to all firms, not just those that accept government rescue funds, Frank said, and could include a requirement that senior executives lose money when they make a bad business decision instead of simply gaining money when their bets pay off.