Oversight, not bonuses
Wall Street triggered intervention in bailout-company pay practices
Published: November 01, 2009, 12:30 am
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It’s amazing, the human capacity not to learn. It’s been well established in this country that if you abuse the public, politicians who are eager to curry favor with voters will respond. It’s happened over and over and it’s happening again now.
The Treasury Department recently ordered companies benefiting from taxpayer-funded bailouts to slash executive pay. The cuts apply only to the 25 highest-paid executives at banks and companies that received the most taxpayer assistance. Even with that narrow application, we’re not sure it’s the best course for Washington to take, but given the fact of taxpayer subsidy and viewed through the lens of American politics, it’s not an illogical one.
What were these executives thinking? Perhaps at companies like AIG, where new CEO Robert Benmosche is to be paid $7 million a year and much more with potential bonuses, they thought Washington wouldn’t dare intervene. Many observers—including us—wonder if the Obama administration’s move won’t drive able executives into other jobs, leaving struggling companies to executives who don’t mind a pay package of no more than $200,000 a year.
That doesn’t mean those executives would necessarily be subpar. When Lee Iacocca took over Chrysler in the 1970s, he took a salary of $1 a year, but combined it with generous compensation in company stock. It was a wise and ethical decision. If the company did well, its stock would rise and he would benefit. If not . . . well, he could still count on $1 a year.
No one wants the government to own these companies or to be in the position of dictating pay scales. But the government is in that position because of the greed of business leaders who led their companies to near ruin and because of a federal government that shunned its responsibility to impose and enforce reasonable regulations.
A solution suggests itself. Government must meet its obligations to ensure transparency and fair play in banking and other critical industries, while leaders of those companies need to remember that their catastrophic failures invite— demand, really—a higher standard of oversight that would be better for everyone, including taxpayers, to avoid.
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