Uncle Sam Wants to Set Corporate Pay

The federal government has run a deficit every year since 1961, except for the biennium 1999-2000, right before Republican George W. Bush took over the reins of the presidency and quickly proceeded to blow a hole in the federal budget that continues to gush red ink to this day under the leadership of President Barack Obama.  Our current-year deficit has broken the $1 trillion barrier ($1.2 trillion, to be more precise), and the national debt now stands at nearly $12 trillion; both continue to move in the wrong direction — up.  

With a managerial track record like that, Uncle Sam is not the person you want running your bank, your investment house, or your insurance company; in a position to dictate executive-level pay.  Yet, that’s exactly what will happen if legislation that just passed the House and awaits Senate action, is signed into law.

The cleverly-titled “Corporate and Financial Institution Compensation Fairness Act” (who can possibly be against “fairness”), pushed vigorously by House Financial Services Committee Chairman Barney Frank (D-MA), and supported primarily (but not only) by Democratic members of Congress, would empower federal regulators to prohibit certain executive pay plans, including those with “incentive” bonuses for risky investments.  You read that correctly – the same folks who were asleep at the regulatory switch for years while the mortgage meltdown took hold, would thenceforth be essentially running the same institutions they failed to regulate properly in the past.

Clearly, many of the financial institutions that have been the recipients of Chairman Frank’s ire, are more than deserving of such opprobrium.  And he and the other advocates for this legislation are correct in concluding that the various schemes bankers, institutional investors and other “Wall Street Whiz Kids” concocted to make huge profits (often via bonuses) for themselves but at great risk to the institutions they represented, were a major cause of the mortgage and banking crises from which our economy is still reeling.

The question is, do we want to permit this problem to be employed as a vehicle whereby government becomes the “decider in chief” to determine how much money business executives earn?  Do we really want government bureaucrats involved even more than currently, in the management of businesses?  Can government officials ever make such decisions with no concern whatsoever for preferences and prejudices, and completely divorced from political considerations?  Just look at their track record thus far — deciding that some financial institutions were worthy of being bailed out and others thrown under the bus; allowing huge bonuses to be paid for with taxpayer “bailout” dollars.  Is there any basis in history or current policy that would  lead one reasonably to conclude that government could do a better job than the private sector has done in this arena? 

The answer to each of these questions, is a resounding “NO.” 

There is a role for government in all this — providing a legal and regulatory framework within which businesses are run honestly and openly, and ensuring that our financial system serves investors in a similarly tansparent and honest manner.  What needs to be done — but hasn’t been – is to ensure that such laws and regulations are actually, consistently, vigorously, and objectively enforced.  Doing something quite different, such as putting the government in a decision-making role in U.S. businesses will, if anything, make matters even worse.  And yes, no matter how bad things are, they can always get worse (just wait for “Obamacare”).

52 comments Add your comment

TechLover

August 7th, 2009
7:43 am

Isn’t this legislation just for those companies that have accepted government bailouts? • Goldman Sachs, which earned $2.3 billion last year and received $10 billion in TARP funding, paid out $4.8 billion in bonuses in 2008 – more than double their net income.

• Morgan Stanley, which earned $1.7 billion last year and received $10 billion in bailout funds, handed out $4.475 billion in bonuses, nearly three times their net income.

• JPMorgan Chase, which earned $5.6 billion in 2008 and received $25 billion from the government, paid out $8.69 billion in bonus money.

• Citigroup and Merrill Lynch lost a combined $54 billion last year. They received a total of $55 billion in bailouts and paid out $9 billion in combined bonuses. ($5.33 billion for Citigroup; $3.6 billion for Merrill Lynch, which was subsequently acquired by Bank of America.)
I’m no economist, but it seems that if I own a company that makes a profit of $10,000, and I pay $15,000 in bonuses, my company won’t be around long.

Turd Ferguson

August 7th, 2009
7:46 am

The Federal govt in all its folly and stupidity has no business setting financial reimbursement limits for any private industry. Next thing the Feds will be setting wage caps for the line workers.

Ah…socialism at its finest.

Just wonderin

August 7th, 2009
7:47 am

Does Barney Frank have any teeth?

jconservative

August 7th, 2009
9:30 am

“There is a role for government in all this…”

Nice & important article. I agree there is a role for government.
If you put your paycheck in the bank on Friday you want to be assured that the banker does not take your deposit to Vegas.

The great sin seems to be taking bonuses out of “non-existing profits”.
How about in a C-Corp bonuses can only come from after tax profits?

WBK

August 7th, 2009
9:30 am

Hey Barr you can report me to the white house because I am against turning American into a socialist ideolog.

JF McNamara

August 7th, 2009
9:49 am

You are simply misleading people for the sake of outrage. The bill gives shareholders more rights to govern executive pay which they should have since they own the company. It doesn’t give carte blanche for the government to dictate salaries.

Yes, the government will have say on pay in the companies that they have ownership in, but isn’t that the point? If you own something, shouldn’t you have a say in what’s going on? If you don’t want the government involved, then repay the money. If you don’t want shareholders to have a say then go private.

http://www.house.gov/apps/list/press/financialsvcs_dem/comp_001_xml.pdf

http://www.gop.gov/bill/111/1/hr3269

Trudy

August 7th, 2009
10:00 am

Obama has saved the US from a catastrophic depression. We also are re-gaining respect from the world. Diplomacy is making a come-back.

Next project: Get bush and cheney behind bars for war crimes.

Atlanta Native

August 7th, 2009
10:00 am

Bob, when you were in office, I generally disagreed with you all the time. Now, I find myself agreeing with your columns regularly. The Orwellian approach to government I am have seen from the Obama and Bush administrations frightens the heck out of me. Keep pointing out how much the camel is under the tent before we find ourselves sleeping outside.

GS

August 7th, 2009
10:02 am

I see no problem at all with imposing limits on the way bailout money is to be spent. It is intended to prop up companies at risk of failing, not line the pockets of CEOs who are already stashing tens of millions of dollars in Swiss bank accounts, evading taxes. Federal dollars should ALWAYS come with strings that define the purpose of the funding and limit misuse. Those are my tax dollars and handouts to the rich how I want them spent. Barr must have been at the bar before writing this column.

GS

August 7th, 2009
10:04 am

Typo. Should read “Those are my tax dollars and handouts to the rich ARE NOT how I want them spent.”

TW

August 7th, 2009
10:29 am

Wow. If only we could go back to 2000 and rething our decision to screw ourselves with the election of the village idiot form TX.

Those who voted red 2000 and then again in 2004 deserve every once of this recession.

Oh, and Bob, those most responsible for this tsunami of liberal spending? Yup, your old running buddies on the right, who stuffed the GOP brand in the elephants backside, leaving the libs as the only option. Republican incompetence, more than anything put forward by the left, is what gave Obama the White House.

Accountability much?

Billy Bob

August 7th, 2009
10:34 am

TechLover, you’d be correct – you’re no economist. Or Accountant. Wages, Bonuses and Other Compensation routinely exceed the Net Income of many companies, particularly service-related companies like Investment Banks and Insurance Companies.

I don’t disagree with some oversight but my strong sense is that the oversight should have come from the shareholders (through their elected Board of Directors) and the federal government. Neither seemed up to the task. I will say that when I see activist shareholders like the California public employee pension and the California teachers pension I am heartened that the system is working. What we need are Boards of Directors who look out for the shareholder.

Nice essary, Mr. Barr.

Turd Ferguson

August 7th, 2009
11:04 am

Well I see Trudy once again graces us with one of her wonderfully thoughtout idiotic affirmations of the day…”Next project: Get bush and cheney behind bars for war crimes.”

Wish, cry, moan, pray all ya want…its not gonna happen.

Your thinking is just so shallow. Are you an 8th grader?

Stu

August 7th, 2009
11:44 am

Trudy is not an eighth grader – it’s an economist. A Keynesian one at that. Perhaps a professor at a prestigious Ivy League school where it cavorts with the Krugmans and Bernankes and other do-gooders of the I know what’s best for you crowd of elite thinkers. All hail Trudy. Only it has the proper mental bearing to centrally plan our behaviors.

The REAL GodHatesTrash, Superstar

August 7th, 2009
12:44 pm

I bet Jeff Sessions and Lindsey Graham will take out their dentures for you, just…

JackLeg

August 7th, 2009
12:45 pm

Trudy, are you from California, do you smoke medical marijuana? Obozo has saved us from nothing, he has LOST 2.5 million jobs since taking office, and he has spent over a trillion dollars and created NO jobs. He is pushing to destroy the best medical system in the world. Regaining respect from Hugo Chavez and Castro, you think that is a good thing? Trudy put down the kool-aid and use some logical thinking. I will put this in a way that your simple mind might understand. Can you spend your way out of a bankruptcy? The answer is NO just in case you got it wrong, so how does Obozo plan to spend his way out? Here is another example since when does a company go bankrupt then “acquire” then get 6 billion of our money to support their union? Why do we have to bankrupt the country to supply healthcare for illegal aliens? Wake up Trudy, or better yet go back to sleep…..

clyde

August 7th, 2009
1:15 pm

Just Wondering,
Odd question,Just Wondering.It’s making me wonder why you’d want to know.

Redneck

August 7th, 2009
1:52 pm

Billy Bob, did you add in wages and other compensation to make a false point? Because TechLover only listed bonuses. Your trying to compare apples to oranges.

Barry

August 7th, 2009
2:57 pm

Obama is fast destroying America! I am really surprised they haven’t added assisted suicide to the “healthcare” bill to rid America of Senior Citizens. Do you realize every senior citizen will have to be counseled by government every 5 years about their health and final life planning? It is obvious that Obama has read Hugo Chavez’s book because he is turning America into a Socialist – Dictatorship ran by himself, czars, and dimocrats like Pelosi and Reid! They all should be impeached!

gloom and doomer

August 7th, 2009
3:01 pm

“There is a role for government in all this — providing a legal and regulatory framework within which businesses are run honestly and openly, and ensuring that our financial system serves investors in a similarly transparent and honest manner.”

Wouldn’t that just be peachy-keen? Of course, it will never happen.

The lobbyists for “big bidness” have had a louder voice inside the beltway than John Q. Public for years and will continue to have.

Maybe JQP will finally figure out that he got the kind of government he deserved for not exercising critical thinking when sending reps to Foggy Bottom.

Chris Salzmann

August 7th, 2009
3:02 pm

Barry August 7th, 2009 2:57 pm SAID: Obama is fast destroying America! I am really surprised they haven’t added assisted suicide to the “healthcare” bill to rid America of Senior Citizens.
CHRIS SAYS: Actually, many of your right-wing nut jobs are already claiming that.

Barry August 7th, 2009 2:57 pm SAID: Do you realize every senior citizen will have to be counseled by government every 5 years about their health and final life planning?
CHRIS SAYS: Wrong again! Not the government but their primary health care provider. Makes sense since we had that wonderful Terri Shiavo case when the Republican Party was happy to interfere in the private decisions of Terri’s own family. Now that sort of interference by the government is perfectly reasonable, right???

yeah right

August 7th, 2009
3:46 pm

Poor Trudy Boody suggested tha Bush and Cheney are guilty of war crimes? What about Mr. Hopey-changey? He is expanding the war. He even kept Gates. Why does hopey-changey get a pass?

ps this is when you play the race card

SwedeAtlanta

August 7th, 2009
3:48 pm

My understanding this is two-fold

1. Provide a framework for compensation including benefits for companies that received bail-out money. In many of these cases the federal government is now a major stakeholder. It is perfectly reasonable that we have input into compensation. It is what owners of publicly traded corporations do through corporate boards

2. New framework for compensation, primarily around bonuses, for financial services organizations. Today bonuses are huge if they risk everything (the investors’ money) and get huge results. But if they risk everything but don’t get huge results they don’t lose anything. The proposal is that for these businesses that are taking risk with investors’ money if they take huge risks and win, great they get big bonuses. But if they take huge risks and lose, they lose. If there is no downside to taking huge risks there is no incentive to invest wisely.

Bob has once again gone of his rocker.

SwedeAtlanta

August 7th, 2009
3:59 pm

Chris Salzman @ 3:02 p.m.

With respect to the end of life planning, this language is taken from the current Medicare law. There is no mandate in either the Medicare law or the proposed health care reform to require this. It is a provision to ensure that seniors (Medicare) or others have access to someone who can help them review end of life issues – e.g. writing an advance directive, etc.

This is what the nutcases have seized on and they are wrong. This has nothing to do with putting Granny to sleep. It has to do with ensuring she can make informed decisions regarding her end of life. It has to do with being proactive to ensure that you are treated with dignity and in accordance with your personal wishes when end of life comes.

JF McNamara

August 7th, 2009
4:16 pm

Yeah Right,

Dopey Changey gets a pass because he hasn’t committed a war crime. War isn’t against international rules. Torturing people is.

SayWhat

August 7th, 2009
4:20 pm

Oh, Trudy, Trudy, Trudy – once again you prove you are a sheep-minded liberal. But I guess you’re getting your free government entitlements, so the rest of us can just keep working, paying more and more and more taxes so you can get your free medical coverage and shake your fist at the “rich people” (who, by the way, employ all the poor to middle class folks. Know anyone who works for a poor man??) How sad.

yeah right

August 7th, 2009
4:20 pm

How do you know what hopey changey has done? He has thugs intimidating and beating people at town hall meetings. His whole staff is marxist revolutionary trash. He just blew up a building full of pakastani citizens. How is that not a war crime? Speak, my little hyocrite parrot, speak.

toast

August 7th, 2009
4:22 pm

Speak, my little hypocrite parrot, speak.

JF McNamara

August 7th, 2009
4:29 pm

JackLeg,

You have no clue what you’re talking about.

1. He has LOST 2.5 million jobs since taking office, and he has spent over a trillion dollars and created NO jobs.

This is not true, he has created jobs. Perhaps he hasn’t offset as much of the decline as estimated, but he has created jobs. Also, it’s technically correct to say the U.S. has lost the jobs since taking office. The responsability for those jobs is split.

2. He is pushing to destroy the best medical system in the world.
By what metric? I’ve never seen a study that said this was the case. Prove it. It’s not the best.

3. Regaining respect from Hugo Chavez and Castro, you think that is a good thing?

Yes, 10% of our oil comes from Venezuela. We need good relations. Communism is potentially on the wane in Cuba, we can make inroads now.

4. Can you spend your way out of a bankruptcy?
Yes, I can buy supplies, create a new products, and create revenue and profits. It’s called investing. The stimulus was an investment to spur growth.

5. Why do we have to bankrupt the country to supply healthcare for illegal aliens?
Who is proposing to supply healthcare to illegals? Either way, we’re already paying for illegal aliens through taxes and higher medical bills. This statment make no sense to me at all. Can you post an article explaining what you mean about illegals?

I would address your other point, but it is so poorly written I don’t even know what you mean.

toast

August 7th, 2009
4:36 pm

obama lied, people died

saywhat?

August 7th, 2009
5:56 pm

Barry, are you willfuly ignorant, or slow, or a scumbag liar? Barry said “Do you realize every senior citizen will have to be counseled by government every 5 years about their health and final life planning?” The item of which you speak does not REQUIRE any senior citizen to do anything. What the measure does do is allow senior citizens to talk to their doctor once every 5 years about end of life issues, and REQUIRES that the doctor get reimbursed for spending that time with his patient.

If you can’t even get simple facts straight, why should your opinion on anything matter to anyone? Stop wasting bandwidth until you at least have a faint idea about what you are saying.

Chris Salzmann

August 7th, 2009
6:32 pm

JackLeg August 7th, 2009 12:45 pm SAID: ……..He is pushing to destroy the best medical system in the world.

CHRIS SAYS: This pretty much sums up the gross ignorance of some folks. First of all, This health care INSURANCE reform bill has got NOTHING, ZERO, ZIP to do with the health care system itself but how INDIVIDUALS PAY FOR IT!!! Step out of your ignorance and tell us the difference between the health care INSURANCE system and health care system. One is governing health care INSURANCE which only someone completely retarded could claim is just peachy and the other has to do with hospitals, clinics, doctors,nurses, etc.

If you think that EVERYONE wants our health care INSURANCE system, then guess again. You’re wrong. Here’s a poll, and the link to it about what the Canadians think about our health care insurance system.

http://blog.seattlepi.com/seattlepolitics/archives/175523.asp

Basically, the poll, by Angus Reid Strategies, found that 65 percent of Canadians have a “very positive” or “moderately positive” impression of single-payer health care in their country. A whopping 79 percent of Canadians have a negative opinion of health care in the UNITED STATES”

Chris Salzmann

August 7th, 2009
7:09 pm

Barry August 7th, 2009 2:57 pm SAID: Obama is fast destroying America! I am really surprised they haven’t added assisted suicide to the “healthcare” bill to rid America of Senior Citizens.

CHRIS SAYS: Hey, I found a nut job who already believes this. Her name is Sarah Palin (remember her?). Here’s part of a statement she issued. The full statement can be found here at this link: http://www.facebook.com/note.php?note_id=113851103434

“”The Democrats promise that a government health care system will reduce the cost of health care, but as the economist Thomas Sowell has pointed out, government health care will not reduce the cost; it will simply refuse to pay the cost. And who will suffer the most when they ration care? The sick, the elderly, and the disabled, of course. The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama’s “death panel” so his bureaucrats can decide, based on a subjective judgment of their “level of productivity in society,” whether they are worthy of health care. Such a system is downright evil.”" Sarah Palin

ROFLMAO. “Obama’s Death Panel”??? She actually read the bill??? Doubtful since she doesn’t even read a newspaper. So here we have it folks; an example of Republican ignorance and sheer stupidity.

david wayne osedach

August 7th, 2009
7:37 pm

If you are talking about AIG: don’t fret. They’ll gladly take a smaller salary as dictated by the Feds. Just so long as they receive unlimited bonuses which the Feds can do nothing about!

The REAL GodHatesTrash, Superstar

August 7th, 2009
8:25 pm

Make gun owners keep their guns loaded on their coffee tables, no medical attention for gunshot wounds for gun nuts or their families. That’ll drive health care costs down for us decent folks.

Rick

August 8th, 2009
7:35 am

Trudy….pass the weed you are smoking…

sharecropper

August 8th, 2009
7:35 am

Mr. Barr: if you take my money, I own part of you. It not only is my right to determine how much I pay you, it is my responsibility. Stop this crap of trying to have it both ways. Americans deserve some intellectual honesty. Good luck to us.

JS

August 8th, 2009
11:01 am

Bob Barr has lost it! Executive compensation in this country is way out of control. There needs to be some regulation to keep these people from robbing stock holders blind.

Nancy the Nazi

August 8th, 2009
11:13 am

Rob

August 8th, 2009
3:50 pm

YES, Too much money is being wasted by companies with outrageous salaries and bonuses to the CEO’s and Executives. This money needs to be spent creating jobs and paying people a salary that they can live on. The people that actually work deserve more and if they have more they will spend more therefor it helps everybody. The 7 dollar minimum wage is a joke and needs to be raised.

the evil rich

August 8th, 2009
9:46 pm

Sorry Bob, but if you accept taxpayer funds, you deserve whatever strings come attached.

clyde

August 9th, 2009
6:15 am

Sonia Sotomayer spent a short time being sworn in.She’ll now spend the rest of her life being sworn at.

ken

August 9th, 2009
7:55 am

I think the pay of any publicaly traded stock company should be controlled by an oversite committee. Look a Disney, when Eisner hired his pal and 6 months later he left and walked away with $150 million in a golden parachute.
These execs are robbing the companies blind and their hand picked board of directors always go along with them.
Many people say you need to pay these people lots of money to retain them, guess what, if they all died tomorrow there would be someone else beating down the doors to fill their shoes, so that just throws that falicy out the window.

Nobody needs to make over 2 million a year to run a company, especially with all the added perks that they get.

Mike

August 9th, 2009
1:20 pm

If you folks have the right ideas why don’t you run for President?

clyde

August 9th, 2009
1:34 pm

Mike,
People that have the right ideas and the right answers aren’t politicians and therefore don’t run for office.This seems to be the whole problem in a nutshell.

FNB

August 9th, 2009
2:43 pm

What’s a Fat Cat to do? You’ve run the company into the proverbial crapper but the wife wants a European vacation. That TARP money looks like it will solve all of your problems; so, your company cries “Too Big To Fail” (also known as “too stupid to succeed”). And, now, what the deuce??! Those sniveling taxpayers want to take the money for your well-deserved 15th hooneymoon in Lake Como Italy. The nerve!

Oh, please. Get over yourselves, Corporate America. I’m a government worker; the government sets my pay because that is the source of my income. If you have accepted government money to bail your sorry skillsets out, welcome to my world. The government is, now, your pimp. Pull up your big girl panties and deal with it.

DrinkSlinger

August 9th, 2009
5:32 pm

Bob, I voted for you. I have supported you. But this article p*sses me off a little. You are misleading in a big way. You do not mention once in your article that the government is only wanting to cap pay plans for businesses that recieved government money, i.e bailouts. I don’t understand how anyone can be against this… Millions and millions of TAXPAYER dollars went to bail these companies out. Until they repay those loans they should absolutely not be able to hand out billions in bonuses. Go get a loan from the bank and then tell them that you are going to pay your employees bonuses before you pay back their loan and see what they say… It’s logical, Bob, for the government to do this and it should be logical for us to want them to do it. It is our money after all.

I have to say, this is one of the most misleading articles I have ever read. I am highly disappointed.

Hungry Ron

August 9th, 2009
5:38 pm

I don’t want the government to limit executive pay, but pass a bill where the stock holders can control it and not a bunch on the board. The stock holders own the companies and it should be set up so it would be easy for them to control salaries and bonuses.

Ray Pontes

August 10th, 2009
2:45 am

Wake up America, The wealthy and all those big Banks and Financial Inst, have atleast two Polititions in there pocket. It has always amazed me how we chastize and bring the Law down on The Mafia or any other criminal orginization. When infact the Wall Street Mafia is thriving. These companies new full well at what was going to happen and they new those politions they gave mony to would help out. It’s sad were not like the Chinese or those other countries we consider irrelivent. There people have more testiculer fortitude than five American atleast those that died fighting there Gvt. Knew there would be others. Americans well we just complain and those of us that do fight do it alone. So America if you really care I mean really care find out the biggest contributers to either your congressman or Senater and send them a message listen to the people or forget a political career. We as a people wield great power but are to scared to use it. ???

Jake Jackson

August 21st, 2009
3:07 pm

It wasn’t “the government” that ran up the deficit. It was George Bush, mostly by starting a war based on false evidence.

And yes, there should be limitations on corporate pay. Consider an analogy from the principles of tort law: people are free to do what they want unless their actions threaten to harm, or harm, others. Corporate executives who vote to give themselves and others large salaries, thereby reducing the funds available for meeting the corporation’s responsibilities to the public, such as maintaining a bank’s liquidity, damage the pubic at large.