CNBC reported on Obama’s Pay Czar earlier this week: Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the annual salaries of their 25 best-paid executives by an average of about 90 percent from last year. As the Heritage Foundation has explained before, wage controls don’t work . Policy based on envy and disdain rather than sound economics will do nothing to aid a recovery.
A small provision slipped into the stimulus (PDF) by Sen. Chris Dodd is making big waves in the banking and finance industries. The last-minute addition to the bill, which pretty much no one noticed until after the legislation passed both chambers, places sharp limits on bonuses available to top executives and other high-earners. How sharp? How about this: [Title VII, Section 7001] A prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees. So …
Is it any coincidence that on the same day that the Obama Administration announces restrictions on executive pay for companies taking government bailout money, Goldman Sachs announced that it is pulling out of the government’s Troubled Asset Relief Program? The investment bank, says CFO David Viniar, is chafing under the restrictions that came attached to its $10 billion loan. The new pay rules, which could be applied to existing TARP participants in a later iteration, may have been the last straw. “We would like to get out from under that,” …
Policies premised more on class-warfare than sound economics, are not going to get us out of this recession. They may actually delay recovery. In my last post, I discussed the example of a ban on “golden parachutes” for top executives. Now, another item from the Treasury’s pay rules for companies receiving “extraordinary assistance” that may soon be foisted on the broader market: executive pay caps. The rule is short and sour: Senior executives can receive no more than $500,000 in total annual compensation. They can also receive restricted stock that …
Policies premised more on class-warfare than sound economics, are not going to get us out of this recession. They may actually delay recovery. A case in point: the executive pay guidelines released by Treasury today. Though the new rules seem to apply, at this point, to only the few corporations that have received “exceptional assistance,” such as AIG and Fannie Mae, they are clearly a template for more broadly applicable rules. It is worthwhile, then, to consider how they undermine incentives for performance and economic growth. One particularly populist and …
