So, President Obama Wants to Regulate Executive Salaries

And, naturally, given that he’s got zero real world business experience, he’s going about it entirely the wrong way.

We all have a strong justification for being angered over business leaders of failing firms getting large salaries and passing out bonuses to themselves. Keeping in mind that the (rather absurd, but there it is) justification for the fabulous salaries and bonuses paid to senior executives is that this is the only way to get them to take a proprietary interest in the firm’s success. With this justification, the logical outcome for executives of firms losing money is that they should be paid little, or nothing. Paid high to make a company a success, paid little or nothing if the company tanks.

Obama’s plan, from what I gather, is that there will be an upward ceiling on executive salary (500k is what I’ve heard) and that any stock options will be in stocks restricted from sale until the firm has paid back the money provided by Uncle Sam. To put a generous spin on this, we’ll say that Obama is just clueless about how slick executives will just work their way right around Obama’s plan by paying themselves vast amounts of stocks and just sitting on it for as long as necessary…they are already rich, so they can wait ten years to cash in…and as the stocks of these firms are low priced right now, such executives stand to reap a massive windfall (ie, pay themselves a hundred thousand dollars worth of stock valued at $10 a share today, sell it when permitted 5 years from now when those ten thousand shares are going for $25 a share). To put a negative spin on it, Obama is giving us populist eyewash, fully aware that he’s not really limiting anyone’s salary…and he’s expecting loyalty in return for this from the executives. I’ll leave it to you, dear reader, to decide which one you like best.

But we do want to fix things up, right? I mean, heck with a bunch of CEO’s who’ve made a hash out of things. The solution? Make executive salary a fixed percentage of the pre-tax profit of the firm. No profit, no salary…high profit, high salary. Who will go for this? Real business leaders who are willing to stake their time and energy for no pay today in hopes of a massive payday down the road when they’ve turned Failing Enterprise X around. We won’t have corporate time-servers who get by on a old-boy (and girl) network where actual decisions are not taken for fear of failure and when things go in the tank its always the hourly employees and the public who have to feel the hardest pinch.

Our fundamental problem here, friends, is moral – for CEOs to promote each other and pay themselves astronomical salaries as if they really earned the money is shortsighted greed at its worst. For Congressional overseers to be willing to allow corrupt practices in return for a junket and a donation or two is, also, shortsighted greed at its worst. If we really want to fix the practices of the firms, we need to change the way things are done so all of the incentives are on courageously doing the right thing. We keep this current system and tack on to it Obama’s asinine plan about executive pay and all we’re doing is making things worse…now it will be a matter of greasing palms in DC in order to get the best executive package in Detroit and there will be an even larger disconnect between CEO salaries and company performance.