Executive Pay Limits: Introducing “Government Executive Pay”

Posted by Bridget Quigg

They’re happening. The oft spoke of, much debated, feared, and cheered executive pay limits are in motion. While they’ll most likely target only companies that received bailout funds, executive pay limits are still a significant shift in where government’s hands can go.

CEO of Bank of America, Ken Lewis, has become the unfortunate poster boy for execs being wrangled. He will actually write a check for $1 million to Bank of America to pay back all of the $1.5 million in salary he has earned so far this year, according to the AP story, “Bofa's Ken Lewis to Get No '09 Salary, Bonus.” Lewis is quoted as saying that he agreed to the deal because he didn’t want to get into a “dispute with the paymaster.” In other words, he’s ticked off at the whole deal but feels helpless to change it.

Can you imagine being one of those slick, son-of-a-guns who worked your way up to the top of the banking industry – Lewis started as a credit analyst in 1969 – seeking big money and power, only to have to write a check to your company, giving back your earnings? Ken Lewis will resign at the end of this year. I think that points to how he feels about the situation.

Lewis won’t be the last one to go through this process. The Treasury plan includes 175 people and limits their pay until they have paid back their portion of the $700 billion bailout they borrowed from the government, according to the AP article, “US Unveils Broad Effort to Limit Executive Pay.”

When you consider that these executives' companies owe the tax payers money, it seems a bit more reasonable to limit their pay. But, it seems mostly like fanfare to please taxpayers. The amounts being chopped from executive pay pale in comparison to the larger losses suffered at these companies. I worry that the pay limits central effect is to make the executive talent pool for these companies smaller – much smaller.

I believe that the executives of banks in peril and the folks in charge of keeping them happy will make sure that they receive money eventually. There could always be a verbal agreement that extra pay will come when the bailout funds are paid back. “Hey, we’ll give you $4 million in four years.”

It seems to me that it would be smarter to allow these companies to figure out what to pay the talent they want to use to get back on their feet. I believe that hampering what they can pay people may disable the speed of their progress.

I don’t like it more than anyone else that many CEOs make 100-250 times more than most of the workers at their companies. But, I like it even less that the government is spending its time and money to meddle in the process. Shall we call it “Government Executive Pay” rather than “Executive Pay”?

Remember, these big players love money. It’s what motivates them.

Where do you stand on the executive pay debate? Do you think that limiting executive pay at companies who received bailout funds until they pay all the money back will speed or slow their recovery?

Comments

[James Thomas]

Though it makes the rest of us feel good to see the rich people having to give back part of their huge paychecks, I think it's wrong. If a company wants to pay some person a million dollars, then the company must think that person will earn the company more than a million dollars.