Some of the nation's top political commentators, legislators and intellectuals offer some insight into the biggest question burning up the blogosphere today.
Did the pay czar go too far or not far enough?
John F. McManus, president of the John Birch Society, said:
Whether the Pay Czar went too far or not far enough is not the issue. The very existence of a Pay Czar - and all the other Czars - should be the issue. Anyone who can't see that this is government control of business is blind. America is being converted into a carbon copy of thousands of despotisms that have come before. Yes, corporations are guilty of betraying their trust to the public. But the answer isn't to centralize power in government. If the corporations have done something wrong, they should be brought to court. That's the way the country should be run - not by Czars!
Rep. Ed Pastor (D-Ariz.) said:
I agree with what he's going to do. I think that since we own most of these companies, maybe they should be under government salary and scale. And as a czar, he can determine what is the appropriate salary. I have no problem with it.
Rep. Mike Simpson (R-Idaho) said:
I think it's nuts for the government to have a pay czar. I don't think the government should be in the business of trying to regulate the pay of the private sector.
Rep. Vern Buchanan (R-Fl.) said:
I'm not big on czars in general, especially a pay czar. It's something I'd have to take a closer look at. It's not something I've focused on recently; I've been working on a resolution for more transparency in the healthcare bill. We had a couple czars in the past and now there's 30-something -- that's the bigger issue. They need to go through some kind of confirmation process so we know who they are, what they are and what their attitudes are about certain issues. I think that's the bigger issue."
Rep. Kurt Schrader (D-Ore.) said:
It's one thing to give an order, it's another thing to actually make it happen. So I'd be curious as to how this takes its course.
Rep. Virginia Foxx (R-N.C.) said:
I think the main focus of the government of the United States is national security. It is unfortunate that this president spends so much of his time on things that are not as important instead of spending his time on national security. Keeping us safe is the most important thing.
Michelle D. Bernard, president & CEO of the Independent Women’s Forum, said:
We still don't know exactly how the Administration will limit the salaries of executives at some of the firms that were top recipients of federal bailout dollars, but initial reports suggest that they'll be aggressive in slashing compensation for top executives—by an average rate of about 90 percent.
In many ways this seems a lose-lose policy-wise. The Administration's decision seems, in part, fueled by a basic belief that there is some “right” level of compensation and that it's government's business to prevent inappropriately large payouts for top executives. That's really not the proper use of government power. However, as is often the case, this government over-reach is the result of another government over-reach. And yes, the government does have an interest in protecting taxpayers' interests in the decisions being made by companies that received bailouts, including compensation packages. Let's just hope that the new government mandates are a one-time occurrence and that this encourages more companies to focus on keeping their finances sound so they'll never have to turn to the government for a handout again.
Dean Baker, co-director of the Center for Economic Policy Research, said:
It’s great to see Kenneth Feinberg (a.k.a. the Halloween pay slasher) do his job. The idea that executives at these bankrupt companies would be walking away with salaries in the tens of millions of dollars, funded with taxpayer dollars, should be offensive to every person who works for a living.
Of course it remains to be seen whether these announced cuts will mean anything. Wall Street is all about gaming the financial system and these people have risen to the top due to their skills at gaming. If the cuts are not iron-clad then we are likely to hear things like reductions in bonuses being offset by larger stock option grants or some other form of compensation being awarded at a future point. These are not honest people that are we are dealing with here.
It is also nice to see that Feinberg has rejected an argument that was earlier embraced by the administration concerning the "sanctity of contract" protecting bonuses and other compensation. This was always a ridiculous argument because contracts do not survive bankruptcy (ask the auto workers who lost the health care benefits that they worked for 30 years). These are firms that would be bankrupt except the government has deemed them too big to fail.
Giving executives who wrecked their firms special protection for their contracts, because their firms are very important to the U.S. economy, is ridiculous. The pay of these executives should be treated as though the firms are bankrupt, because that is effectively the situation.
Unfortunately, this round of pay cuts is just touching the tip of the iceberg. It does not address the larger problem of outsized Wall Street compensation and its culture of entitlement. The NYT quoted "a person close to the AIG board" as saying that the $200,000 pay cap was "insulting." This is an incredible statement since the individuals involved wrecked their company and cost the taxpayers tens of billions of dollars and are STILL getting a paycheck that is larger than 99 percent of the population We need to apply a wrecking ball to this Wall Street culture.
One potential tool is a modest tax on financial transactions taxes like the 0.25 percent stock transfer tax in the United Kingdom. If we put comparable taxes on trades of futures, options, and credit default swaps we could easily raise $100 billion a year and bring the financial sector down to size.
The other thing that we should do is to re-empower stockholders. The pay packages of the top 5 paid executives should go out for shareholder approval at regular intervals (not "say on pay", these should be binding votes). The process should also be designed to be more like a real election so that unreturned proxies are not counted. The only proxies that should count are those where shareholders explicitly expressed an opinion.
Robert Weissman, president of Public Citizen, said:
For the first time, the government appears to be set to take some meaningful action against business fat cats who a) run companies that exist only because of billions of dollars of taxpayer supports and b) still see fit to pay themselves obscene salaries.
The New York Times and other outlets report that Obama administration pay czar Ken Feinberg will require executives and top employees at the most bailed-out firms to cut back on salary by 50 percent. If these reports are true, Mr. Feinberg and the Obama administration deserve applause — with one big caveat.
Until now, there has been no systemic mechanism of accountability imposed on top-paid executives and employees at the bailed-out firms. They destroyed their own businesses, not to mention the national economy, but felt entitled nonetheless to hyper-compensation. And the government has done little to discipline them. Now, it appears Feinberg is prepared to do that for a narrow category of bailout recipients.
Notably, Feinberg reportedly will cap salary and bonuses at AIG Financial Products, the division that brought down a giant multinational and led the government to shovel tens of billions of dollars into AIG, at $200,000. This is an extraordinarily high salary for most people in America, but by the standards of Wall Street it is modest to the point of humbling.
Feinberg has authority only to limit pay at seven bailed-out companies. However, Wall Street itself would likely be out of business but for the trillions of dollars of federal supports it has received, including an array of ongoing supports from the Federal Reserve.
Wall Street firms outside of the Feinberg Seven apparently have no compunction about returning to the outrageous pay practices that helped create the financial crisis. Wall Street is on track to pay an obscene $140 billion in bonuses and compensation, according to Wall Street Journal calculations.
If Congress and the administration are serious about addressing the systemic issues with pay and Wall Street, the way forward is clear.
First, Congress should act immediately to impose a windfall bonus and profits tax on Wall Street. Some substantial portion of the funds that Wall Street aims to pocket as bonus payments and profit-taking should be returned to the public treasury.
Second, Congress should mandate that bonus payments be based on long-term performance over the course of a business cycle.
Big bonuses contributed to the crash by incentivizing dangerous short-term betting. Traders won in the short term. Firms, homeowners and the national economy lost in the long term. Fixing compensation incentives could help prevent that dynamic from recurring.
Andy Roth, vice president of Government Affairs at the Club for Growth, said:
There shouldn’t even be a pay czar. It’s quite amazing to even think that in a free-market economy like the United States, we have big government bureaucrats regulating the salaries of company executives. Thomas Jefferson once said, “The natural progress of things is for liberty to yield and government to gain ground.” This is evidence of that. We need to immediately terminate the pay czar position and completely remove the government from corporate boardrooms.
Glenn Reynolds, of Instapundit, said:
I'm not a fan of having all these czars — how'd that work out for the Russians? — and the notion of a "pay czar" seems particularly overbearing, and I suspect it's mostly meant as a demonstration of power. I also think that it will probably just chase away talent that we need to fix the problems. On the other hand, the worst thing about the Obama economic policy so far has been the blurring of lines between business and government, and the willingness of leaders on both sides of the divide to blur things further, for political gain and with taxpayer money. You can bet that these pay cuts will make future businesses much, much less willing to take government bailouts, and much, much more wary of government involvement in their affairs. That's a good thing, overall.