The New York Times has an article discussing Congressional proposals to limit executive pay. Although the financial industry may deserve a pay cap, the author argues, other industries would be harmed by a cap.
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Poorly handled, this could crash more things than another burst bubble. Handled carefully in small steps, this could be one of the best pillars of capitalism in ages. Arbitrary limits can't be the order of business though, just look at the age limits for tobacco and alcohol.
The problem I see is that if you don't want pay caps to backfire, they have to be uniform across all companies. Otherwise, if the financial sector has a cap of $750,000, and the manufacturing sector will pay $5 million, what executive would want to work in the financial sector?
It's none of the government's damned business what anyone in this country is paid for the work that they do. Passing this into law would set a dangerous precedent. Next, the government would start deciding what is appropriate for other types of jobs. This one needs to get voted down.
@Mr_D:
The biggest problem is that the government does not have this kind of authority. The federal government is pissing all over the Constitution every time they bring up something like this. This is a massive blow to individual liberty and a complete departure from the limited government that the founders wanted.
It isn't their business how much they get paid. It is their business how their pay is determined.
Simple caps are not the answer. Ensuring that pay has some relation to performance is.
If you aren't already, I suggest reading Icahnreport.com on this subject. This is NOT a free market matter. There is no free market in executive compensation. (There's barely a market at all)
@kreatre2009: Yes they do. Tell me, what part of the Constitution guarantees corporations can exist? What part of the Constitution says that you can't limit executive pay (or simply tax the hell out of it)? BTW- Due process means we can't take away the money and property they have, not prevent limits on income.
The best approach to doing this is that if they're a private company over X million or a publicly trading company, there is a cap on "total compensation." If you just cap salaries, they'll simply get houses, cars, jets, food, medical, stock options, etc. in its place.
If you don't want to cap salaries, that's understandable, it has a Big Brother feel to it (even though we seem happy to tolerate it in everything else in our lives). So, why not tax CEO's "total compensation?" On top of that put in an additional tax bracket at around $2.5M and put it up to 60%. Take that money and buy medical care and education for everyone, so that middle/lower class families have less to worry about.
PS If you think 60% is too high, take a look at our historical tax rates for the top earners. It's very low.
[www.truthandpolitics.org]
If a company is not taking any type of government bailout, I would agree. These scumbag CEO's begging for money from the government for their company should be subjected to such limits until the company pays back every dime it received from the government.
@kreatre2009: The moment an industry takes a penny of welfare from the government (Airlines, automobile, financial), then they have sold their soul to the government and have no business whining about regulations. A truly free market would be paying these men $0 per year, as their jobs would not exist, due to the companies folding.
If you want to talk about founding fathers, the concept of a paper entity which leaves people not accountable for their own actions would be abhorrent, let alone a system of institutionalized usury.
@ARP: Sorry, but that's not even remotely how the Constitution -- or any state or federal law, for that matter -- works...
I don't trust congress to handle this issue.
I'm not entirely sure the Federal Government has the authority to do this to companies that are not receiving government bailouts. The govt. can condition the receipt of Federal funds as it pleases, but I'm not sure what provision of the constitution gives them the power to do this to companies that are still purely private (as in not taking govt. bailout money). Arguably they could do it under the Commerce clause, but I think it's a stretch to say that limiting the pay of a worker truly affects interstate commerce. Moreover, such a limit could potentially raise a takings clause issue. Imagine if the govt. set a limit on how much you could sell your house for. No one would stand for that. This is simply a limit on how much you can sell your labor for.
The govt. has no business telling companies that are not receiving Federal assistance how much they can pay their executives.
I'm a hardcore liberal who actually likes some socialist ideas. That said, I don't think federal government mandates for anyone's pay in private industry are fair or logical, aside from the minimum wage. The issue is that these CEOs are already being paid very high salaries, with utterly ridiculous bonuses on top. If the economy were flying high, then most people would grouse a bit but not really care much. Now, though, it's ludicrous and downright insulting when a CEO who has driven his company into the ground is still earning millions per year. Salaries should be commensurate with the company's success or lack thereof, and even a great company should spread the wealth a bit rather than piling it all in the boss's checkbook.
If I've invested my modest salary in a financial institution, I want the CEO to have some incentive to perform his job well and make me some money. Altruism is nice, yet money talks. On the other hand, I'm a teacher, and my 403(B) is through VALIC/AIG. My state-managed Teacher Retirement System accounts have also taken hits. I'm disgusted that these companies are losing MY money, yet that same money is going toward their huge salaries even in our current financial meltdown.
@Jesse in Japan: A Japanese CEO also would not contribute as much to the bottom line of the company since they generally don't provide the same sort of leadership or spearhead innovation like American heads of corporations. There are differences in the way American companies and Japanese companies do business which make it like comparing oranges to grapefruit when discussing their business practices.
That being said, I would agree that U.S. corporate heads are massively overpaid. I just don't think what is done in Japan really relates to the issue.
@ShariC: In Japanese companies, the people who do that get paid even less.
But let's be realistic, for every Steve Jobs, Bill Gates and Phil Knight who add billions to their companies' coffers over the course of their careers, you have several CEOs who do nothing and delegate everything or run their companies into the ground. They still get paid.
@darkwing: Can you please explain? Seriously- no snark. Kreatre 2009 said it was Unconstitutional. I'm telling him that there's nothing in the Constitution that addresses executive pay or Congress's power to cap it, so it's not "Unconstitutional." People throw that term around a lot and don't realize that it has a specific meaning. Now, if you're talking existing state and federal law, I don't know. But, those are much more easily preempted.
@darkwing: Amendment 9 is more of an enforcement amendment rather than a separate set of rights and creates essentially a presumption of liberty, but doesn't provide a specific right (i.e. there is no freedom of Contract in the Constitution). However, Congress has gotten past that on many occasions without issue, especially if it affects interstate commerce (which this has a much greater tie to). Amendment 10 just says that the powers not reserved in the Constitution are afforded to the states. Of course it not just the Constitution that preempts state laws. Any Federal law that explicitly says that it preempts...preempts. I think we might be having a disconnect. I'm arguing that there's nothing in the Constitution prevents Congress from capping CEO pay because I don't think there is. Now, if you want to talk about state and federal law, then yes, there might be something there, but Congress can easily change the law. Or, it can use other mechanisms to functionally cap pay (e.g. tax CEO pay above a certain amount at 99.9%)
Perhaps I'm being overly technical when you meant that its wrong and probably against some law out there.
That would be socialism. Socialist is what the Republicans said Obama was. Maybe they were telling the truth after all.
@Pylon83: I think the distinction would be between existing pay and money and future pay. They can't take the CEO's money away, but they can say, moving forward, its capped. You're right, there may be some due process issues. But they could get around those if they really wanted. Corporations exist at the pleasure of our government. If they wanted to come with the heat, they could say, we're stating you are not in good standing, unless you do X. Or they can tax the C-level at any SEC listed public company at a rate of 99.9% above a certain level. They would never do that, but its a possibility. For those who have govt loans, its a lot easier.
A corporation is a business structure defined in law, government law, which creates a legal entity separate from the people who own or run the business. Corporations would not exist without that government law. As such, corporations are subject to the laws of our nation and part of the government's "damned business", despite what you or anyone else say.
Corporate charters are provided from the government. In return for those charters and the benefits of incorporation, businesses have the responsibility to follow laws, rules, and regulations specifically designed for corporations. Those laws, rules, and regulations do include pay rules for all employees, which also includes executives. As such, regulations to limit executive pay are completely fair game. For example, wage limits have been enacted before, most notably after World War 2.
If businesses do not want to follow these laws, rules, and regulations, there are other business structures besides the corporation under which they could form. By incorporating, businesses are accepting responsibility to follow these laws, rules, and regulations and any future changes. Executives must accept the benefits of incorporation with the responsibilities as well.
@Ninja007:
Congress competently handles far more important issues than this.
It sounds like you are being irrational.
@liz.lemonade: Despite some of my hypotheticals about whether they can or can't do this, I agree that its wrong to mandate pay as long as you're not part of the bailout. If you're part of the bailout, you sold your soul and you deserve whatever limits are put on your salary because you obviously can't run a company on your own.
I empathize with your situation, we're all there. We want these companies to do well because our 40[X] depends on it, but the salary is infuriating. My view is that we should simply put in a "mega-rich" tax bracket like we used to have until the 1980's (just google historical tax rates and you'll see how high we taxed the wealthy). We could tax total compensation (so all the cars, jets, apartments, club memberships, stock options, etc.) and say that if your total compensation is above say, 2.5M, then dollar 2,500,001.00 is taxed at at 60-70% tax rate. What does this do? It may not reduce salaries (in fact it might increase them). However, the massive tax intake will give us medical, college, fix Social Security, etc. so that the people on the bottom have much less to worry about. So it might not directly impact your 403, but knowing that your SS will be there when you retire and you never have to worry about medical care would be a nice plus.
@Pylon83:
The government sets a minimum wage for every worker.
The government is completely within its rights to set a maximum wage as well.
In fact, it did set a maximum wage in the past, most notably after World War 2.
People throw around the term socialism so often that the meaning gets lost.
Socialism is the government ownership and centralized control of key industries. Communism is a form of socialism where all industries are government owned. The United States is a socialist state considering that fire departments, libraries, the post office, roads, bridges, etc, are all government owned and operated.
Limiting executive pay is a form of centralized control, like the minimum wage or any Federal law. However, that is without government ownership. So, by definition, limits to executive pay is not socialism.
Ha. Are you kidding me? What about good CEO's that drive in millions of profits to companies. What about good CEOs that have said to avoid subprime? Should they be compensated less? I don't think so. If their talent is worth $50 million, give them the $50 million. Also, there should have never been a bailout in the first place, the companies that over paid their corporate executives should feel the affects of the free market and let the companies, and their stock price go into the ground. It is called a bad decision, and the democrats cannot force good decisions by lowering pay. Why would anyone show leadership, if they were stuck making $500,000 a year, after driving in $5 billion in new profits? This is wrong, just plain wrong.
@Pylon83: The government can either:
A) let huge companies fail/split when they make bad business decisions (capitalism). If they do this, then no, they cannot specify a wage cap.
B) bail out companies which are "too big to fail" (socialism). If they do this, then they MUST regulate these companies to minimize the public risk.
What the government cannot do is bail out a huge company with no restrictions. This takes all of the natural stops of a capitalistic system while failing to put in any from a socialistic system. It's like taking gluing the accelerator to the floor while removing the break pedal. Sure, you'll go really fast for a while, but it's gonna be hell when you stop.
If I actually thought this was a good idea (I think it's TERRIBLE), I would certainly not entrust government officials to decide who can be paid what. When government micromanages, it fails.
@XopherMV: Yes, such as? Social security? Education? Medicare? The switch to DirecTV? The TSA? Please tell us! Explain to me the competence that has led us to $11 Trillion in debt!
@Pylon83: I'm not entirely sure the Federal Government has the authority to do this to companies that are not receiving government bailouts.
That's what I was thinking when they gave the bailouts. This "authority" you speak of isn't apparently a problem for them.
@Jesse in Japan: A Japanese corporate CEO would never make more than 500,000 or so dollars a year.
But they have easy access to hot Japanese chicks, so it kind of evens out.
@ARP: Yes, we should DEFINITELY punish people who have achieved success by taking away more than half the money they make as income.
That is SUCH an incentive to be successful, to know that if you just get a little more successful, Uncle Sam will just demand the majority of your earnings to help those who are too lazy, or who made bad choices, or for whatever other reason aren't successful.
@kreatre2009: Yeah, I'm going to go with "interstate commerce" too. Congress eventually regulates everything it wants to regulate by slapping an "interstate commerce" label on it.
Really probably the smartest way for Congress to do it would be to tax the shit out of compensation over $X. Benefits our federal coffers, de-incentivizes really high compensation, doesn't get into regulating the actual salaries.
@Derek Balling: Oh please. Societies don't function if everybody's selfish. And it's in the enlightened self interest of those at the top to support those at the bottom, if they don't want to be first up against the wall when the revolution comes/stabbed in their beds/stuck hiring illiterates.
The "right thing to do" almost always turns out to be in your self-interest as well over the long run.
@Necoras: "What the government cannot do is bail out a huge company with no restrictions. "
But ... but ... privatizing profits while socializing losses is the American way! That's, um, free market capitalism? Right?
@ARP:
Corporations exist at the pleasure of STATE governments. Thus, Congress can't regulate pay as a condition of existence/incorporation.
@XopherMV:
Minimum wage is an entirely different concept from a maximum wage. The Fair Labor Standards Act was passed to protect workers by ensuring they are paid, at a minimum, a "fair" wage. Maximum wage laws have no such justification. You're not "protecting" anyone by limiting how much a private (or even public, in the stock sense) company can pay its executives.
@Necoras:
I said I have no problem with the govt. imposing restrictions on companies that receive Federal bailout money. Further, in those cases they actually have the power to do it via conditions on spending.
@Jim:
Article 1, Section 8 provides Congress with the power to spend for the general welfare. The Bailouts, since they were intended to prevent further general damage to the economy, clearly had the intent of protecting the general welfare. The spending power is clearly enumerated in the Constitution. Setting a maximum wage is a much more difficult prospect, as authority to do so has to be rooted out of some other general provision.
@ARP:
Why should the wealthy pay so much of their income in taxes? A punishment for working hard? A punishment for being smart? Perhaps even a punishment for having a bit of luck? It's absurd that those who are prosperous are expected to involuntarily help prop up those who are not. High taxes on the wealthy act as nothing more than a punishment. In my view, everyone, regardless of income, should pay the exact same percentage of their income in taxes. I don't care if the Millionaire can afford to pay more or not, that's not a good enough reason to take away their hard earned money. Most wealthy inviduals contribute substantial amounts to Charity, which is their way of VOLUNTARILY propping up those less fortunate. In my opinion, those who advocate for such high taxes as a punishment are simply jealous that they don't have the same disposable income and toys (jets, boats, clubs) that the rich do, and take a vengeful approach to ensure they pay a price for being successful.
@Eyebrows McGee:
There is a difference between being selfish and wanting to ensure that YOU decide how much of your money to contribute to the less fortunate. Many wealthy people donate substantial amounts of money to Chairity, that's how they give back. The govt. creates incentives for the wealthy to do so by giving tax breaks. A privitized system of welfare is a much better option than high taxes and govt. run welfare systems.
Let me tell you how it will be;
There's one for you, nineteen for me.
Should five per cent appear too small,
Be thankful I don't take it all.
'Cause I'm the taxman,
Yeah, I'm the taxman.
If you drive a car, I'll tax the street.
If you try to sit, I'll tax your seat.
If you get too cold, I'll tax the heat.
If you take a walk, I'll tax your feet.
And you're working for no one but me.
Generally when Congress wants to pass a law they have to have, at a minimum, a rational basis for doing so. What's the reason/purpose for a maximum wage law? Is it anything more than "it's not fair that they make so much money?"
@XopherMV:
See my other posts re: incorporation. The FEDERAL govt. doesn't grant corporate charters, the states do. The arguments against authority to impose a wage cap are certainly fewer/weaker if it were done at the state level.
@Derek Balling: Yes, we should DEFINITELY punish people who have achieved success
When a legacy admission graduates from Harvard BC right into a major CEO position simply because he knows a bunch of the shareholders it's difficult to imagine precisely what he did that could be termed "success."
I'm all for people like Bill Gates and Steve Jobs being amply rewarded, since they took the risks of founding those successful businesses. Risk = reward. But we're mostly talking about people like Gil Amelio, let's say, who made more than 6 million dollars as CEO of Apple as the stock dropped to a 12 year low.
It's one thing to reward CEO's who actually founded the company; they've created substantial value not just for their employees, but for their customers as well. It's the people that succeed the founders, have taken no risks to grow the company or create any value whatsoever, but insist on the same compensation package that the founder was receiving.
How does that make any sense? How is that "free market"? How can American business succeed when they're constantly being bled to death by a parasitic CEO class?
@XopherMV: Congress has an approval rating in the teens. They screw up everything they touch. Every single one of them is corrupt. I am not being irrational
A Japanese corporate CEO would never make more than 500,000 or so dollars a year.