CapitalistMarks

Obama’s Salary Ghuru shoots shareholders in the foot!

Posted on 26. Oct, 2009 by scott in economic daydreaming

I am sad!

Disappointed too.  Though I am all for limitations and restrictions on obscene pay at all levels of society (see here),  Obama’s appointee to monitor and supervise pay at companies funded by the government and American taxpayers has got it all wrong.

Kenneth Feinberg, the President’s compensation Czar has proposed pay cuts of 50-90% for the top executives of such companies as AIG, Bank of America, Citigroup, GM and the likes.  This is a huge mistake right now.

These companies need the best management possible in order to return the taxpayers investment (if you can call it that).  That is a fact everyone can understand.  And while I don’t think it takes a rocket scientist to manage most companies — experience at this point in time trumps any effort to alter our current way or doing business in one fell and limited swoop.

Compensation regulations are needed but now is not the time to start a limited and punitive program to accomplish that.  Congress needs to consider the issue and pass appropriate laws that give all organizations and individuals time to consider the impact such laws will have.  That is only fair.

So, it must be clear to everyone except Kenneth Feinberg that the changes he is making by ‘command’ rather than consideration is deeply flawed.

We all want these government funded companies to do well.  But, what he is doing is ruining the potential of these firms instead of encouraging it.

How, you say?

Well, lets say a competent executive of one of these companies is going to see a 50% pay cut in his future.  Now this guy is really good and helps his employer save millions of $$ with his skills and experience.  Others know this too and want his type of skills and experience at work for them.  They make an offer he can’t refuse.

He’s gone and in his place is someone willing to work for less.  Why?  Because his track record justifies it.

The company loses, the government loses and we as taxpayers lose.

The kind of ‘law’ imposed by Feinberg just doesn’t work unless it is universal.  Competitors will ALWAYS try to steal away the best talent and unless they are subject to similar regulations they will succeed.

The real answer is universal limitations on pay and the only fair and equitable way to accomplish this is with taxes.

This is how it should work:

Onerous tax rates should be implemented next year (to give notice) on all compensation of any kind — executives, movie stars, athletes etc. — starting at about $1,000,000 per year.  The next million would be taxed at 80%, then the next at 85% and finally anything over $3,000,000 per year would be taxed at 90%.

This won’t be as unfair as it seems.  Options based on performance will be available to everyone in such tax brackets.  The thing is though, the options will have to be based on genuine ‘positive’ performance such as long term profits for a corporation, winning records for athletes, total receipts for movie stars and so on . . . and the options are purchased with the individuals own money.

Feinberg had better reconsider and use the formula I propose above instead of a direct limitation on compensation.

We will all be the winners in that case!

thanks to flickr’s just taken pics for the photo

Tags: compensation czar, kenneth feinberg, tax rates