*Disclaimer* A distinctly political post follows. I welcome any responses, and retain the right to remove any specifically disrespectful and unreasonable responses.
Today, President Obama announced plans to limit executive pay packages at companies receiving funds from the federal government. The goal is to limit annual compensation to $500,000. In announcing the limits and referencing recent multi-million dollar compensation packages, President Obama said, "For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste. It's bad strategy. And I will not tolerate it as president."
Now, I can't begin to cover EVERY aspect of how this is wrong, so I'll limit myself to a couple. First, and most important, is that it is not the role of the President of the United States to determine what is or isn't appropriate in a compensation package for any individual that isn't directly employed by the Executive Branch of the United States government. President Obama has taken it upon himself to not only determine that a pay and compensation package is unacceptable, he claims the right to decide what package IS acceptable.
My first question for President Obama might be "What specific experience do you have with the management and oversight of a major corporation in the United States (or anywhere, for that matter)?" To the best of my knowledge, his experience in such matters is extremely limited. And the individual to whom he seems to have turned, newly confirmed Treasury Secretary Timothy Geithner can hardly be considered a trustworthy source of reasonable information. Secretary Geithner is a former executive at Goldman Sachs, the company at the center of tremendous scandal involving decisions about which companies the federal government will and will not bail out. He was also proven to be incompetent in the simple task of filing federal taxes when working for the International Monetary Fund. Despite being provided with detailed documentation on tax liabilities and increased pay to cover required taxes, he failed to report those taxes.
In his comments, Secretary Geithner commented that taxpayers feel those with no responsibility for the financial crisis are bearing more of the burden than those who played a greater role in the economic collapse. His comments are true, but his actions are misdirected.
Through his comments, Mr. Geithner implies the entire economic situation can be layed at the feet of financial executives. While those executives certainly bear some of the responsibility, the greater share of culpability belongs to the federal government. The government that mandated looser lending practices. The government that mandated Fannie Mae/Freddie Mac buy up marketable securities created from loans made under those looser policies. The federal government that refused to acknowledge that the environment created by their policies could not be sustained.
And the federal government that decided to force a $700 billion bailout down the throat of the American taxpayer.
Once upon a time, bad business practices were rewarded with failure. Had the federal government allowed the market to determine what should happen to the various companies, they would have gone under. President Obama would have no need to chastise executives for billions in compensation because they would have received little to nothing as the value of stock crashed, revenues ceased to exist, and assets became worth little more than the paper on which they were written. Instead, the federal government put the American taxpayer into the position of funding failure.
President Obama also said, "This is America. We don't disparage wealth. But what gets people upset, and rightfully so, is executives being rewarded for failure, especially when those rewards are being subsidized by U.S. taxpayers."
You are right, Mr. President, but you have it backwards. The American taxpayer is upset about private companies once again being subsidized by their hard earned money. If the federal government wasn't rewarding failure, this discussion wouldn't even be needed.
Perhaps, rather than dictating the operations of private organizations, your administration can allow the free market to do what it has always done so well. Eventually reward those who work hard and play by the rules. And eventually punish those who forget how the free market system works.
Your plan is sure to have one effect. By limiting the compensation for the top executives of billion dollar companies, you ensure they will continue to be run by the very people who ran them into the ground. After all, what experienced and highly qualified executive is going to go to a company where they can earn $500,000 a year when there are so many others where they can earn far more?
Instead of getting out of the way, you have just made a move toward total control of the markets you claim to be "free."
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