Leave pay to companies, shareholders
– James Pethokoukis is a Reuters columnist. The views expressed are his own –
For the populists who really, really want to make Wall Street pay by slashing their pay, Treasury Secretary Timothy Geithner certainly isn’t giving them what they want.
Yes, the top executives of the remaining TARP firms seem destined to be salary serfs to the “pay czar”, Kenneth Feinberg.
Of course, it’s hard for even the most die-hard free marketeer to feel sorry for financial firms that mismanaged their businesses terribly, took government bailout money and now find themselves under Uncle Sam’s thumb.
But as for everyone else? Well, here’s how Geithner put it: “We are not setting forth precise prescriptions for how companies should set compensation which can often be counterproductive. Instead, we will continue to work to develop standards that reward innovation and prudent risk-taking, without creating misaligned incentives.”
Even worse for those who wanted the Treasury secretary to bring down the hammer, he went on to highlight how the financial sector is already making changes on pay and how he looks forward to a “continuing conversation”. Yes, self regulation in action! Hardly what the torch-and-pitchfork crowd craved to hear.
That’s just too bad. To his credit, Geithner seemingly understands his goal isn’t to punish, but to play a constructive role in nudging financial industry compensation in a direction that better connects risk and reward.
The US needs to stop supporting a corporate aristocracy. The gross and outrageous compensations for some of these Top Managers is nothing more than the US paying to support these individuals in a lifestyle they have become accustom to. By no means are these individuals worth this much to the corporation. No one could be worth these kinds of compensations. Some are over 400 times the average compensation of their employees. No corporate board could begin to justify that one person is worth that kind of compensation. Yet, that kind of compensation exists today in publicly traded corporations. What else would you call it but the support for a corporate aristocracy?
Publicly traded companies fall under federal laws. The Government does not have to “own” a piece of them to set rules upon them in order to protect the public.
The compensation of top management should be tied to the compensation of the average employee. Let’s face it they all had a part of the success or failure of the business. Some countries have put limits on publicly traded company’s top management at 10 times the average employee compensation. Compensation would include salary, stock options, and bonuses. To compute this they take middle management, front line managers and their employees including all secretarial and office administrative staff and average their total compensation. No one in upper management can make more compensation than 10 times this amount. This value is recalculated each year to set limits on the next year. Within this limit salary, stock options and bonuses are paid. If upper management wants a raise, they need to raise the compensation of their employees.
This type of pay limitations provides incentive for profits and efficiency while ensuring the benefits of a job well done are given to those that do a good job. These benefits will flow up a year later. And I am all for upper management being given incentives to think in terms of the long haul by withholding some pay in the form of stock purchases.
I for one am against maintaining a corporate aristocracy. We need fiscal responsibility forced back upon the corporate industry.