Cap Corporate Executive Pay?
by Mark Noonan on January 4th, 2009 at 05:13pm
The argument on the left is, essentially, that its just not fair for some people to make as much as some corporate CEOs. Such arguments are never made against Hollywood producer or superstar pay, nor against the amount of money Bruce Springsteen makes when not making what amounts to massive, in-kind donations to Democrats, but no matter. Buttressing the argument for caps is the immoral and asinine manner in which some corporations have taken bailout money and paid bonuses to executives of de-facto bankrupt firms. The other side of the argument goes thusly:
To be sure, executive pay in the United States is vastly higher than necessary. Executives in other countries, whose pay is often less than one-fifth that of their American counterparts, seem to work just as hard and perform just as well. The same was true of American executives in the 1980s.
So why not limit executive pay? The problem is that although every company wants a talented chief executive, there are only so many to go around. Relative salaries guide job choices. If salaries were capped at, say, $2 million annually, the most talented candidates would have less reason to seek the positions that make best use of their talents.
More troubling, if C.E.O. pay were capped and pay for other jobs was not, the most talented potential managers would be more likely to become lawyers or hedge fund operators. Can anyone think that would be a good thing?
I work for one of the larger corporations in the world. Previously, I worked for a smaller - though still quite large - corporation which was sold to the vastly larger corporation I currently work for. When this deal was transacted, the CEO of the smaller corporation I worked for received tens of millions of dollars…as if he had actually done anything in his entire life worth tens of millions of dollars. This was, of course, entirely legal and approved by the Board who, presumably, also made out very well in the deal. But it was immoral and should not have been done - I’d like to ask the guy how he sleeps at night, but I’d probably get an “on a pile of money with beautiful women” sort of answer.
Now, we must fight tooth and nail against Democrat attempts to let Congress set executive pay. This is because all we’ll have then is corporate CEOs bribing Democrats in order to be permitted to have high salaries (and anyone who thinks Democrats won’t go along with such things just hasn’t been paying attention to William “Cold Cash” Jefferson, Rod Blagojevich and, indeed, the entire pay-for-play ethos of Democratic politics). But this doesn’t mean there’s nothing we can do.
As to the argument that we must pay massive salaries in order to entice the best of the best into our corporate executive offices, I call bullsh**. The CEOs who are bankrupting our corporations today are the very sort of geniuses we were enticing with high salaries, and look where it got us. I have in mind, right now, three people I work with who I’d much prefer to be in charge of the corporation I work for (no, none of them are me) and I’ll bet they’d take the job for, oh, $250,000.00 per year and they certainly couldn’t make more stupid decisions than are currently being made and they might make much better ones (which I actually believe is true as they have a genuine appreciation of what is going on out there, while the CEO and senior executives are entirely too far removed from the day to day grind of the average folks).
My preferred route to bring corporate salaries - top to bottom - in line with reality and inject a bit of sobriety and solidarity in to our economy is to create tax advantages for companies where executive salaries are in line with average employee salaries. Certainly the big boss needs a high income - but if Joe Average is making $50,000.00 a year then Jane CEO shouldn’t need more than $500,000.00 to rest content. Companies can choose to pay massive amounts for the hot-prospect CEO who appears a genius because his last corporation had a great couple years (likely due to macro-economic factors rather than CEO smarts, but no matter), but they’ll get a tax advantage if they go with the really hard working mid-level manager who has genuinely innovative ideas and the guts to make decisions (one of the primary failures of our corporate executives is their fear of making decisions…make a decision and you’re responsible for failure, and that could jeopardize the golden parachute!).
There is nothing wrong with being successful. There is nothing wrong with being rich - even multi-billionaire rich…but there is something wrong with someone just walking in to a long established firm and making money off it as if he built it from the ground up over a lifetime’s work. We must be wary of attempts by liberals to take control, but we must also work out the ways and means of bringing reasonableness into corporate life.
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January 4th, 2009 at 5:41 pm
Ok, you are against CEOs making huge amounts of money, but against any attempts to stop it. While I agree that it’s ridicules for CEOs to make the money they make, in some cases for being failures, I’m not sure how you would stop it.
January 4th, 2009 at 5:51 pm
My main objection to huge CEO payouts is not so much when they DO deserve it as when they DON’T.
If someone is the CEO of a company that is doing very well, making large profits, not breaking any laws, then fair enough; the CEO can be given whatever the company deems fit, and I really don’t have a problem with it.
Where I DO have a problem is if the company is in dire straits, laying off normal workers, making huge losses or worst of all feeding off the taxpayer in huge corporate bailouts - and yet the CEO STILL gets a huge payout. That’s the problem I have - if the company is in trouble, the CEO should take a pay hit to help the company out. Those that still insist they deserve huge pay purely because of their rank are simply stealing from the company, and ultimately, if the company is getting a bailout from public funds, from ME as a taxpayer.
Give a CEO your tax revenue if you like, Mark, that’s your call - but a badly run company that begs for my tax money and then gives it to a CEO, damn straight I disagree with that!
January 4th, 2009 at 5:52 pm
My favorite solution would be to cap management pay at 20 times the average pay for workers at the company. I would be ok with bonuses tied to company performance. If the company isn’t performing, no one gets a bonus. If nothing else, worker pay would go up, considering that every dollar the workers get, the boss gets twenty.
January 4th, 2009 at 6:39 pm
This is stunningly partisan. You dislike executive pay, but God-forbid someone who is not Republican try to stop it! All those times, Mark, that you said, “I don’t want the country to fail. I hope that the Liberals will do the right thing.” All those times… they finally try to do the right thing, and… Has it ever occured to you that your party lost this year because of this kind of divisiveness?
January 4th, 2009 at 7:24 pm
markensation:
terra firma tax break my ass-tronical
the orbital observers thought you were
for less govt and less spending???
so no matter how you planetary pkg it
it’s govt control on exec compensation
which is wrong
agreed, they are paid too much
and none are as smart as the mid level mgr (you)
but the shareholders, boards and owners
can pay whatever they want to pay some jovian jamoke like your boss
the martian market decides after that…..
January 4th, 2009 at 7:51 pm
While they are at it, they should cap the pay of politicians. After their, transportation, housing and living allowances what else do they need their salaries for?
atheistass, capping executive pay will not solve the problem nor will the present pay practice make the country fail. Liberals constantly touted the talking point that Republicans use the “politics of fear” in their speeches against terrorism, electing other libers, tax increases, etc etc. Why are liberals using the same tactic they claim to despise?
Again, like a good little lemming you swallow and regurgitate the talking points.
January 4th, 2009 at 7:58 pm
tiredoflibbs,
So does that mean you are ok with the current system?
January 4th, 2009 at 8:08 pm
Mark,
Who on the left (that matters) is making the argument that its just not fair for some people to make as much as some corporate CEOs? I have heard the argument against CEOs of failing and failed companies getting huge salary and benefits packages, but I don’t recall anyone arguing against executive compensation as a fairness issue.
January 4th, 2009 at 9:03 pm
Casper,
No, I believe I’ve suggested a way to encourage sobriety in corporate compensation - certainly there are details to work out, but at least I’m not going down either asinine road…leaving things as they are, or allowing Nancy Pelosi to decide.
January 4th, 2009 at 9:05 pm
kmg,
No, you’re not getting away with “that matters”…I can look up a lot, but if you’re already going to say they don’t matter, why bother?
January 4th, 2009 at 9:05 pm
bagni,
Actually, I had you in mind for CEO.
January 4th, 2009 at 9:34 pm
“My preferred route to bring corporate salaries - top to bottom - in line with reality and inject a bit of sobriety and solidarity in to our economy is to create tax advantages for companies where executive salaries are in line with average employee salaries.”
Just curious how you are going to do this without the help of the Democrats.
January 4th, 2009 at 9:36 pm
Mark,
Fine. Everyone matters, so who is making that argument?
January 4th, 2009 at 9:38 pm
BTW, Mark, if that is truly the argument of the left, I would have thought you would already know who is saying it and wouldn’t have to look it up after you made the claim. Just sayin’…
January 4th, 2009 at 10:19 pm
Mark: I’d like to ask the guy how he sleeps at night, but I’d probably get an “on a pile of money with beautiful women” sort of answer.
Are you saying you don’t? Okay, eliminate the “pile of money” part and change the “beautiful women” part to singular — is that so bad? At the very least it’s trickle down something at its best.
No, I believe I’ve suggested a way to encourage sobriety in corporate compensation - certainly there are details to work out…
Gee, ya think?
January 4th, 2009 at 11:41 pm
markexeccorp:
sorry can’t astrally accept your ceo offer
we were hoping you’d take us to YOUR leader
January 5th, 2009 at 1:19 am
ricorun,
Always - but at least I’m thinking, and thinking outside the box. All I get from your side is an automatic gainsaying of whatever I propose coupled with a slavish devotion to Obama. Come on, you can do better than that - I know that you and Casper can, for sure.
January 5th, 2009 at 1:36 am
kmg,
People who have made statements favorable to capping CEO compensation include, but are not limited to, the following:
Rep. Nancy Pelosi (D-CA), Rep. Barney Frank (D-MA), Rep. Charles Rangle (D-NY), Sen. Harry Reid (D-NV), Sen. Chuck Schumer (D-NY)…
Shall I go on?
January 5th, 2009 at 1:37 am
casper,
Naturally, we have to work with Democrats - in fact, Democrats will have to lead the way, God help us all. Democrats will be in charge - all I or any other GOPer can do is warn and advise.
January 5th, 2009 at 4:47 am
We must be wary of attempts by liberals to take control, but we must also work out the ways and means of bringing reasonableness into corporate life that Republicans have destroyed, and now liberals are finally addressing.
Way to go, Mark. You’re finally calling for tax code manipulation to force executive plunder downward. I am shocked that you aren’t calling for the one and only solution to this CEO pillage problem: give 100% of the control over pay to those who ACTUALLY OWN the corporation, the stockholders. Executive pay cannot be fairly decided by golfing buddies inside the boardroom, and only accountable to stockholders every half decade or so.
The biggest joke in modern finance is that on average, stockholders own 100% of the company, take 100% of the risk, but only receive 70% of the profit, the rest going to upper management. That must either change or be disclosed for the ridiculous sucker punch “investment” that it is.
It’s surprising to hear you calling for a punitive tax policy on executive pay if it’s over ten times employee compensation, though. That’s only twice what Joe the Plumber makes (no?) and doesn’t even come close to McCain’s $5 million figure for what counts as “rich”.
Very liberal of you :-)
January 5th, 2009 at 7:15 am
Mark,
Yes, they have talked in favor of capping executive pay, but then so have you. Have they brought it up solely as an issue of fairness? I don’t think so.
January 5th, 2009 at 8:19 am
Just out of curiosity… why is the GOP so dead against capping CEO pay, but the bridge loans to the auto-companies was derailed by the GOP in Congress because the UAW wouldn’t take a pay cut?
January 5th, 2009 at 9:09 am
reality; government needs to stay out of the private sector…socialism is when the government owns and dictates the market…we are walking into a trap that we will not be able to extricate america from without spilling blood…to extricate the government from a socialist position…while the wealthy make plans to push these ideal…the poor suffer…
the socialism we have seen throughout history has only brought stiffling depression, the poor get walked on while the elite and wealthy buy control and position…it doesnt work the way they say it will…never did…but they always wave the banner of workers revolutions before they take control…paying lip service to lofty ideals to garner the sympathy of the poor…all the while…its nothing more than a scheme to grab power and more wealth…
January 5th, 2009 at 11:05 am
an automatic gainsaying of whatever [is proposed]
You say that like you think it’s a bad thing and not your automatic reaction to anything anybody you perceive as “liberal” proposes. Have you actually had a change of heart, or are you whining about receiving the same treatment you dish out?
January 5th, 2009 at 12:15 pm
cassper,
Uh, so my choices are “free market solutions” where the bonuses and pay are decided by the coporations board of directors OR more government control and intrusion, where the decision will be made by a bunch of political hacks???
Government intrusion is more than likely the culprit of our present crisis.
But, since you are so dependent on government I know which way you will vote.
January 5th, 2009 at 12:18 pm
Mark (17), I suggest you turn your suggestion around. What I mean is, by suggesting “create tax advantages for companies where executive salaries are in line with average employee salaries” is another way of saying tax some companies more than others. Additionally, if by “tax advantages” you mean reducing the taxes of some companies while keeping others the same, the total tax revenues will drop. So you’d have to propose a way to deal with that.
Also, much of the income of very highly paid executives is in the form of stock options. One can certainly estimate the value of those stocks, but for IRS purposes the income isn’t declared until the stocks change hands. How do you deal with that?
But I’d say the biggest flaw in your logic is that you are tying the company’s tax level to the fortunes of their executives. They don’t have to pay the taxes if they’re too highly paid, the company does. So why would they care? One could maybe argue that the stockholders would. But then again, if one company tries to limit executive pay while other companies don’t, how do they attract the highest quality executives? So I’m afraid that brings us back to the original conundrum.
I’d say one important contributing factor to the growing income disparity owes to the fact that the overall tax rates of higher “income” individuals is actually lower than those who don’t make quite so much. For example, you don’t have to pay payroll taxes on income over about $100,000 (in 2008). Also, if you are “paid” in the form of stocks, you only have to worry about capital gains tax, not income tax. And the capital gains rate is fixed. And of course the rate is lower than is the income tax rate at the higher tiers. So I’d say that if you actually want to do something about limiting executive pay, or at least allow society to take better advantage of the higher pay of executives (and everyone else in the same brackets) is to do something about those disparities.
January 5th, 2009 at 12:31 pm
Related to my previous comment (#26), here’s what I would suggest:
1. Keep the payroll tax rate fixed, but extend its upper range — perhaps to infinity. That way you can reduce the overall rate while still fixing the looming social security problem.
2. Eliminate capital gains and treat all income as just that — income. There again I suspect you could reduce the marginal tax rates without affecting revenues.
January 5th, 2009 at 6:39 pm
There is only one thing that I hate about America: It’s this “Somebody over there has it better than me, so take it away from them” attitude. It’s so prevalent as to transcend the conservative/liberal schism that powers these comments.
Don’t ask why CEOs get paid out of all proportion — ask instead why YOU DON’T. Don’t take away good pay and good benefits from others — DEMAND THEM FOR YOURSELF. Or shut up.
January 5th, 2009 at 7:16 pm
Like the ol’ saying - “What goes up, must come down!”
Either way, rich or poor, whether it be yesterday’s Roman Empire or today’s USA without moral values and the family unit…that society must and will fail.
Family which sustains the culture, must remain the key unit and the back-bone of any healthy society. Instead, when there are too many people entirely detached from families and without any historic avenues start working only to sustain their individual lives, the society has to start disintegrating and therefore perish.
America is the richest nation today not because Americans work harder than others but because of certain other external factors. After European nations conquered and established colonies in countries with ancient civilization and culture, for centuries they stoled and stoled from these colonies and became rich. But today, they are struggling to remain in their high-on-the-hog life style (so to speak), that was achieved through earlier thievery.
The disintegration came about through a dislike for work ethics, accountability, responsibility and for the traditional ways and means of the family order … we went from charity to no charity, from man and wife to “anything goes - if it feels good, do it” promiscuity. From Bible reading and prayer to no Bible reading and prayer.
A large percentage of the American dollar is fueling certain destructive habits - the Big Three - Alcohol, Tobacco, and Pornography - in turn, you have a larger number of people with cancer, heart attacks, drinking related health problems, sexually transmitted diseases etc … this in turn, creates crowded hospitals making it difficult for insurance companies and other beneficiaries to keep up.
The Big Daddy, however, that being education is what is creating the above reality.
If we are to preserve this precious Republic … we must return to the past, to the greatest political figure in U.S. history … to the brave and fearless President Ronald Reagan.
Down with the atheistic socialism, Down, I say!
January 5th, 2009 at 7:44 pm
Wasn’t he the one who, in 1980, did a deal with the Iranians to hand the hostages over to the Republicans (rather than to Jimmy Carter) in return for some arms immediately (via Israel) plus the promise of future arms and political benefits once the Reagan administration came into office?