Treasury Department just imposed limits on compensation at many firms that received the biggest federal bailouts. Under a plan announced last week, the top 25 executives at each of these firms will their salaries cut by about 50 percent. The plan applies to companies such as AIG, Bank of America, General Motors, Chrysler, Financial, Citigroup, and GMAC. Cash pay for the top 25 executives at each of these firms will fall around 90 percent, and bonuses will be restricted mostly to company stock. Also, the Federal Reserve said it would evaluate the levels of compensation by assessing how well the management at the 6,000 banks it regulates.
However, pay limits are claimed to be a disaster in the making. The curbs will not only encourage executives to "leave for greener pasturs where the Obama administration does not hold sway." Even before the cuts were announced, dozens of executives at AIG and Bank of America definitely departed, and not accepted, the strictures. On the other hand, the focus on pay distracts the larger problem. The 2 most recent administrations gave a few firms a guarantee that they won't go bankrupt. What has to change is the idea that some firms are too big to fail.
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The question that this kind of action raises, as usual, is what kind of role does the United States public want the government to play? A prevalent theme in our culture right now is resentment of executives of big-name companies. The images that come to mind are executives flying to bailout meetings with the government in private planes, or expensive company retreats paid for with government bailout money. Strong images, too, that create a lot of resentment, especially in tough economic times. But is it the government's responsibility to try to grab ahold of the inner workings of each company accused of corruption? I don't think so. This absolutely does encourage execs to "leave for greener pastures" and throws the gauntlet down for power struggles. Fixing despicable behavior by these men and women is in the hands of citizens, not the government, by turning our backs on their companies.
Those executives who are "leaving for greener pastures" are the same executives that ran those companies into the ground. I don't think it is the governments responsibility to "grab hold of companies" that have needed taxpayer money, but I think it is appropriate to ensure that while companies are being kept afloat with government dollars that the chief executives of those companies not take millions of dollars in bonuses. Furthermore, having these pay restrictions encourages those companies to pay back Uncle Sam faster, as Goldman Sachs has, netting the government a profit.
I worry that these pay-cuts might hurt more than they help. Even if the executives who leave for greener pastures are those that ran the company into the ground, who is going to want to take a job that just took a 50% salary hit? The most qualified candidates will want better pay, and the companies that owe money to the government will not get the leadership they need to improve, which could essentially lead to more bailouts or the government just never getting back its money.
Even more disturbing, to me, however, is the motive for this action. Why would the government, impose these conditions amongst the companies so long after the bailouts? It seems unfair and superficial to make such regulations and not include them in the initial agreements. The main reason, as I believe it to be, for these limits is to create a better public image, to create an image of the government cracking down on the "reckless, selfish" corporations, simultaneously punishing the businesses that failed, and appearing to ensure that the tax-payers' money is put to "good use." Basically, a load of nonsense.
I absolutely believe that no firm is too big to fail, and that none of these bailouts should have happened in the first place.
Kristyn, I think you raise an excellent point about these executive pay cuts really being about attempting to create an image. Especially during economic malaise, accusations are everywhere that the government is taking payoffs. Just from a glance at the letters to the editor in the Daily Journal today shows a great deal of bitterness. And it doesn't seem to be directed anywhere in particular, just sort of in a nebulous way toward House Representatives and Senators, and of course the executive branch. In some ways, of course, this finger pointing has truth to it, and in others it's just playing the blame game and the government's response is self-interested public image preservation.
" But is it the government's responsibility to try to grab ahold of the inner workings of each company accused of corruption?"
If they are using bailout money, then yes.
"Even if the executives who leave for greener pastures are those that ran the company into the ground, who is going to want to take a job that just took a 50% salary hit? The most qualified candidates will want better pay"
How many "greener pastures" exist in our current economic climate that executives would flee to? If the executives see a future in the company and the position they hold, then they will stay. There's not too many companies that they can just switch over to.
"I absolutely believe that no firm is too big to fail, and that none of these bailouts should have happened in the first place."
It was a decision made on impulse.
"Why would the government, impose these conditions amongst the companies so long after the bailouts?"
Because we're still in an economic quagmire right now, and it doesn't seem fair for executives to flourish off of bailout money while the rest of us suffer.
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