Let CEOs Make Do with $500,000

President Obama’s proposed salary restrictions for banking executives are a good idea for all of Corporate America. Pro or con?

Pro: Welfare Checks for Execs

President Obama has proposed restrictions on the pay of top executives at banks that are getting bailed out by taxpayers. It remains to be seen how effectively these restrictions, which would set a maximum salary of $500,000 a year for these corporate officers, will be applied, but lower pay for top executives in the financial sector is a good idea that can help set an example for the rest of the economy.

The tens of millions of dollars received by top executives in the financial industry set a standard that executives in other industries strive to match in the same way that a record contract signed by a sports superstar turns into the new benchmark for other top athletes. Perhaps a sharp decline in salaries in the financial sector will set in motion a trend toward lower pay—whether enacted by the government or by the corporations themselves—for CEOs and other top executives in other sectors.

Rewriting rules on corporate governance to provide shareholders with more control on pay would aid this trend. For example, if companies were required to win shareholder approval for executive pay packages in real elections (unreturned proxies don’t count), it would go far toward reining in the pay of top executives.

President Obama should take advantage of the extraordinary opportunities in the current political and economic environment to rebalance the relationship between corporate management and shareholders. This would be the best and most immediate way to limit executive compensation.

Con: An Unneeded Complication

Like Bush, Obama is using our tax money to bail out AIG (AIG), GM (GM), Bank of America (BAC), etc. In return many Americans expect, not unreasonably, that our government should now be able to dictate to these companies how to run their businesses, including what to pay their CEOs. But do we really want America’s largest corporations taking orders from members of Congress, government bureaucrats, and professional lobbyists? I think not.

Instead, we should end the bailouts, repeal the numerous government regulations that have distorted the free market, and let companies sink or swim on their own merits. That’s the American way.

But letting the government determine pay for all corporations? A CEO can mean the difference between a company’s success and collapse—just think where Apple (AAPL) would be without Steve Jobs. Shareholders have a moral right to pay whatever they judge necessary to attract, retain, and motivate talented leaders.

What about not-so-successful CEOs who walk away with millions while their companies tank? Shareholders are free to insist on clawback provisions and other contractual measures. But a government-enforced cap on CEO pay would punish the best CEOs by denying them the huge rewards they earn by creating vast amounts of wealth.

The only sure result of this injustice would be a flight of the best and brightest from public corporations.

Government mandates on CEO pay mean CEOs lose, shareholders lose, and all those who benefit from dealing with public companies—i.e., all of us—lose.

Opinions and conclusions expressed in the BusinessWeek Debate Room do not necessarily reflect the views of BusinessWeek, BusinessWeek.com, or The McGraw-Hill Companies.

Reader Comments

Jason

I think Obama and his socialist liberal friends should keep their nose out of the private business sector. America was built on capitalist principles and when government starts telling the American people how to run their businesses and what to do with their money or how much money they're allowed to make, it then starts to look more like a Communist dictatorship than the free enterprise capitalist nation that we're supposed to be. I think we should tax all imported goods or better yet, make foreign companies build manufacturing facilities in our country and in exchange they can sell their products in our country, the United States of America. Another thing that should happen is that the government should take a chunk of the trillion-dollar bailout mistake and put it in the hands of the American consumer, because that's how you will stimulate the economy by giving people the money to buy goods. This will get manufacturers productive again and selling their goods or services, and this will create jobs, and then people will make money and buy more goods and services. The government should also buy up the distressed mortgages and give the home owners a lower interest rate because if somebody is worried about how they will make their next mortgage payment, why the heck would they go out and buy an automobile?

BailoutNation

If the banks are taking taxpayers' money, then the government better be able to tell them how to run their business. The argument that the government shouldn't run a business is ludicrous, what's the alternative? Leave it to the geniuses who ran their banks to the ground and got our economy into this mess in the first place?

In my humble opinion, $500,000 is far too generous. The CEOs should be paid $1 in cash, the remaining $499,000 in stock options in their own bank, vesting over the next five years. Absolutely no bonuses should be paid out to anyone in the company until the borrowed funds are paid off. Don't tell me the good employees are going to leave without their bonuses--yeah, right, in this economy? Go ahead. Ludicrous.

cdk

Steve Jobs didn't take a salary for quite some time, and I think the execs should not take a salary either. They should be paid an hourly rate until they can turn the business around. Whatever happened to pay for performance? Instead it's pay for screwing up, and the employees get screwed.

Roadwarrier

To Jason I would comment that the U.S. may have been built on some sort of principles in the past, but those days are clearly over. Major lessons should have been learned when Enron and others collapsed, but no. Greed and a total lack of principles is what drives the machine now. Not only should Obama dictate what these criminals get paid (I have long felt that these pay and bonus structures are criminal) but the people currently in power (by that I mean the CEOs and their boards) should all be fired. We know how they handled the last $700 million. What makes anyone think the bailout money will be handled any differently. Come on folks, it is time to get with the program and teach yourselves just how much actual corruption exists in all sectors.

JahLove

Jason, I feel your pain. However, the "free enterprise capitalist nation that we're supposed to be" only benefits the top 1% to 5%. The rest of the workers in America are at the beck and call of these arrogant jerks. Executives' pay since the 1980s have crept up to a point that is utterly ridiculous. There's not a CEO or other executive under the corporate banking umbrella's worth the money (including their perks) they're currently extorting from their companies. If they can turn crap into gold perhaps, but I've yet to find a person who can do that. Yeah, these CEOs and executives should be paid a bit more than their hardworking employees but, 400% to 500% more is asinine. I figured this out back in the 1980s when I got laid off for the first time from a huge corporation. Ever since, I've refused to work for any organization that had more than 10 employees. I'm all for the free enterprise system for small businesses as they do a much better job reinvesting in the company and employees, and the owners, executives pay, etc., are more in line with reality. In my eyes, capitalism is another form of indentured servitude. If you have no problem extorting and exploiting people and are a self-indulgent person, then you would do well in a corporation. However, I find a more humane approach to capitalism is necessary. We need to go back to the days of regulations. Enlighten yourself, Jason: Read the book Mindful Economics by Joel Magneson and perhaps your views will change. Make it a great day.

Elmo

Help me -- I just don't understand this.

Dick Bills

I'd take the job for 1/100th of the money that these guys make, and I would run their companies into the ground just as successfully as they have.

Root Cause

Bad idea. Better to hire new executives even if the pay is more than $500,000. Until politicians acknowledge the government policies and regulations that contributed to the credit mess, executive pay caps are just a side show for political posturing. As such, they will likely have unintended consequences like rewarding mediocrity and continued poor performance.

Mark

They earned it the old-fashioned way: Rape and pillage.

Grant

Sink or swim.

If I ran a multibillion dollar corporation into the ground, the last thing I would be expecting is a bailout. I'd be worried about the crucifixion, which doesn't seem to be coming for these companies.

By continuing to hand out money like there's no tomorrow, you are completely destroying any idea of a free market economy that we had. You'll notice before the government bailouts, bad companies were getting swallowed up (although slowly because of the situation at hand).

My question to you is: Is it better to inject a bunch of huge bad companies with money so they can continue to be bad or at the very least not pay for their sins, or is it better to let these companies devalue to the point where good companies will pick them up at a bargain and correct them? This may cause a lot of trouble for us in the short term, but it's the only good long-term solution, and obviously all these plans we've had for a short- or long-term solution so far have helped neither.

My vote is every man for himself.

CptFantastic

I feel if we companies are going to take the bailouts subsidized by our money, then the profits should go back to the taxpayer as well. Why not create some sort of T-Note which would be specifically to invest in these companies that the government bails out? If they want a bailout, then the ones bailing them out should make a percentage of the profits once this economic downturn begins to reverse itself.

Cloud Downey

Obama capped salaries of executives at firms that receive tax bailout money: But what's the real reason?

Obama denounced the "shameful" executives whom he portrays as the villains responsible for the crisis du jour and capped their salaries at $500,000 with great fanfare. He did this with full knowledge that government intervention in the economy is the root cause of the problem, but why? Ask yourself if any person of high moral standards, intellect, and ability would take the helm of a multi-billion dollar company, while being subjected to public ridicule and having an Obama "ethics officer" reviewing every move, all for $500,000. Anyone with the ability to turn around a company with tens of billions in debt wouldn't touch the job for $500,000 even if there weren't Washington spooks crawling through the conference rooms to "guide" the decisions of importance in the name of "transparency." Pro-capitalist men of ability and integrity will not agree to help put on such a charade, and Obama knows this. The goal isn't to have the banking system become profitable; just the opposite, read on.

Expect to see Obama-approved people infiltrating the management ranks of bailout money recipient banks, mortgage houses etc. Why do you think all the major banks were summoned to Washington and told that they would participate in the bailout, like it or not? If you recall, several large bank CEOs said they didn't need, or want, a bailout and resisted until being pressured to acquiesce when it was clear there was no way out. Washington wants their hooks in the banks. The decades of government expansion and corresponding deficits could no longer be ignored and the politicians felt the strong wind of reality blowing through their house of cards. They realized, like any heroin junkie, that they needed a bigger fix to stave off reality, but where to get it? Take over the banks completely and blame it on them.

Watch closely, the financial institutions will never be solvent with Washington pulling the strings on puppets posing as CEOs. This will go on for several years until we hear that the private sector is incapable of running the banking system while Obama informs us that to protect the taxpayers who funded the bailout, it is necessary for government to nationalize what's left. By then, so many people will be on the dole in one form or another that many (most?) will go along with it and refuse to acknowledge the reality that there is no runway left. Does that sound paranoid and irrational? Look at what has happened in the last six months and is happening now. Does anyone believe that the government will ever willingly relinquish the stranglehold they now have on the throat of the financial institutions? Washington wants the situation to stagnate or worse in order to impose ever greater control.

Complete control of banking and cash flow is only one aspect of gaining control. Climate, health care, education, gun control, Washington support of union's non-secret ballots, etc.--all are methods to subjugate freedom that are being exploited at the expense of your individual rights.

We have precious little time left to act. Those who risked everything to give us this republic didn't back down.

"The liberties of our country, the freedom of our civil Constitution, are worth defending at all hazards; and it is our duty to defend them against all attacks. We have received them as a fair inheritance from our worthy ancestors: they purchased them for us with toil and danger and expense of treasure and blood, and transmitted them to us with care and diligence. It will bring an everlasting mark of infamy on the present generation, enlightened as it is, if we should suffer them to be wrested from us by violence without a struggle, or to be cheated out of them by the artifices of false and designing men." --Samuel Adams

Don't drink the KoolAid.

Chip

What if, at least in some cases, the executives of these financial services companies are not to blame for the mess? What if government controlled interest rates are to blame? What if government subsidized mortgages and mandated loose lending standards are to blame? What if the whole economy was distorted because of these, and other factors, and these otherwise competent executives couldn't do any better because the government created the inescapable environment?

Ray

Wow, so if what the messiah (aka Obama) is doing works and is right, that would mean countries like the USSR and Cuba should be superpowers and highly successful.

The last I checked the USSR failed and Cuba is starving.

However, most of you are overlooking the main issue here. This is out of the U.S. government's role and is unconstitutional and most importantly immoral.

Mike de Bary

You bail out a corporation, then reasonably want to dictate to it--otherwise you're doling out money with a blindfold on. The underlying mistake is bailing out in the first place. Since when does socialism work? This is unbelievable arrogance on the part of politicians and bureaucrats founded on unbelievable ignorance.

Tom Lahti

Dr. Brook hit the nail on the head when he said "Shareholders have a moral right to pay whatever they judge necessary to attract, retain, and motivate talented leaders."

When you mix shareholder money with taxpayer money, one of the two groups has to take primacy in terms of dictating how the business is run. They can't both do it at the same time. This is precisely why government needs to stay out of private business completely; when they get involved, every single shareholder loses all their rights to whatever they've put into the business. This is the beginning of the nationalization of these corporations, and as much as it is viewed as "successful" in the short term, it will lead to more of the same in other sectors.

It's got to be either the shareholders, or the government. An historic example of the same thing: Nazi Germany. I hate to point out that the Nazi rise to power was during a time of extreme unemployment in Germany, which is also beginning to happen here. And never forget that the Nazis were elected by the populace of Germany, because they wanted the government to intervene and "do something" about the situation.

Let us heed history and not repeat the same mistakes.

Michael Garrett

Such measures are an inevitable result of the government nationalizing part or all of an industry. Of course, as Yaron Brook points out, this restriction will be impractical and drive the best minds from this industry. And the reason it will do so is inherent in the nature of the entities involved. Government's only proper role is in protecting individual rights. Restrictions such as this are a violation of the rights of the CEO and the rights of the shareholders to determine their just compensation.

WM

Capping pay is about the dumbest idea I have heard all year. What is wrong with some of you? If the geniuses did not see the market crash coming, what do you think will happen when you bring underpaid idiots on board? If you think the results are bad now, just wait. If they had any talent, they could command more than $500,000 in salary and will pass on the "opportunity" you are offering them, which they really don't want to touch in the first place because government and the raving pitchfork brigade are certain to breathe down their necks every day.

If some of you people spent half the time opposing bailouts, TARPs, and porkulus bills as you do frothing about "greedy CEOs," we wouldn't be in this mess. The government caused this crisis, everything it has done has made things worse, and now it is blaming the victims. If you would put down your leather-bound copy of the Communist Manifesto, wipe the drool from your face, and start thinking for yourselves instead of emoting, you would realize this.

Kelly

Elmo, it's very simple. Either you want the government to "take care" of you in every way from birth to death (fascism, socialism, communism, etc.) or you want to be free to take care of yourself as you see fit (capitalism.) I suggest you read Atlas Shrugged for a more detailed account of what's happening in the United States.

Bill Decker

It strikes me that every solution proposed by the government amounts to the following: (1) it bolsters a representative's chance for re-election, (2) it spends someone else's money with little regard for an equitable payout, and (3) it limits the range of choices an ordinary citizen is allowed to make. Knee-jerk pragmatism seems to have distracted our representatives from consistently defending the basic principles of life, liberty, and the pursuit of happiness.

Why?

If a company wants to pay their top executives big dollars, that is their prerogative. If their profit margin is large enough to pay top executives big bucks, I don't have a problem with that. There is no law against that nor should laws be put into place for that. If it upsets the people who invest money in a company that their executives are getting paid too much, they can take their investment elsewhere. Government should not interfere with that. Hell, government should be happy. The more money an executive makes, the more they get in taxes.

Now if said company is getting bailout money, well then I would have to agree that executives should have their pay cut until the bailout money is paid back. More incentive to pay the bailout money back sooner.

Charles Smyth

Until the rise of the on-political-message and professional manager deemed it appropriate to head up a significant American corporation, in lieu of the more traditional management team, executive compensation was about 20-40 times average labor wages, and not the elevated sums now considered necessary to attract the brightest and the best. This was because extraordinary levels of executive compensation were suspected of being indicative of something amiss, and hardly ever indicative of extraordinary talent. Nor was it at all common for a company underpinned by actively interested shareholders, to be overly reliant on their very own version of Steve Jobs. As for the contemporary predicament of the banks: If the brightest and the best at creating "sophisticated financial instruments" were not underwritten by the Fed, BOE, ECB, etc., the problem could not have arisen.

Liberty 61

The precedent being set by Obama in attempting to regulate the salaries of executives is as dangerous as Mr. Brook contends. The bailouts are very bad news, and government looters are now quietly attempting to gain control of the companies they gave my money to. If you value your life, you had better think this one through to discover how this same principle will be applied to you.

How long do you think it will be before the government is in your checkbook, telling you what you can buy and how much you can spend on it?

Arthur

As I'm sure Dr. Brook noticed, Dr. Baker's argument seems to rely partially on the implication that making a lot more money than the average person is inherently bad. Baker compares companies to professional sports teams attracting superstars with large salaries. If this decision is being made in the best interest of the company, what is the problem? No one is forcing companies to pay ridiculous salaries to CEOs who don't deserve it.

Going back to the sports analogy, look at what the Oakland A's were able to do in 2002 with the 6th-smallest budget in the MLB, win as many games as the Yankees, 103, with a $40M vs. $120M payroll.

bj

Are we moving so deeply into socialism that it's now bordering on fascism? It scares me a lot to think that a country that has achieved untold success and wealth (greater than any other) with the economic policies of capitalism is quickly spiraling to be a country that, more and more blatantly, takes from the rich to give to the poor. Who determines what "rich" means? For now it's the big execs who are the targets, so when their money is taken, who is next in line as the "rich" group? Who determines who is "poor" enough to receive a gift from the government? Do we really want to start down the slippery slope of allowing a public agency to dictate to the private sector? If the government is empowered to dictate our private business, who will keep them honest?

bj

Kelly, I have read Atlas Shrugged at least three times. I agree with you completely.

bitpusher

I think we are witnessing the end of freedom in the modern world.

Years of socialist government intrusions into the free market and expanding public unions have finally created the expected financial bust, and lo and behold: More politicians are promising more socialist intrusions to fix it. In reality, it may only prolong it a few more years until the next "emergency." In the long run, the U.S. will cease to exist as a free country.

Free markets do not "fail." They are constantly (and relatively smoothly) adjusting to the changing resources/technology/supply/demand as they maintain efficiency (i.e., greatest wealth created from the fewest resources). Only government intrusion can create such catastrophes. However, this fact is never taught by union-member teachers who typically have an agenda of their own.

In reality, the best the government can do today (like what I think Mr. Brook may agree with) is repeal its socialist schemes (Fannie Mae, Medicaid, social security, public union bargaining) and reduce its size and focus solely on protecting individual rights (cops, courts, military).

Let the dinosaur industries fail and stop stealing from all the wealth creators and our children to pour down the throats of the undeserving voters whose only qualification is that their palms are out.

Ron B'ton

There's no question--gummints should keep their noses out. However, I do believe that the executives of large companies run them as private fiefdoms to their own benefit and without regard for shareholders' interests. The small shareholder in particular has virtually no voice in company policies. The larger shareholders are largely in the same clique as the exec's and it's a case of "you scratch my back and I'll scratch yours." The example of the (U.S.) car manufacturers is a clear example. No question--bad decisions by the execs, but will they get the boot? No way--the power's in the wrong hands to deal to them.

Doug C.

Pay for top executives should be based on company performance and profitability. Not on contracts signed at hiring. These companies pay too much overall in salary.

Our country is creating another French Revolution by overpaying executives and athletes alike based on demand and not performance. I believe in free markets, but the divide between the haves and the have-nots is imbalanced. If companies will not balance the ship then maybe government must, or the people will.

mtnrunner2

I agree with Dr. Brook. We are on the exact opposite course we need to be on. Let companies fail, and let better ones pick up the pieces and carry on.

BailoutNation says: "The argument that the government shouldn't run a business is ludicrous, what's the alternative?"

Obviously, let them fail.

What is ludicrous is the idea that some businesses are "too big to fail." The bigger they are, the more important it is that market force be allowed take over; larger companies tie up more capital, and it should not be left to languish in bad companies by government fiat. The government should stay out of the picture.

Serge

Wow! There's an absolute lack of understanding what a free market economy should be. In a free market economy everyone benefits, not just 1% to 5%.

Ask yourself why you are so afraid of capitalism/free market unregulated by the government if you don't even know what it looks like. If you want to know what it is, read Austrian School economists. We do not have laissez-faire capitalism/free market economy in this country. What we do have is a mixed, government-regulated economy. It's this type of economy with its culture of government supremacy over business and dependency on the government's helping hand that promotes irresponsibility and unethical behavior in much of the business sector.

Contrary to popular and should I say ignorant belief, a free market economy is not an environment for rape and pillage. There's no place for those phenomena in a free market. Businesses practicing rape and pillage would quickly go out of business, yielding to companies that practice straightforward and honest business.
When government is not involved in economy, that effectively eliminates any corruption, preferential treatments, and economic lobbying.

Any business can only survive on its own merits competing with other business in its field.
The only things government does in this type of economy are: providing business arbitrage and protecting businesses and individuals from any use of force.

In a free market economy, there's no need to bail anyone out ever. The auto industry would look nothing like the present one does. The companies would be smaller and much more efficient.

PGupta

Does the cap of $500,000 affect those incompetent CEOs who ran their multibillion companies to ground or those competent CEOs who despite the times are running their companies successfully?

Do we want to punish bad CEOs with a $500,000 salary? Do we want to remove all incentives for good CEOs who already have to overcompensate?

Bad CEOs and their run-down companies should be allowed to disappear, and good CEOs and their struggling companies should be set free to do what they are best at. America is one country that requires no further proof that there are more good CEOs out there than bad ones. It is the good CEOs that need our support, and we better stand up for them if we need them to get us out of these trying times.

A cap of $500,000 does no one any good; in fact it is bad news for able CEOs and public companies that want to hire able CEOs. A cap of $500,000 might give Obama a point, though, with some people, but it only makes matters worse for the economy.

Dougfromeagan

It's really simple.

We have a war between the ignorant scared liberals that actually hate liberty and the grownups that have an educated perspective.

Obama is "Mom," and the 52% of the country is screaming at the top of their lungs.

"Mom! Billy has more than I do! It's not fair!"

stevening48

I'll buy Yaron Brook's argument if we put some protections for stockholders for unscrupulous boards of directors giving themselves stock options that they can exercise as long as they're breathing when it comes time to exercise those options. Small stockholders have absolutely no control whatsoever over stock dilution and outright theft of corporate value by unscrupulous boards. The good ole boys give themselves options and take that value right out of the small shareholder's hide. If Yaron turns a blind eye to this kind of fraud, he does not have the moral high ground, and neither do any of the so-called Randians, of which I am one.

Alan McK

I invite socialists BailoutNation and Mark above to try to run a modern large corporation and see just how hard it is. I've spoken with someone who has real experience at doing this, not just someone who blathers about it from his living room, and he said $500,000 wouldn't even pay a corporate exec's lawyers. This cap is even more horrible when you realize the government forced some companies to take aid when they didn't want it (e.g., Wells Fargo), and now cap the execs pay because they're taking government aid. The cap is a bad idea on general principles, and forcing people to take aid and then capping they pay because of it is outrageous and should result in prison sentences. Obama's apparently learned well at the knee of Chicago Mafia-type elected extortion artists.

Jusin

If these companies want money from the government bailout then they should be doing every thing they can to cut spending to begin with. When I find my self in a hole, the first thing that I do is stop digging. In any lending instance there are stipulations that must be upheld. Like being required to have insurance on your house if you want to get a mortgage. I am sorry but these CEOs are grossly overpaid for what "work" they do. CEOs are only as good as the folks they have working under them, and those working below them and so on.

So what if they only make a half mill for a few years, they should have a pretty good safety net built up for the many years they have been raking in multi millions. We wouldn't be in this mess to begin with if more of the profit sharing went to the people who really work these corporations.

The only way to get rid of crap is to flush the toilet. Which is exactly what needs to happen with quite a lot of the upper end management in this country.

Henry Solomon

The focus should not be on capping executive pay and increasing government control over the financial system. This is just a continuation of a vicious cycle of government controls breeding more controls, which is what created the crisis in the first place. For starters, let's get government out of the business of being the welfare state for housing. If not for government coercion of the banking system to make riskless loans guaranteed by government, the housing bubble would not have occurred. This could be the start of a virtuous cycle of continuing to remove controls until we are once again approaching what life should be in a free society, in which government keeps hands off business.

independant

Forget the salary caps for banks getting federal money. I prefer to hear comments from people where the essence is: "If I don't get paid a huge salary, they shouldn't either." Or, "Their salaries are too big, it's wrong."

To all of you with that opinion: Grow up. Are you a shareholder, and do you have any investment in that company? If you don't, try this: Expand your education, take a risk, develop a product, market it, sell it, suffer frivolous lawsuits, sacrifice so your family can have more, listen to the growing complaints of employees who aren't satisfied you gave them an opportunity because they want a guarantee, get sued more, pay exorbitant corporate taxes and income taxes and watch that money wasted on liberal programs that encourage sloth, keep pursuing your dream that you know is only possible in the U.S., and all the while suffer the slings and arrows of the mob that won't make any contribution no matter how small. Do these things before you complain how much money someone makes. And don't say you can't because of every excuse in the book; those days ended with this election. No more excuses, no more complaints, no more perceived injustice except the true injustice of socialism. I doubt you have what it takes.

Julio Mcfarquhar

If you had the opportunity, as a genius in economics and money management, to turn something around while commanding a salary lower than your peers, you wouldn't take it? Just to show them up, and show how "bad ass" you are. Why is everything about how much money you can stockpile in your personal account? How much money do you need to live a happy and satisfactory life? Yes, I understand you should be rewarded for your pay, but sometimes don't you think to yourself, "What am I going to do with all this money"?

Hawkfan

I agree with axing the stimulus as Yaron said and that the government should not be in the business of determining what we pay our executives.

Unfortunately the reality is the jerks in D.C. will pass it anyway.

If they do, and the corporation agrees to a bailout, then all executives in the bailed-out company should have a limit on their compensation--after all, they are technically being paid by the taxpayer. They should get subsistence living just like someone on welfare with food stamps and a few hundred dollars per month and be placed on the Medicaid system. If this is unacceptable, then axe the stimulus bull, er, I mean bill.

Karl

Your hardcore capitalist experiment has already been tried. It failed. Repeatedly. Capitalism needs some rules to function. Always has, always will. Think about it on your union-supplied weekend. A few rules don't make it Communism. Socialism doesn't work either. We need to come up with something that works. Probably somewhere in the middle. Claims you are either capitalist or Communist are just lazy.

I myself

Fire 'em all, let 'em earn a dollar, blah, blah, blah. Do you ever see the pro athlete get a pay cut when his team (read company) fails? Do you ever see a Congressman say, we screwed up with this pork barrel project, I'll take a dollar instead of my pay? Clearly, individuals are getting paid what boards of directors think they are worth. It may be exorbitant, but if they think that highly of the person, so be it. They as an individual can't take all the blame, any more than you can blame a talented athlete for playing on a losing team. The American dream is the chance to legally build wealth. The market will determine the cap, not some politician that votes on his own pay raise.

TE

CEO pay should be based on a global average. U.S. $13 million, EU $6 million, Asia $1.5 million. Average $6.8 million. Use that as the comparison base. It is a global world, and we are overpaying for CEOs in the U.S.

Jonathan

Yaron Brook is right. The government has no authority or right to interfere in the running of companies. Shareholders and boards of directors are the only ones that have any right to determine executive pay. Private ownership of property with government control is called fascism, and that is exactly what we are moving toward with both the Republicans (Bush bailouts) and the Democrats (Obama executive pay restrictions). Take back the bailouts, shut down the regulatory agencies, and leave companies to succeed or fail in freedom.

Jeremy

Mr. Brook is right. A government mandate on CEO pay is a bad idea.

It's an arbitrary way to establish CEO pay. Why $500,000? Why not $250,000? If limiting CEO pay is in the public interest (and that's presumably why the government would take up the issue), wouldn't $40,000 per year be even more beneficial? It is absurd.

elmas

Good bye freedom. Hello, United States of Socialist America. I mean, Unites States of Universal Care America.

Remember, politicians don't care if their programs (in this case bailouts) work or not. They just care that it looks like they are "doing something."

Roger

Yaron,
Understand the importance of Steve Jobs. But he is truly one of a kind. Wasn't he paid $1 and given bonuses and lavish gift and the company is still doing well despite the economy?

The bottom line is that if those execs leave the ailing firms, two things can happen. One--smaller firms, over time, takes the reign. Would two years be enough time for these firm to mature to a point where they can do the work? The second thing that can happen is that these execs will have to swallow their pride and get working with either their own money or under leadership of leaders who steered cleared of the worst of the problems. In either case, they will have to learn to do better.

independant

Congratulations Julio, you just made my point:

"Why is everything about how much money you can stockpile in your personal account? How much money do you need to live a happy and satisfactory life? Yes, I understand you should be rewarded for your pay, but sometimes don't you think to yourself, 'What am I going to do with all this money?'"

If you don't want to make a lot of money, then don't. If I make my money legally, which I do, then it is my business, not yours. You decide what you need for your life, I will decide what I need for mine. You can conclude anything you want about me because I make a lot of money. I'd rather have deep reserves, than ethereal hope.

And no, I wouldn't take the position you described. I think the person that would is deluded. To do what you are asking requires expertise and experience. Those are costly. To earn them requires resources: financial, intellectual, dedication, etc. I would rather show them how bad ass (in your words) I am by watching them fail, and then I would hire their best and brightest and pay them well. Then if they began behaving in ways that put their other business in jeopardy I would fire them so they could hang out with you.

Hawkfan

Karl,
No one is suggesting "no rules." As pointed out by very wise individuals above, the only legitimate function of government is protection of individual rights, including contract enforcement. The agreements between consenting parties are the rules and the government must enforce them. The most important concept is protection of individual rights. By doing so, natural law is followed and one does not need excessive bureaucratic intervention.

John

I'm sorry but I sincerely believe this country has a wealth of individuals that have the ability and are willing to run these company for far less than $500,000 a year. Concentrating the wealth among just a few individuals will be the death of our America. These companies have failed under their current leadership and should be allowed to die, and from their dust another company with fine leadership will grow and thrive again.

A. Chambers

The first question is "What is the role of government?" Not "What should the government decree individuals ought to be paid, whether CEO or unskilled laborer?"

The role of government is the protection of individual rights. Thank you for pointing this out, Dr. Brook. Further, capitalism has worked in every nation that has tried it--if human nutrition, comfort, life span, and productivity are used to judge the system.

Kelly

Karl, (Marx, I presume?) when and where was this "hardcore capitalist experiment" that you speak of? I am unaware of such an "experiment," so please educate me. (And please accept my apologies for being ignorant, but I have only a government-run high-school level education.)

The closest that any government has ever come to laissez-faire capitalism (LFC), would be the United States prior to and around the time of the Industrial Revolution. Although not an example of LFC, the Industrial Revolution was a time during which there was very little government interference in business. The result was an overall improvement in the quality of life for all people. This country realized a surge in private wealth no other had ever known. New products were being invented to make all of our lives easier, jobs were created in droves, and people were free to keep the wages they earned and spend them as they saw fit. Families voluntarily moved from their farms (and from back-breaking labor, long hours, little pay, and the whims of mother nature) into the cities where they made better wages, performed less laborious work, and worked fewer hours. Everything was going full-steam ahead until the Fed was created and a federal income tax imposed. (And thus the beginning of the nightmare we are now living out.)

You also said, "Claims you are either capitalist or Communist are just lazy." Do you prefer altruism or egoism better? There may be a middle ground, but it is always evil. We've been living in the middle ground for far too long, and now we are reaping what we allowed our government to sow.

Paul Misner

Who is stupid enough to think the same people who have run up a national debt greater than the combined wealth of every American, have the knowledge and skill to run a McDonalds franchise let alone the American economy? America is not heading for a disaster; she is in it. Over the last fifty years, both political parties have been shameless in their usurpation of power and the wealth of the American people.

CentralValleyFrustrated

I'm confused here....just how many businesses has Obama successfully ran?

Guillermo

If these private companies accepted public funds, they also accepted government intromission. Government or the State, is like a new shareholder, so it has right to define CEO incomes.

The moral, or immoral, of actual CEOs, is that they still continue receiving a lot of money as they were talented and successful managers, but they aren't.

The "American way" is based on rewarding success and punishing failure, and in this case, if they continue receiving more than $500,000, they would be rewarded by failure, not by success.

It is an error to "assist" these companies, but the first error it is not on the government side; it is on the private companies' side when they badly managed their companies, and the second error was to ask assistance of the government. First things first.

Rick Forsberg

Those who can, do. Those who can't, work for Home Depot or run for Congress. Franks, you couldn't run a hot dog cart.

Paul Beaird

How smart are we?

It is we who elect politicians. Yet we do not insist they are qualified by having studied and been tested on the basics. If a politician is going to vote at all on the regulation of any industry, s/he should at least know economics. Since we allegedly live in a capitalist society, s/he should have read the four great books on the subject written by those who know and advocate it: Ludwin von Mises, Ayn Rand, George Reisman, Andrew Bernstein.

How smart are we to let politicians pass laws regulating businesses they don't know well enough to even get a job in? Yaron Brook is right about salaries, stock options and bonuses being the carrots stockholders use to attract winning CEOs--people who do know the industry, business management and marketing. It is clear that not one of our elected politicians, not even DaBomb, could get such salaries, because they don't qualify to do the job those CEOs do.

Capitalism offers businesspeople the opportunity for profit and loss. Market discipline is the "punishment" for those whose judgment is bad in business. It removes them from access to resources, labor, and investment capital in a way that makes capping salaries look silly, proving DaBomb is an amateur.

How smart are we?

Mike Zemack

On the face of it, the pay cap doesn't seem to make any kind of sense at all. At a time when top talent is needed to turn these companies around, which was the whole point of the government’s bailout "investments," these companies are denied the flexibility and freedom to attract that talent.

But viewed from the proper perspective, this does make sense. The pay cap is a government power grab. Eventually, the precedent established here will lead to greater government intrusions into all companies. As has been pointed out previously here, the pay cap is the latest in an escalating series of government intrusions into the private economy, each leading to the next. We are witnessing creeping fascism.

I agree with Mr. Brook. Repeal the cap and end the bailouts. Then abolish the myriad of market-distorting government regulations, programs, and policies that led to the crisis to begin with.

Vikram

The funniest aspect of government policy is to try to interfere with private business, cause problems for the economy, and then finally blame it on something that was never practiced: capitalism. I think we have enough and more evidence to prove that socialism has failed all over the world. Why don't we at least try to practice capitalism in its purest form and see what results we get?

As Mr. Brook points out, bailouts are completely unnecessary and unacceptable. On top of it, the government has no right to decide the salaries of CEOs of corporations. Two wrong decisions never add up to a right one.

VeryAngryCitizen

Oh sure--socialism, take from rich and give to the poor, communism, etc. You sound just like a used car salesman or someone ready to rip people off. If you get caught or told that you are wrong, you start screaming like a bitch

No cap pay for CEOs? The companies are going from bad to worse yet the bastards are making more money plus benefits--you call that talent? No. The boards are in cahoots with them. That is a type of legalized Mafia. Shareholders lose money. That is no service that they should pay for; actually CEOs should pay the share holders.

Employee have been furloughed or take pay cuts so the CEOs can make millions and be more pampered? No. They should be arrested for legally stealing from everybody for greed. They should have everything confiscated but 10% of their wealth for their families. And then, because they forfeit their rights as human beings, the CEOs should be shot with one bullet, and only one bullet because even that is worth more than they are. In order to have something good come of them, have their bodies used for research and any good organ donated to good people that actually do good for the society and care for the well being of everybody else rather than themselves.

Obama this, Obama that...give him a chance. He inherited this crap, the puppet W who went out and spent a surplus and made the greatest deficit ever without spending a penny on us, the USA. .(Excuse me, except his little group of paranoid and war mongers thieves). You selfish bastards. Millions of people losing their lifetime savings and livelihoods and you are complaining and complaining, still taking, taking, taking. No shame, no decency, no pity for anyone even if you put them in the dirt No fear of God, because it may not be a God but a demon you believe in.

Robert Reynolds

Another eloquent analysis from Yaron Brook. More government interference is going to lead to an increasingly morbid economy, and we'll all get what we deserve for voting it in and letting it happen.

richard carter

My problem with this question is that the capital system is supposed to work off a set of check and balances. Management balanced by labor and stockholders interests. Only in our system, both of these balances are subverted. Labor has been weakened by the government of Reagan so it cannot perform its natural function. Stockholders do not get to vote on salary and bonus compensation. The people that do are directors who are themselves management or former management at other companies. They play you scratch my back and I will scratch yours. Let us put it simply: If the bonus money was not there, then the very best would still do the work they do and they could do work for a salary and possibly get a bonus that is a percentage of their base pay, not 5 or 6 times their base pay just like the rest of us.

swingarm

This bailout when all is said and done is really not a government bailout. It's the use of the counterfeit funny money that the banks and businesses such as GM get to use right off the press. Like any counterfeiting scheme, those who get the money first benefit. The fractional reserve system is raping the common man.

As much as I agree about free market driving the compensation of the men at the helm, this is nothing more than a very large visible manufacturing industry that's getting a cut of the counterfeited cash. The federal reserve needs to be abolished. Obama is the leader of the Whigs. Why is he not calling for a return to hard money? I'll tell you why; he is appointed to his position, just like any corporation appoints their presidents. The USA went bankrupt in 1933. The slave peons have been footing the bill for that bankruptcy ever since by loans floated through the bond tied to the birth certificate. We are slaves. The banks and big business will continue to get the cash, and we will continue to pick up the bill. It's socialism propping up capitalism. The happiest slave is the one who thinks he is free.

random

"... a government-enforced cap on CEO pay would punish the best CEOs by denying them the huge rewards they earn by creating vast amounts of wealth."

These CEOs ran their companies into the ground, begged the government to give them money and they should keep multi-million dollar salaries for failure?

To all those who bemoan that the banks are getting nationalized and reaching for the USSR/Cuba hyperbole, keep in mind that the banks ran to Congress, crying that they needed government help and the same regulation they described as injurious meddling. Obama didn't nationalize banks. Bush did. At their request.

If you're perfectly happy with these hypocritical "leaders" keeping $200 million pay packages and rewarding them for their failures, that's your business. I, on the other hand, wouldn't want my taxes to be paying for a generous retirement of someone who ran his bank into the ground and socialized it rather than face the music and take his lumps.

"Although not an example of LFC, the Industrial Revolution was a time during which there was very little government interference in business. The result was an overall improvement in the quality of life for all people. This country realized a surge in private wealth no other had ever known."

Really? According to whom? During the Industrial Revolution factory workers spent 10 hours a day, six days a week for almost nothing and kids as young as 6 were used for hazardous repair work. Grocery stores sold rotten food, butter mixed with mashed potatoes and tap water was better suited for biological warfare than for drinking, cooking or cleaning.

Monopolies crushed competition and the overwhelming majority of the new wealth was concentrated at the top 1%. There was no such thing as the middle class until the mid 1940s.

Unless of course you have data that contradicts every college textbook written in the last 50 years.

Finally, when using Marx or the Communist Manifesto in an insult, here's something to remember. Marx and Engels were sitting down to a cup of coffee and ranting about the mistreatment of factory workers. None of the things they outlined were supposed to come from government interference. Both of them just assumed that the changes will happen on their own.

Mark H

Two large experiments have been run in political economic history. The U.S. (pre-socialist 1792-1900ish), which has created more wealth, a higher standard of living for all, richer rich people (who buy boats, houses, cars that create jobs for all the "little guys") and a vast expanse of capital goods available to all. This is what capitalism allows.

The second great experiment--the USSR. After 70 years, the best they could muster is an economy about the size of the state of Virginia. So if you think central planned governments are so great, sit back and watch what happens to all the U.S. wealth as we nationalize. And if you think we can do it better than "them," you can look at all the other variations of socialism: North Korea, Cuba, Great Britain, etc. They all fall far short of the U.S.

Dr Brook is right, 100% so, and we have 200 years of proof. Free our markets of federal influence and watch how America recovers and prospers.

Franklin Carroll

I could not agree with Dr. Brook more. There is no way companies can be expected to attract the talent they need to be successful away from other industries if a cap of $500,000 on salary is set; the logical consequence will be third-rate CEOs who will make the situation in the finance industry worse. Of course, companies will probably find a way around this regulation (luckily)---perhaps by issuing stock to the CEO---but such arrangements normally result in inefficiency since the lowest cost methods of reimbursement are the ones chosen absent government interference. Logically then, if a different method is chosen it must not be the most efficient and thus must waste resources. Such waste will only hurt the finance industry's recovery.

Please read George Reisman's article "Show Trials with Capitalist Defendants in Shackles." It is an excellent article that explains the above point in more detail.

ewv

The bailouts have already introduced an impossible situation regarding control of company expenses, including salaries. If the government hands out money, then it is responsible for what it is used for; on the other hand, government control of business is destructive fascism. The answer is to not let government buy its way into that, as Yaron Brook argued.

You can see what is driving this: Barney Frank and other such demagogues have already said they want wage controls on all businesses regardless of whether they get government money. Obama himself has indicated that no private executive should be considered worth more than his own salary, implying both that government should control private income and politicians should be regarded as more important than anyone else. Government money is increasingly all over the economy now so with that ilk looking for excuses for more power it isn't hard to see what is coming.

The same goes in other realms. Government should stop using taxpayer money to fund and control schools so it no longer has an "obligation" to decide what is taught and how, which it has no business doing. And the more it funds health care the more it will control and have an "obligation" to ration and interfere with that.

Government intruding in economics inevitably causes the loss of freedom and independence in all realms.

Franklin Carroll

Dean Baker is fundamentally misinformed about economics. His article is filled with economic fallacies:

1. Examples help to set prices
2. Democracy in corporate governance would be advantageous to the investor
3. The CEO and the shareholder are at odds.
4. CEO pay is too high.

The first error overlooks the basic facts of supply and demand. Businessmen do not determine prices based on the example of other businessmen---they look for the cheapest way to get the good they need in order to produce their product. Mr. Baker would never make such a claim with any other good outside the field of labor. Yet experience shows that labor prices are set by supply and demand like any other factor of production---expectations of future profit and the current capital structure determine the demand and supply of the good respectively: This is even true of labor.

Second, companies are undemocratic because democracy in corporate governance reduces profitability. Democracy in corporate governance would 1) require labor on the part of the stockholder, 2) reduce the advantages of specialization, and 3) reduce accountability.

Stockholders do not want to trouble themselves with every decision taken by the many companies they have shares in. This would be a waste of time. They are aware of the fact that CEOs have more specialized knowledge than they do---this is why they are investing in an established enterprise rather than starting a company themselves.

Most important, democracy reduces accountability by reducing the cost of a bad decision. Since the cost of a bad decision in a democratic setting is the cost of the decision if you were making it yourself multiplied by the probability that your vote will be the deciding vote, it is clear that large democratic processes are very inefficient. Please read Bryan Caplan's book The Myth of the Rational Voter for more on this same point---what he says of democratic government would also apply to corporations. Companies compete for capital, and the ones that have shied away from democratic corporate governance have outperformed those that embraced it for a reason.

Third, the CEO and the shareholder are not at odds. Companies must attract capital to survive and this is only possible if the company is itself profitable. The extent to which boards have moved away from this is precisely the extent to which companies have been forced to consider things other than their profitability---namely, by government regulation, the very thing Mr. Baker is championing.

Last, CEO pay cannot be too high apart from credit expansion (something your precious Obama is looking to restart). If CEO pay remains high even during credit retraction, it can only be because the CEO is contributing at least that much to the company's overall productivity. Any action taken to reduce compensation would only reduce the supply of capable CEOs and result in CEOs not ending up where they are most needed.

Mr. Baker should buy a microeconomics textbook. He might learn something.

Richard Watts

Dean Baker claims, "President Obama should take advantage of the extraordinary opportunities in the current political and economic environment..."

No. President Obama should not be taking advantage of this situation to try to turn America into a dictatorship. Instead of forcing Americans to hand over their earned money as taxes to be spent as government decides, and instead of dictating the actions and finances of those in business, Mr. Obama and Congress should defend each individual's right to his/her own liberty and property.

Neither government, nor businesses who want bailouts, have a right to take anyone's earnings. Neither taxpayers, nor voters, nor those in government have a right to control the businesses and industries of others. Claiming it's for "the economy," "the nation," or "the public good" does not justify using government to expropriate wealth and control human beings. Yaron Brook is right. Let's end the bailouts and get rid of the regulations.

Tim

Humans have the power of rational thought and free will. In order to survive and prosper humans need to have the ability to act on their decisions and be free from initiary force. This includes initiary force from government.

Yaron Brook's comments are sensible, practical, and moral. It is impossible, cynical, and arrogant for governments to believe they can (like some omniscient God) predict and then control to some beneficial end all the billions of business interactions between all people in the U.S.

The U.S. will suffer from all government intervention into the economy one way or another. Obama's dishonestly named "bailout" will be destructive to human life. Let's only hope people learn from these mistakes.

Eric

Is it too much too ask for some consistency and logic in the arguments posted here?

I think it's high time for those who would scream "socialism" at the concept of the bailout to stand by their principles and refuse to accept any government investment. But instead we are left with the worst of all situations--business leaders who are more than happy to accept the handout but cry "Ayn Rand" at the mere mention of any accountability. You simply can't have it both ways.

Viewed alternately, if a private investor were to take a stake in a troubled financial institution and chose to sweep out management or impose a pay cap, would there be the same hue and cry? I think not.

As an entrepreneur who believes strongly in the free market, I find that the behavior of the so-called Masters of the Universe disgusts me. To dip into the colloquial, you took the risk and lost, so it's time to man up and own it.

Jasmine

An issue related to CEO pay and whose business is it to decide what they make came into U.S. cultural life a few years back when the Enron and then Tyco cases were investigated by the federal government arm of the SEC.

I did a lot of research via various media to find out what Kazlowski had been implicated for. Tragically, it was hard to find a single instance of objective criminal activity or fraud by the man.

Still, Kazlowski, is languishing in jail, serving time, making a "$1" pay.

There was one woman on the jury who was vocal in her opinion that there was no evidence of wrong-doing on which Kazlowski could be implicated. She was intimidated and received death threats.

In the U.S. we do not envy another's success and wealth--we admire the person and we aspire to it.

But the lynching and trial by media for the ex-CEO Kazlowski was an instance of envy during his trial.

If there is a case of injustice, it is the case of Kazlowski; there should be a public appeal for a re-trial, and this time the focus should be the facts. Let us bring back objective law in this country.

What he did or did not make as CEO was the discretion of the board of Tyco and the shareholders, and nobody else's damn business.

Marc

It is apparent the contradiction we find ourselves in when the government intrudes into the private sector. Should the government be able to dictate how businesses are run if they are receiving funding, i.e., a bailout, from the government (this is taxpayer money of course; the government doesn't have any money except when it seizes through forced taxation)? After all, stockholders have a say in the running of the company they hold stock in. In the case of the bailouts the taxpayer does in effect become a stockholder of company he is helping to bail out, via the government.

But this overlooks one crucial moral principle. The government does not have the right to seize the property of one man and give it to another. The government does not have the right to "bail out" companies, big or small, by seizing wealth of some men and giving it to other men. So if the government didn't have the right to redistribute wealth in the first place, it certainly does not have the right to dictate to businesses how they should be run, including CEO pay. Furthermore, the government should not bail out businesses ever. Beside the moral issue, it is destructive to the economy to let anything other that market forces determine who stays in business or not.

In short, in a free society the government and the economy would be separate. In a free society, the government has one job: the protection of individual rights.

Get government out of business. The free market takes care of bad decisions and scoundrels.

Captain Beefhart

If you make a deal with the devil, don't be surprised where he sticks his pitchfork.

GaiaM

"No cap pay for CEOs? The companies are going from bad to worse yet the bastards are making more money plus benefits--you call that talent? No."

Obviously those that needed a bailout so badly that they went to the Feds begging for money weren't going to last much longer without it. Yes, incompetent CEOs may have made a lot of money they didn't deserve for a few years, but obviously that time was coming to an end until the government decided to prop them up.

For those of you who argue that corporations that receive government money should accept government regulation to monitor the use of that money, I would have no response other than to ask why on earth they were given that money in the first place.

Giving money to incompetent institutions directly prevents the good ones from succeeding. Wells Fargo, a competent, well-run bank, was patiently waiting for its over-leveraged competitors to fail so they could claim more market share and benefit from their intelligent practices. Now that their incompetent successors have been propped up, they may never have a chance to be rewarded for their prudence or to provide quality service to millions of Americans.

Please let us run our businesses as we see fit, and succeed or fail on our own merit, for the benefit of us all.

Scott

I should be able to say four words to end this debate. "United States Postal Service." Does anybody in their right mind want to start seeing every large company in the U.S. start operating as poorly and as inefficiently as the U.S. Postal Service? If not, then I suggest that we don't let the government start making the decisions in the private sector any more than it already does.

Sally Morem

Brook had it right. In a free society, there are very large areas in which government has no say-so over at all. In a free society, corporations, partnerships, and sole proprietorships would have complete freedom to pay executives and workers whatever they wished in order to hire and retain their services. Labor would be a market just as any other market. Buy low, sell high. Obama and his fellow Democrats apparently believe there are no private spheres of decision-making in America anymore. If they are right, America is no longer a free society. By the way, I just heard about a national TV interviewer asking Obama whether he should fire CEOs of corporations. The bottom has dropped out of American IQ scores when a prominent TV personality could make such a stupid assumption about the power a President has.

Franklin Carroll

Another thing to consider is that regulators basically threatened banks who did not want to participate in the program. This punishment of CEOs includes solvent banks like BB&T. It would be one thing if it did not 1) apply to new CEOs acquired over the next few years and who had no role in the current mess and 2) apply to banks that actually avoided this mess.

Kelly

Quote from Random...

"Really? According to whom? During the Industrial Revolution factory workers spent 10 hours a day, six days a week for almost nothing and kids as young as 6 were used for hazardous repair work. Grocery stores sold rotten food, butter mixed with mashed potatoes and tap water was better suited for biological warfare than for drinking, cooking or cleaning.

"Monopolies crushed competition and the overwhelming majority of the new wealth was concentrated at the top 1%. There was no such thing as the middle class until the mid 1940s.

"Unless of course you have data that contradicts every college textbook written in the last 50 years."

1) If things were so awful, why didn't people go back to their farms? I'm sure working 12 to16 hour days, seven days per week just to earn the food you ate was much easier than working a 10-hour day in a factory. The threat of dying over a simple drought was probably fun, too. I'm sure women loved giving birth to children just to produce more field hands. You're right! What a wonderful life!

Like I said, it was an overall improvement in the quality of life. Things were going from worse to better, but the government killed that.

2) If you don't want to buy what the grocery stores are selling or drink from the water the municipalities are providing, you are free to grow your own food, dig your own well, drink from your own spring, etc. Why must you depend on others for your existence? Are you not capable of taking care of yourself?

3) So what about monopolies? If you don't like them, come up with a better product, invention, or service, and then you can put these companies that you so hate out of business. Until you come up with a better idea, who are you to prevent those that do from making a profit on their ideas? It's not like you have to use their products or services--you choose to, because they make your life better, thus they have value to you and you willingly pay for it. No one has a gun to your head. (Well, except for the taxman, and we all know who he works for.)

People like you want to keep soaking the rich. What will you do when you've depleted them? Who will you turn to then to mooch and loot from?

3) About college text books: I'm not impressed with any of the college courses I attended, much less the "facts" they taught me. Further, I dropped out because of the slanted curriculum, and earn just as much, if not more than my college friends. In fact, I have a far better work ethic and have a brain in my head. I taught myself how to think. You, my friend, have been indoctrinated. If you think college text books are the only place to find "facts," you are sorely mistaken.

Kelly

More for Random: Here is (yet another) example of what results of more government control.

"Lentils, grains--you almost can't get them," purchaser Jose Rodriguez said by telephone. "We're always having shortages of one thing or another, and you can't import them because the government controls it all."

"Inflation runs above 30%. Chávez has implemented price controls, but many producers have reacted by choosing not to sell their goods below what they consider fair cost--resulting in shortages of staple foods. The government has put strict controls on the buying and selling of dollars in an effort to prop up its currency, the Bolivar.

Crime is rising. The country's murder rate soared from 25 per 100,000 people in 1999 to 48 in 2007, according to the Venezuelan Program for Education and Action in Human Rights.

Kidnappings during the first nine months of 2008 doubled from the year before, from 182 to 366, the group reported."

From http://www.usatoday.com/news/world/2009-02-11-chavez_N.htm if you'd like to read more. You could also look into the history of the Soviet Union. Surely, your college texts having glorified that too much. (What's to glorify?)

D.A.

Spending is what jump starts the economy. Private planes employ thousands.

I was against the bailout, and I guess there is some argument as to controlling how the money is spent, but there is a slippery slope to the government telling businesses how they should be run.

RR

Scott, regarding your comment:
"I should be able to say four words to end this debate. 'United States Postal Service.' Does anybody in their right mind want to start seeing every large company in the U.S. start operating as poorly and as inefficiently as the U.S. Postal Service?"

First, I agree with you that the U.S. government shouldn't run private companies. But when it gives them bailout money, it has a right to determine at least to some degree how it's used.

Second, everyone bashes the U.S. Postal Service, but is it really fair? For the cost of a 43-cent postage stamp, you can mail a little piece of paper to anywhere in the country and count on it arriving within three days 99.9% of the time. When you move, you can avail yourself of a free service that forwards your mail from the old, wrong address to the correct, new one. Let's not take these folks for granted. I doubt FedEx offers any service that costs as little as 43 cents.

And no, I have never worked for the post office. I just know a good thing when I see it.

JackDoitCrawford

The "salary" of slaves was always kept down (to zero) by government order, but why is a half-black man contributing to a resurgence of slavery?

Mel McGuire

Firms that are in trouble need the best CEOs they can find, not government-mandated cheap CEOs.

What creeps me out most in the Baker piece?

"President Obama should take advantage of the extraordinary opportunities in the current political and economic environment..."

Shain

Smoke and mirrors, bread and circuses.

We're all screwed. Separation of powers? The lawyers control all three branches of government. It's all a big con: "Four legs good, two legs bad." The so-called elite buy the politicians and write the laws allowing them to legally steal from the rest of us, and don't obey them because they're above them.

In California, the state legislature cannot raise taxes without a 2/3 vote. So the Mexican socialists who control the majority here simply raise taxes by calling them "fees" and/or "surcharges."

Do you really think individuals brilliant enough to ascend to the highest echelons of business (most of them honorably, a few corrupt--but this is what the mainstream media want you to believe is the norm) won't find clever ways of receiving compensation that don't violate "a cap on salary"?

Give me a break. Wake up, people.

Frederick Farias

1. Early in U.S. history Jefferson refused to establish a central bank, but others tried to institute it. Great banker JP Morgan helped prevent or shortened recessions as he collaborated with bankers. Talented bankers have not been free to complete their work now that they're to have their future rewards limited by policemen. This freedom ended with the Fed as the European style central bank. Government control prevented diversification and inflated mortgages. The Fed historically has lengthened recessions and extended and shortened booms as its directors are not motivated by the profit motive. CEOs motivated by profit for themselves, and their companies are the most needed by bank shareholders, and so for the economy. Government is not right to interfere. Yaron Brook is right on.

Ralph C Whaley MD

Money, real objective money, came into existence in the context of a rapidly expanding and complex division of labor economy that presented a specialist in the production of one good, nails who wants corn with the problem of finding a producer of corn who wants nails. Men identified an object that was easily recognizable, relatively scarce, widely desired, durable, easily transportable in sufficient amounts to use as an intermediary object for exchange. That saved enormous amounts of time and effort and mental space in calculating relative values through a long chain of exchanges to get from the good produced to the good wanted. Objective money is a store of value as well as a medium of exchange and an integrator of prices. The creator of value literally makes money, brings it into existence. The calamity of today is the idea that money (fiat money) creates production. Running pieces of paper through printing presses and calling it money is a fraud and worse; it is theft by stealth. It enables the user of newly created printing press money to obtain actual value created by productive men and women. Producers of value literally make money, and they are its only true source.

Mike Folker

I just don't see how companies as large, and in as much trouble as the one being bailed out, will be able to find and retain somebody with enough talent to turn their company around if they are only paying $500,000 a year. It sounds more like a death sentance for the companies than anything.

Liz

As an investor, I'm wondering how many of these billions in bloated salaries could've instead gone toward paying increased dividends to shareholders or re-investing in a company's R&D operations.

European CEOs seems to be quite happy with their six-figure salaries. Why cannot American CEOs do likewise?

Poor_Clyde

When corporations and government jump into bed together, it's called facism. Pray tell, what else do we need to know?

Poor_Clyde

Dr. Whaley,
Absolutely right on. Since the discipline of current day economics has no first principle understanding of any "money theory," I have chosen to coin my money theory writings relative to producer/consumer transactions as exonomics, the study of exchange. I am 100% aligned with your own money theory (actually first principles of money).

Mike Zemack

Random, and apparently the college textbooks he cites, fails to consider historical context. The conditions that existed at the dawn of capitalism and the Industrial Revolution were horrendous. Unimaginable poverty, including hordes of homeless children, was the norm. Life expectancy was abysmally low, and the mortality rate for children under five years old was 70% plus.

This must be kept in mind when criticizing the allegedly terrible conditions of "factory workers [who] spent 10 hours a day, six days a week for almost nothing and kids as young as 6 were used for hazardous repair work." People filled those conditions, those jobs, voluntarily because it vastly improved their lives, compared to previous conditions.

In particular, most of those child laborers Random laments would most likely have been dead children before...part of the hordes of children abandoned by parents too poor and hungry themselves to feed all of their children. All of those people, adults and children alike, flocked to the newly opening factories by choice, because it improved their lives. I know of no historical record of businessmen forcing people to take those jobs. The rising prosperity of the 19th century capitalist economies pulled families out of pre-industrial poverty, gradually alleviating the need for children to work. Today's child labor laws that rightly protect children from exploitation were not made necessary by capitalism, but made possible because of capitalism. Had those laws existed during the early days of the Industrial Revolution, they would have condemned countless children to death by starvation.

It should also be noted that life expectancies almost doubled, from about 30 to the mid fifties, between the late 18th and early 20th centuries in the industrializing capitalist nations, an unprecedented and incredible achievement in so short a period of time. This occurred in large part because of improved living conditions for children, resulting in a sharp fall in their mortality rates. It also occurred during a period of time unlike any before or since--an almost laissez-faire economy.

As for monopolies, both practice and theory demonstrate that the kind of monopolies that "crush the competition" are a logical impossibility in a free, capitalist economy. As long as political force isn't brought into the economic equation, there is no way any company...even one that is the sole producer of a particular product at a particular time...can prevent new competitive entrants.

Take the just-announced merger between Ticketmaster and Live Nation. Despite the fact that it will initially create a market monopoly, new entrants are free to enter into the ticket business at any time, including Springsteen, LiveStub CEO Hershfield, or any of the artists and others in the ticketing industry who are squawking against the merger. If this deal is approved, as it morally should be, the combined company would still have to satisfy its customers or lose them to a new competitor. As long as individual rights are protected, as they are only under capitalism and as long as political connections aren't employed by the big established players to thwart competitors, as typically happens in the kind of mixed economy we have now competition (which includes potential competition) can not be "crushed" or coercively eliminated by anyone.

Capitalism has never had a fair hearing because it has never been fully understood, even by most of its supporters. A good place to start would be to examine the total context of the current crisis, as Mr. Brook has attempted to point us in the direction of. Even Random might be tempted to set aside "every college textbook written in the last 50 years", and think again.

One final comment. Not all of "the banks ran to Congress, crying that they needed government help..." Some, such as Wells Fargo, among many others, were forced to take bailout money by the Bush administration. Many, though, did run to the government. But keep in mind that one must not confuse capitalism with capitalists. Laissez-faire means, essentially, the separation of state and economics. Under capitalism, no bailout would have occurred, and the incompetent banks would have folded. Of course, under capitalism, we wouldn't be having this discussion, because the housing bubble would never have occurred to begin with.

random

Kelly,
I wonder, can you grow your own food and provide for yourself totally and completely? Only a few percent of the U.S. economy is agricultural and much of that is owned by farming conglomerates that supply the supermarkets where you shop. Also, that clean, generally safe food you're eating? Government control. When it lapses, you get salmonella scandals like the ones with peanuts today and with spinach and beef last year. If no one is obligated to sell clean food and selling slop makes more money, why sell clean food, especially when everybody else is selling slop and you'll never make any money selling high quality products.

Now, using random quotes about Venezuela as an example of government control gone awry is just plain wrong. How about some real, official statistics that ties an increase in government regulation to the sins and crimes you allege? Attributable to real sources?

Cody

As long as there are wealthy customers willing to let other people manage their investments, there will be a financial services industry that generously pays its employees. As long as one can charge a percentage of assets continuously over time, or a percentage of the value of a transaction (instead of an hourly wage), and as long as our tax code overtaxes wages and undertaxes "investment," this industry will continue to proliferate throughout the ages. The amazing thing about this whole industry is that it has not created much long-term value for shareholders or taxpayers. The financial services industry is like a casino where the house (its "employees") always wins. Ironically, very few Americans really need any financial services. We could simply wait until we have saved enough money to buy our things, or we could simply find buyers of our investments without going through "middle men." I say the government has no business regulating private sector pay. There is always a way around such regulations anyway. The government should fix the root causes of excessive pay: boards of directors that don't represent the long-term interests of shareholders.

Michael Caution

Given that the government has no moral justification interfering with the lives, liberty, and an individual's pursuit of happiness, even if we follow Dean Baker's advise, it wouldn't solve anything at all. His is the short-sighted, range-of-the-moment, pragmatic, mentality that eschews principles and ignores fundamental problems that make it impossible to solve all the tough issues our country faces today.

Capping pay will only make the genuinely productive men of ability leave the field to seek other forms of work where their efforts are appreciated. This will leave open the positions at the top to the truly despicable. The parasitic moochers who don't hold their jobs by ability but by government favor. Baker wants to replace one government caused problem for an even worse one.

And even though such a statist proposal goes against the founding principles of our republic, Baker advises Obama to "take advantage of the extraordinary opportunities in the current political and economic environment", i.e., follow the will of the majority to crush the rights of the individual. So for Baker, if you get a large enough gang on your side the sky's the limit!

I agree with Dr. Brook. What America needs, truly needs, is a complete separation between economics and state, in the same way and for the same reason there is a separation between church and state. Laissez-faire!

As context, find out how government interference and a mixed-economy lead to market distortions and disruptions: Ayn Rand Center

Mike

I'd like to see Obama's pals making less than $500,000 and Nancy Peolsi give up her taxpayer-funded private jet as well.

random

"European CEOs seems to be quite happy with their six-figure salaries. Why cannot American CEOs do likewise?"

Because in the U.S. there's a business culture where personal greed among executives is encouraged and 8 or 9 figure pay packages are seen as motivation for the C-suite officers to make the company perform well. The question is whether it's a good deal for investors and there's a great deal of studies done by HBR and Columbia Business School which suggest that the most overpaid executives also tend to perform the worst and their companies are behind the S&P averages.

Greed is not always good. It has to benefit the shareholders first and foremost. Then when the stakeholders are happy, they can reward their executives rather than promise them money up front as happens today.

Again, I'd like to point out three very important things that seem to be getting lost.

1. The $500,000 a year rule only applies to companies using federal money to keep doing business. They can refuse federal money, go their own way and they could pay the CEO a trillion dollars a week if they'd like.

2. The money was given by George W. Bush, not Obama. Bush gave them the closest thing to a blank check one can imagine. Now it's Obama who's under pressure to wean these companies off public funds. What he's doing is hardly socialism. He's acting like a board member asking to pare down executive pay because he has to get the money back. When the government owns a big part of your company, it gets to call some shots, just like any major investor.

3. The banks begged for that money rather than face the music and clean up their act. Starting to bemoan government meddling when CEOs who ran their companies into the ground were getting down on their knees in front of Bernanke and Paulson, begging for a few billion bucks is inverting what happened so you don't have to change the mantra.

Pro-regulation for bad times

When times are tough and everything is in chaos, we need a decision maker. That decision maker is Obama. I agree with the salary cap on CEOs, but only as a temporary measure, until the markets turn around. We all need to make sacrifices, and if introducing CEO salary cap will free up cash and maximize the chance of a company's survival, then so be it. Right now, it's about basic survival.

Rajesh dhawan

Anybody making a case for government intervention in private business needs to look at countries like India, where I live. Less government intervention since 1991 has meant more prosperity and less poverty. Sectors where bureaucrats and politicians refuse to let go, citing "public interest" are the worse off. It is quite disturbing for me to see the U.S. turning anti-capitalist and people cheering for a big-government champion like Obama. Today they decide on executive pay; tomorrow they will decide your pay. Is that what you want? What happened to the good old USA, where government was supposed to be in the background and not overshadow everything and be at center stage.

M Camelo

To be totally honest with my thought: It does not matter. Not after the bailout.

As soon as you let the bailout concept (not so much the money in itself) enter any corporation, you are taking away the costs of failure and of incompetence, as much as you are refusing the reward for achievement and efficiency.

After the bailout concept had been introduced, it does not matter what kind of CEO you get. Competence will only buy you time to be the last one to fall or to sell yourself to the concept. It will be just a matter of time until one recognizes that for his own survival (or that of his corporation) he will have to go by the same rules.

Ian Osmond

Shareholders have a moral right to pay whatever they judge necessary to attract, retain, and motivate talented leaders.

Sure.

But once a corporation accepts my money, through the agency of my government, I become one of those shareholders. And I have a moral right to dictate the terms of employment of my employee, including my CEO.

A corporation needs not accept government bailout money. But a corporation which does needs to understand that, if they do accept it, then the people of the United States are now a part-owner of the corporation, and have a moral right to set employment conditions.

As a citizen of the United States, I am now a part-owner of those businesses. And I can see that their previous management was incompetent. I see that they had a system in place that encouraged and rewarded personal success at the expense of corporate failure.

And I believe that a salary cap may be a part of changing that.

I could be wrong about that, of course, but it is clearly my right as a stockholder to make that demand as part of a general group of demands of more accountability of the CEOs to me, their new shareholder.

dallas75246

Which failed stimulus package are we in this week?

Robert

Obama is 25% more generous than he should. The cap should have been capped at $400,000. No entity receiving federal money should have its executives paid more than the President himself.

GAYORG

CEO pay and bonuses are so ridiculous. And sports figure too. It defies comprehension. Now would be the time to reign it in--correcting a greatly abused practice of throwing money at people.

random

Mike,
Really, you shouldn't make things up. To say that kids doing factory work in hazardous conditions circa 1905 wouldn't been dead instead is to use a heavy amount of artistic license about tough times in the big city and make your own version of history, more agreeable with what you like to hear. Historical context doesn't mean you get to make up something to disagree with facts you'd rather ignore.

The same goes for your bizarre concept that monopolies give room for new entrants into a market. They don't. If they did, they wouldn't be called monopolies. A monopoly owns 98% of the market or more which means that it controls 98% of the customers and close to 99% of all revenues that can be generated in the market. They can and do crush any new entrants to the field which is exactly what happened with US Steel, Standard Oil, AT&T and the other famous monopolies of the day. Your example of the TicketMaster and LiveNation merger uses customers who are forced into partnerships with the companies because they've shut out everyone else and calls them "new entrants." So if my Internet is provided by Time Warner which has a monopoly in my area and I have no choice but to go with them for Internet access, I'm their competition? Wow. Just wow.

Finally, I find it hard to believe that Paulson was shoving money down Wells Fargo's throat. Why? Because that never happened. No bank is forced to take bailout money. They ask for it in order to be eligible to receive it. It may help to actually read the news before pontificating on morality of running a monopoly. Big words and long posts by themselves do not a valid argument make.

Wayne M.

If you limit CEO pay with publicly traded companies, then the good CEOs will move to private firms. Who doesn't want a bigger paycheck? If that happens, publicly traded companies will flounder, and over time an "average Joe" like me may lose the ability to make a small investment (i.e. stocks) in them. Seems like everyone could lose.

Regarding Ian's comment, "A corporation needs not accept government bailout money": I have seen numerous articles detailing the fact that banks were not given a choice. Wells Fargo was very vocal in its opposition. The con argument also correctly points out that bailouts are bogus.

Peter Murphy

"Moral hazard" is a concept long recognized in the private insurance industry. It's what free market insurance contracts largely avoid by refusing to pay you for burning down your own house.

Immoral governments like ours, promote moral hazard--especially in banking.

Since mandating the FDIC in 1932, ever-shrinking numbers of competent bankers have been forced to pay into the FDIC insurance fund that rewards ever-increasing numbers of reckless bankers.

Combine that sheer folly of government deposit insurance with decades of regulations and the monopoly money power of the Fed, and you can see how government sowed the seeds of banking industry collapse long ago.

All economic crises--whether the Great Depression or the artificial booms and busts since--are the products of government manipulations of what should have been un-coerced, selfish decisions and full accountability for those decisions by private citizens and their incorporations.

Forcing a producer to act against his rational judgment is morally wrong; so is expropriating his wealth to bail out others who are less productive or irrational. In freer markets, the irrational are driven out and pay is capped by what paying customers voluntarily decide--as in baseball or concert tickets today. Jay-Z and Beyonce worked hard and together earned $160 million last year without forcing anybody to do anything.

Government-mandated pay caps are not voluntary; they are the arbitrary dictates of lobbied politicians and lynch mobs looking for scapegoats. And those who advocate such caps--advocate tyranny.

It's time for Americans to return to self-reliant, free-market wealth creation and stop conceding the premise that government should "do something" every time it has already created a crisis in the first place.

There is little time left. History proves that today's nationalizations always become tomorrow's totalitarian tyrannies--unless the underlying premise of immoral coercion is exposed and replaced with freedom.

Vote only for those who promise to protect individual rights by punishing criminals who violate those rights. Only then can each of us of us be protected from the biggest thieves and reckless manipulators of all--today's U.S. Congress and Senate.

Jenny McDermott

Cloud Downey, I congratulate you on your imagination. Do you write spy novels? You should--even Tom Clancy hasn't come up with better conspiracy theories than yours.

Peter Murphy

Mr. Baker declares that financial industry pay is too high.

He then declares that lower pay "can help set an example" for every American.

He concludes that the Oval Office should "take advantage of the extraordinary" suffering of Americans and become the dictator of all investor/management relationships.

This is how once-free nations collapse: no reasons, no logic, just mindless bromides followed by calls for more government coercion--the poison that created the suffering in the first place.

Wanting others to make less money is ugly envy. Wanting to ram your dictates down their throats is depravity. Bromides like Mr. Baker's should be merely dismissed as the petty trash that they are.

Stockholders already possess "voluntary" power to dump their stocks if they don't like management's results.

Bill

The firms' boards of directors can turn down the taxpayer-funded help if they do not like the rules. The taxpayers did not force the creation of and trading in toxic CDOs, etc. Companies paid big rewards for folks to create the economic mess, and now we are suffering the consequences. People who should have did not want to hear the truth about these sliced-and-diced securities in the late 1990s when I worked in financial analysis, so I got out of that work. The truth was there, but there was too much money to be made for the truth to get out. Unfortunately, most common shareholders have no influence over CEO pay, give that they own stock through funds.

THIS IS A LOT

$500,000 is a lot of money. Very few people in America make this much. So the CEOs should be happy that they are still making more money than even the President of the United States ($400,000). If they are greedy and want more money, let them go. I am sure there are a lot of other smart people who can run these corporations and will gladly accept a pay of less than $500,000.

Mike Zemack

Random:

I specifically said "As long as political force isn't brought into the economic equation, there is no way any company...even one that is the sole producer of a particular product at a particular time...can prevent new competitive entrants."

There is a crucial difference between a market monopoly and a government-enforced monopoly. The cable companies are typically awarded a franchise to operate in a given geographical area--by government. This means, competitors are forbidden by law from entering into that particular market segment. Absent government interference in the market, a monopoly can be maintained only by the voluntary actions of customers willing to buy the products of that company. A market monopoly cannot forcibly prevent new entrants. Citing AT@T and Standard Oil in the same context is comparing apples to oranges. AT&T's market share was guaranteed by law (until 1984), while Standard Oil's share dropped precipitously after the Texas oil discoveries and exploding demand for petroleum products with the advent of the auto industry.

Wells Fargo was one of nine healthy banks called to Washington to meet with Paulson, at which time he "offered" a contract in which the banks must take the money as a "one-time" offer. This was understood by the banks as a threat from the entity--the government--that controls their industry. Wells Fargo immediately resisted, but ultimately signed the agreement. None of the nine banks actually asked for the money. This was reported by the New York Times and other news outlets last fall. It must be remembered that we have a centrally controlled and regulated banking industry. When the people who have regulatory control over your business demand something, you are hardly in a position to refuse. Perhaps Wells Fargo and the others could have taken the risk of refusing the money, but none of the nine banks asked for the money.

As to child labor and the other facts I cited, the source for the information I presented is, among others, the book The Capitalist Manifesto by Andrew Bernstein. And I was specifically referring to the early years of the Industrial Revolution regarding child labor, not 1905. If you can't refute some one's arguments, it doesn't mean you should accuse him of lying.

Frederick Denzley

I know this is BusinessWeek and judging from the number of people posting pro-CEO postings, I expect this much.

It amazes me that they are screaming "the end of capitalism" and calling Obama a "socialist" etc. Dr. Brook rails against government intervention in pay packages.

Here are some facts for your review.

1. All of these CEOs and their failing banks (as did the U.S. automakers) ran to George W and his Treasury Chief, Henry Paulson. Obama merely inherited this mess. It was Paulson who took over and "nationalized" AIG, not Geithner.

2. These CEOs went crawling and crying to DC, not the other way around. These clowns who ran their companies into the ground want our money and still want to do business as usual?

3. How are these guys "talented"? This whole argument about "keeping talent" is a ludicrous. What are these guys going to do, leave Bank A and go and run Bank B into the ground, too?

4. The government isn't running anything. You don't see any Treasury or Fed bureaucrats replacing these clowns. Unfortunately, most of them are still there, still living in denial.

5. Like Obama said, "You reward success, not failure." As a small Apple and Google shareholder, I have no problem that our execs get paid top dollar for their success. Everyone in America (outside of BusinessWeek) does seem to have a problem paying a bunch of hacks at bank holding companies for abject failure.

6. America isn't going to become the USSR or Cuba. Come on. You guys sound like Republicans from the 1930s opposing FDR's new Deal. When all was said and done after WWII, the U.S. was still the land of the free and home of the brave.

7. Finally, these are desperate times that demand near desperate measures. The policies of the past eight years (i.e. laissez-faire and a no regulation have failed miserably). We need to try something new to stabilize a desperate situation.

Dr. Baker gets it, but I'm not sure about Dr. Brook

Andrew

I think all of you folks forgot those "jerks" built a lot of companies, made a lot of money and employed a lot of people. Now the market is adjusting mistakes by itself, and soon we'll see the same smart guys running companies, making money, and employing you "jerks." That's what capitalism is all about, and it'll never be changed, thank god.

joe

With all the unemployment out there, they should be able to hire someone cheaper and start with board of directors who help set executive pay. If you want taxpayer dollars, suck it up. You have screwed stockholders and the American public over the years. We get screwed, no dividend. This country is built on capitalism, and you ever have success or you fail. That's the way it should be.

Midwest

Capping CEO pay of publicly traded companies is well within the right of the government. Corporations, both private and public, are subject to numerous regulations and laws that contain the more base impulses of top management and the public is better off for it. Without limitations, corporations would gladly be dumping toxic waste into our water supply and demanding 12 hour work days at one dollar an hour.

The CEOs of public companies have been treating their positions like they are royalty only subject to the will of God rather than to the will of the shareholders. Show me a single publicly traded company that actually allowed a binding shareholder vote that approved or disapproved the officers pay.

All of the votes now allowed by shareholders to dictate officer pay include loopholes that allow the board to disallow the vote if it goes against the CEO or the wishes of the board.

The notion that shareholders are consulted on CEO is the most laughable aspect of the argument made against containing the pay of these thieves. It simply does not happen.

CEOs of privately held companies can do as they wish and be paid extraordinary sums without the benefit of the mountains of money that come from going public.

The boards of public companies have routinely shirked their duties by not standing up to the officers they are in charge of and demanding accountability, performance and honesty. The directors are at the heart of the issue and laws should allow shareholder restitution in the courts that is not so circuitous and Byzantine that it deters lawsuits or demands for financial accountability.

Stock options must been ended and ended now. CEOs should only receive bonus money from the profits they help drive not from the phantom prices of stocks. The investing public has been taken advantage of for far too long and these self righteous, entitlement demanding cheats should be tossed out on their heads. Their abilities and skills are not commensurate with their paychecks.

Lisa

Instead of giving bailout money to failing, has-been, stagnant, corrupted companies and banks, give startup money to fresh young minds who are dedicated to growing a company and not their wallets. America is ready for new names, those who deal within today's standards, not those of the 19th century.

Like people pass with age, companies die, too. Do people 115 years old need life support? Do old companies need bailouts? Let 'em go on to eternity, to be remembered in the pages of history. The heart has stopped beating, flat-lined, over. Shed a tear and move on.

AndreaF

Capping salaries is a bad idea, and it undermines free market and democracy principles. The only exception is if the banks are fully nationalized, in which case the government can do whatever they want and give itself the job of running them into the ground anyway.

Obama is just looking to win some easy PR points with ignorant people who are jealous of high earners without understanding how capitalism works.

In my view, the market will eventually right itself and bad CEOs will be booted out. The good ones will stay, and they probably won't take bonuses and will be the first to sacrifice part of their earnings anyway.

In this crisis, everybody made mistakes, including the taxpayers. Why would you take a mortgage that you cannot afford? Why would you buy an iPod and a car by borrowing more than you earn?

Yes, the crisis is tough and everybody will suffer, but we brought it on ourselves and this knee-jerk reaction of changing the basis of capitalism is just the reason bubbles and bursts happen.

SA

The current financial crisis has exposed for public view the scandalously exorbitant compensation for CEOs and other top management in the banking business. But this in turn results from an even deeper problem: namely that incumbent CEOs and directors are able to act as if they own the company even though they own only a very small part of it. There is no real control over the company by the real owners (i.e. the shareholders) of most large companies over the selection of the boards of directors and CEOs. The result is a process for "electing" directors which in reality is a lot like the elections in the old Soviet Union: you can vote, but you can only vote for one candidate (or one group of candidates). The Ayn Rand types are simplistic theorists who do not see that this is what really happens in the real world. In the few cases where the company really is completely owned by a family or small group, the owners do control the selection of the management. But in all other cases (i.e. nearly all cases), most of the shares are not owned by a family or small group. In these cases, management is selected by a process completely controlled by incumbent directors and CEO who together own only a very small portion of the shares. This process is "proxy solicitation", where the incumbent board of directors and CEO spend millions of dollars in company funds soliciting "proxies" from the real owners (shareholders). In these proxies, only a single "slate" of people (either incumbent directors or their anointed pals) are nominated to be elected to be directors. Any shareholders who are not incumbent directors who want to nominate someone else to be elected to the board have to spend their own money to solicit proxies from the other shareholders. And in large companies owned by thousands or millions of shareholders, the proxy solicitation process costs tens of millions. However, the incumbent directors (the "management" of the company) spend company funds (not their own personal funds) to solicit proxies, and of course, the proxies they put out name only themselves (or their anointed pals as successors) as nominees for election as directors. This giveaway to incumbent directors and CEOs to spend company funds in this way results from laws and court decisions in pushover states like Delaware. The federal courts have forced other states to give "full faith and credit" to states like Delaware, even though nearly all of the shareholders do not live in Delaware. Only Congress would have the power to undo this self-serving situation. So far, incumbent management mouthpieces like the Business Roundtable have lobbied Congress against doing this (and in doing so have spent still more millions of company funds to finance their lobbying activities, again under the aegis of pushover states like Delaware). So this charade (at company expense) results in entrenched directors and CEO. Then, the next step is that the entrenched directors decide the compensation for themselves and the CEO. And the result is, not surprisingly, outlandish compensation for the CEO and his pals. The Ayn Rand type theoretical notion that this outlandish compensation somehow results from "market forces" similar to the very high compensation earned by some star athletes and movie stars again falls down in the face of reality: The supposed "market" for company CEOs is in reality a rigged market. The CEO negotiates with his pals on the board who are get on the board as a result of the proxy process which he dominates. In total contrast, top athletes and movie stars have to negotiate, and negotiate hard, with hard-nosed and savvy team owners or movie companies who are truly independent and in no way under the thumb of the athletes or movie stars. Finally, the incumbent directors and CEO then spend millions more (in company funds of course) for "studies" by "compensation consultants" who have a vested interest in producing studies which the directors and CEOs want to hear because the directors and CEOS are the ones who choose, and will continue to choose, which consultants are selected for the study and future studies.

Steve Naidamast

Those who believe that America is currently based on any capitalist model have no idea as to how capitalism was developed or the theories created that promoted it.

The United States is an oligarchy that is controlled by the largest companies in each business sector thereby virtually eliminating any real competitive forces in the marketplace.

Capitalism is based upon many small players in a large, level playing field not gargantuan corporations that distort the marketplace as much as any communist centralized planning mechanism.

With this said, capping executive salaries is not a good idea. However, there should be limits on such salaries based upon the disparities between the top most paid in a company and the lowest. This would force executives to distribute the wealth more equitably within their own corporations. And why not? These people work not nearly as hard as the staff to produce such wealth.

In other words the more successful a company is, the greater any one salary may be increased. That being said, the worse a company performs the penalties in terms of salaries must be implemented at the management level so that they are not awarded for poor work.

The idea that companies have a right to provide their managers with unlimited wealth while employee wages and benefits suffer is only held by the most perverse of mind sets, many of which are found in the financial industry who have no other concerns than lining their pockets as much as possible.

It also just as true that those who believe that government, especially a highly corrupted one as found in the U.S., can provide relevant solutions to market and financial problems is just as perverse as those who believe that unlimited wealth is a virtue of the capitalist model.

The government should let the insolvent banks fail so they can be taken over by the FDIC and the people, who knowingly created this crisis, from Greenspan on down should be hauled into federal court on charges of treason since so many politicians are now claiming this crisis to be just as much a national security issue as an economic one.

Ram

The government should never have propped up the failing companies in the first place. The market would have corrected itself in due course. If there was a real demand for products created by the failed companies, that would be absorbed by good companies, which would become stronger during the market correction phase. There would have been a very bad patch during the market correction but that has to happen anyway(today or tomorrow). The government failed us in regulating these bad companies and has postponed the real problem rather than solving it.

Most of the Wall street CEOs(not all of them), on their part, have been very greedy, particularly, in the past couple of years. The board just did not control these CEO's greed. Just see the compensation growth between an average employee and the CEO. There is a huge gap. The problem is, these bad CEOs still do not get it. Just see last year's wall street bonuses. So given the fact that these bad CEOs are not going to mend their ways, there is not much choice, someone had to control their compensation. So the government for once correctly did the right thing by controlling their compensation.

If the CEO was good then their company should never have come begging to the government for bailout money. Even, if the failing companies CEO is good, then if he/she has some ethics, then they would still run the company with the limited compensation. This is just till the company can repay their government loan. So, if the CEO(bad CEO) does not have any ethics then it is good for both the CEO and the company, if the CEO leaves the company. So it is a win-win scenario.

So, I believe capping the CEO compensation is a very good thing but I am not sure, if it will work. These guy's will find some other way to get around the compensation rules. I wish, they put that type of dedication in solving the company's problem.

Julio

What should we do about celebrities and professional athletes? They are not really worth the millions they get paid. I'm sure people would play music and sports for much less.

loris

I think the $500K cap should only affect bonuses, which are the *variable* part of the CEO's income. Otherwise it is clear that all the troubled companies are going to lose their best managers, and therefore deteriorate even more their situation. I wonder how many of the CEO's out there would appear on www.wallofwealth.com these days...

Jason Vorhees

The bank CEOs responsible for this mess shouldn't get a dime from the taxpayer. Quite the contrary--a better use of public money is to publicly execute those responsible for creating these problems.

Kem Cho

What next? Why not go after their benefits and perks? By the way, who is looking after perks given to our elected leaders, appointed bureaucrats, and Congressional leaders? The way members get reelected is no different from executives' staying on the jobs, even though their companies are run inefficiently.

PebbleChamp

The problem with limiting executive pay is that the talented executives rarely get just one offer. If U.S. companies become limited on what they can offer, much of the talent will go where they can get what they want--even if that means leaving the beloved US of A. Corporate execs aren't stupid; most don't mind moving overseas because they can pretty much create their own living environment anyway. If the talent goes overseas (where these limits don't exist), guess who else will follow them? The top U.S. companies that want to hire them. What else will happen? (Give up?) Even more jobs will be shed by U.S. companies going overseas where regulations are less intrusive.

If executive pay needs to be changed--which I think most agree that it does--the emphasis needs to change from constant increases in quarterly earnings to long-term sustainable growth. Unfortunately, shareholders brought much of this on themselves by constantly demanding to see quarterly earnings increase at any expense. Many CEOs made decisions that would cause short term increases in quarterly earnings but were not healthy for their company's long-term growth. All of this, of course, just helped inflate the bubble even more until...pop!

here here

I love this comment, it contradicts itself:

Jason
February 11, 2009 11:41 AM
"I think Obama and his socialist liberal friends should keep their nose out of the private business sector....The government should also buy up the distressed mortgages and give the home owners a lower interest rate "

So must government stay out of private sector or not?

Ok, one way or the other--don't talk out both sides of your mouth. Either government stays completely out or gets involved. The con in this article misses the point. Government is not setting compensation limits on Apple; it's setting compensation limits on companies that are taking bailout money. They aren't "private." If they were, they should raise private capital and not require public (taxpayer) funds to keep operating. These companies agreed to be socialized by accepting public money. The only thing I hate is how government is not nationalizing them fully. The downside risk (insuring bad assets) is taken by U.S. the taxpayer, but the upside (holding toxic assets until they hopefully pay off) is privatized (CEO/shareholders).

Ensight Product Development

"The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." -Ernest Hemingway

John

Three Points:

1. It is 100% legal for any owner to vote to limit executive pay for any company. Aggressive shareholder action is part of the checks and balances to run a company. In the U.S. shareholders have exercised these rights but not recently. In Germany they are much more active and I believe U.S. shareholders are getting more so.

2. TARP funding did not provide shares to the U.S. government so any executive pay caps will be symbolic and limited to the officers. If shares are exchanged in the future, it will be legitimate for the U.S. government to use legal avenues to get shareholders to vote for pay caps. But that is not the case today. The straight of our country is not just doing something that may be right - its using the existing rules to carrying out action--this re-enforces our capitalist and democratic bedrock. (eg: easily applies to Guatanamo Bay also).

3. 500,000 is not extravagant in New York. Our household income salary is 600,000 plus bonuses(we work in economics and I--not finance), our total tax (fed,state,city & sales) is about 300,000, our rent for a two bedroom is 70,000, our nanny is 50,000 and our living expenses are 100,000. So the left over makes us slightly wealthy. I buy into the argument that sure we could move somewhere cheaper and have less expenses on a lower salary but if we all did that then we would just hurt New York in its own competition with London, Shanghai, etc to be a leading business city. And by being such a city, New York generates a massive amount of federal tax. I myself paid maybe a total of 200,000 to the Fed in taxes for ten years in Dallas and now we've paid about 2.5 million in taxes to the federal government the last 12 years. So from a small family that is living in a 1000 square foot apartment, not owning a TV, not owning a car, donating time and money to charity and bringing up two beautiful kids in very cultural city--please don't comment on our salaries when many of you don't give anything to charity, complain about social programs using tax dollars and then borrow excessively to buy huge houses, cars and unnecessary electronics.

jamesinflorida

Any group that takes taxpayer money should be restricted in wages, benefits, and the like. When they repay the money, with some reasonable profit, then they should return to whatever system they wish. Simple really.

Chuck

They could all do with a reality check. I can handle 10 times average employee pay. When it's in the hundreds it's out of order.

Edwin Harrizon

The U.S. Treasury has done in one fell swoop what us activist shareholders have not been able to do in the last two decades: put a cap on out of control executive pay.

Other small time shareholders and I have shown up at annual meetings to speak only to be cut off by some elitist, pompous, clueless, out-of-touch jackass whose only agenda seemed to be how much more money/stock options can I get this fiscal year.

Please don't get me wrong. If an exec has brought his company much success (think of Apple or Google), then I have no problem that he gets paid top dollar.

My problem is with the revolving door of bankrupting a company, collecting a huge golden parachute and moving on. That's what we have to stamp out once and for all.

TomD

That would be fine if the government could show any track record of being able to create economic growth. This mess has its beginning in government policy and interference in the markets. Now those same people are back to interfere further. How is that good?

Cleveland

Executive are overcompensated. Take a look at Costco's CEO, who makes under $600,000. Sure he gets stock, but his realized take-home is chump change compared to the big financial CEOs and automakers and college presidents, etc. I commend him.

David

Enough of CEOs acting like Mafia dons getting a cut of the take. They are employees of the companies they work for. A high, but supportable salary structure is what is needed.

Gary M

Pondering the question alone is sad commentary on Americans' lack of basic economics let alone the principles that produced worldwide wealth and poverty reduction (Socialism never reduces poverty; it simple spreads it around and redefines it as equality). Free people and free markets (cannot have one without the other) is not only morally superior, more just, but more efficient. Telling shareholders what quality of CEO (and the pay they think achieves this) is nationalization and socialist. It's a known, proven, stagnant, killer of human spirit and economic progress. But we are not becoming a Socialist nation--we are one and have been for 100 years--30% of GDP is consumed by government from a few percent in 1909. Note that is what caused the financial mess--Fed policy to create mal-investment and inflation that drove the financial markets off the cliff, not possible without government mortgage tinkering and The Fed. Read up--Austrian Economics

andrew

Those who stick to rigid orthodoxy and talk about how government shouldn't meddle in the private sector are putting themselves in a hard position. The private sector screws themselves over and then runs to the government to beg for money? And then, they insist that we keep out of their affairs? American business is not a full-grown adult; it's a bratty high-school teenager.

QuestionAuthority

"...do we really want America's largest corporations taking orders from members of Congress, government bureaucrats, and professional lobbyists? I think not."

Wrong answer, Mr. Brook. Damned right we do. If another financial company came in and bought these banks out, that new company would be calling the shots, correct? Why should it be any different for the taxpayers, aka the U.S. government?

Once these CEOs pay the taxpayers back with interest, they are free to do what they please within the law. Not before. Our money, our rules.

su

What a joke this all is. Even the U.S. and UK are getting a grip. Give the greedy fat cats nothing because they will be laughing at us all.

Mason Yu Jr.

Great debate and thinking among the participants...if the company fails, the CEO gets nothing except the base compensation and no bonus. If the company makes money, all monies borrowed from Uncle Sam must be repaid first, and then the profits are divvied up. The bonus is to be paid 50% cash and 50% in common stock, not to be sold for three years. This prevents the CEO from cashing in too quickly. Enough $30 million dollar annual pay ways. It is obscene.

Taylor

Yaron is right. I just read somebody on this thread saying "give the greedy fat cats nothing because they will be laughing at us all." Wrong.

We give companies bailouts, and then put a cap on the salary of the CEO. All for what? If a company is desecrated by a CEO, then the company deserves to fail. Period. And the CEO will go down with the ship.

PJB

Capitalism is good, or was good until 10 or 20 years ago. When people lose the sense of responsibility and become greedy to the extent of being evil, something needs to be done. Obama is just doing that. I can't understand why some people can't see this simple logic. You are getting people's money supplied by the government and you don't want them to check how it is spent? Capitalism is there and will remain, but if we find some discrepancies, some rules have to be revised; some checks have to be placed. It happens in every system, and we are just seeing it now, though a little later. These rules are especially necessary for those in sectors that really do not add much value to the society, except to the persons directly involved with them. The very basis of these sectors are greed and intelligent exploitation.

TomF

Regulate CEO salaries on bailout banks-companies: Yes, no doubt. The moment the U.S. government has to bail then out, the terms of private and free-enterprise change for those firms.

Companies can not expect to be bailed out by Uncle Sam (for being mismanaged or poorly run) and still have all the privileges they used to have, can they? They should consider themselves lucky enough to be bailed out in the first place and thankful that they are getting loans--and not going straight to bankruptcy.

If badly managed firms want to receive government loans to avoid collapse, and desire to still call the shots on all their day-to-day operations such as CEO compensation, they are living in Disney World.

you

I think that Obama is awesome.

bob

They make way too much when there are people struggling to stay alive each and every day.

Babiigurl

Go Obama!

Matthew Casey

America is a free market country, but the banks are being selfish with the money that is given to them. No one talks about the debt that the country is in, because we borrow from other countries. The money that is being given to the businesses is not backed up. Gold and silver are at their highest prices in years. Why not use that to back our money? I think that the government is too lazy to mine the resources needed. We argue about who should control the businesses, but the money being used is worth nothing. We are bleeding out the dollar, but for what reason? I also think that the government should not control the businesses' spending and salaries. We should rely on our free market economy to get us out of where we are.

Larry Hammond

Stop bailing them out, and let them fail, including the auto companies. Good leadership will find a way out. If not, new companies will find a way in. We're just setting a precedent that soon will be expected every time a crisis occurs. Painful, but needed.

Rebecca

These "socialist" rants are really unhelpful to this important discussion of CEO pay. As a business owner and investor, I have long thought CEO pay for many U.S. companies is unjustified. The board of directors don't seem to look out for the shareholders, and the result is out of control CEO and executive pay. These salaries clearly don't produce the type of results intended, nor do they avert catastrophe. I have no issue with rewarding for performance, but pay has turned into a right and a company burden.

sue

Let 'em eat lumpfish caviar!

Greg

Under Sarbanes-Oxley, CEOs of big public companies are required by the SEC to certify the accuracy of their financial statements or face a 5-year prison sentence. If CEOs cannot get paid any more than their top executives, then who would want the job of the CEO?

David

Most CEOs have no idea what they are doing. Some do, but most are barely aware of the business they are in. They have destroyed the world economy, held U.S. workers up for ridicule, have come down firmly on the side of the last remaining Communist superpower, and now come begging to the U.S. government for no-strings-attached bailouts. Plus they are still whining about being over-regulated.

Many industries should be reregulated and tightly controlled by government oversight.

We have just endured 28 years of the trickle down theory, and it is time for this farce to end.

The U.S. has gone from an industrial superpower to an E-bay/Staples society. Our largest single export is waste paper.

Now that is something to be proud of.

James

If they don't like it, they don't have to accept the bailout funds, do they? The bailout money is not forced upon them. $500,000 is still a heck of a lot of money considering that the most responsible CEOs have taken lower salaries when necessary and/or didn't get their company in hot water. Quit whining and pay the U.S. government back ASAP so that you can inflate--I mean dictate--your own salary again.

Mike

How would Dean Baker feel if the President decided anyone working for the Center for Economic & Policy Research could only make $10,000 a year?

jack

This is really about corporate governance. Shareholders don't really have a say in what they pay their CEO. For that matter, they are effectively finessed out of the picture in the selection of their boards of directors. Part of this is indeed their lack of interest in anything other than the price of the stock and the dividends. And therein lies the complexity. If indeed shareholders ran the company, their interests would supersede the interests of employees and customers. And the present system allows institutions and incumbent corporate officers to dominate decision making. The Ayn Rand folks might feel comfortable with all this. So, while I have some reservations about government ownership, I sure as hell don't believe the way things are are the way they ought to be. And when an excessively paid CEO screws up a company and still gets paid well, I don't think that speaks well of the present system. So, let's try having the government have a seat at the table and see what happens.

Anony Mouse

Maybe it is high team to let a new blood of CEOs for these financial companies to step in. Tech CEOs ended up doing the same. Take two examples:

1. Steve Jobs--$1 pay, he gets more stocks, if Apple does well, Jobs gets paid; if he doesn't, he does not do as well. Look away from the fact that he is rich enough--he had the sack to show that he believes in the company and himself enough to do that.

2. Marvel CEO--took a pay cut when the company did not do as well.

The Citi CEO also showed the right way to go. $1 pay declared in front of Congress.

Link your pay and benefits to your performance. Simple, effective, fair to the taxpayers who are saving the country's financial system.

Simple solution to keep things simple. If the current people don't like it go take a hike--in prison.

Enron folks screwed up, they ended up in prison. so should these guys.

Prokofy Neva

It's one thing to demand that those taking the government bailout package put a cap on their salaries and perks; that's reasonable, but in no way should government set salaries of independent corporations run by their shareholders in a democratic society with free enterprise. That's an unacceptable intrusion into freedom of association and business.

Man Mohan Kapur, India

Such a cap on salaries of top executives of commercial firms receiving bailout funds out of the taxpayers hard-earned money would be fully justified on merits. The is in implementation. Most such attempts tend to get evaded to a great extent by legalistic advice from lawyers who are always able to spot a loophole.

Still it is worthwhile to impose a realistic ceiling on the salaries and perks of such executives, however harsh their reactions might be.

The second cap seems essential in the case of bonuses and company paid or subsidized junkets.

Think about it.

David Esrati

The $500,000 number is pulled out of a hat--as are Wall Street stock valuations these days. We need to bring some kind of sense to public companies.

1) Large investors (more than .01 of outstanding stock) should have to hold stock for at least a year. Otherwise, it's gambling and causing volatility.

2) CEO pay is limited by formulas involving number of employees, no layoffs, or moving jobs off shore, ratio between lowest paid and highest paid, equal basic benefits--with special exceptions for founders.

If the CEO wants to pay outside the formulas, they must take the company private. What happened to return for risk? The way we have it now, there is no downside to being CEO.

soonhock

Unrestrained capitalism works well if leaders are morally upright and capable. Clearly this is not the case in the U.S.

Many extremely well paid bankers in the world's most overpaid industry are skillful in the wrong things: innovating toxic products, distributing them globally, leveraging to the sky in off-balance sheet vehicles, devising ways to enrich themselves, very well taking advantage of clients, depositors, shareholders, and the general public.

They are a two of diamonds disguised as an ace of spade. Who would want to hire them except their own cronies in the industry?

MSD

If this cap on income applies to all corporate executives as Barney Frank has already suggested, and since we do not want to discriminate as a nation, to be "fair to everyone", then it also applies to athletes, actors, former presidents with speaking engagements,and everyone else.

Corporations do not exist for the sole purpose of providing jobs and being a source of tax revenue for the government for the government to redistribute, as much as the liberals would like to believe.

People are paid what the person hiring them is willing to pay for their services. If their talent and skills are worth little or a commodity, they are paid as such. Last I checked, it was a free country and people could pursue the career path of their choice. It is not up to the government to unilaterally decide what jobs are worth and how much can be paid.

Andrew Timothy

I can only sum up the current state of affairs in America in one sentence, "Socialism for the rich and capitalism for the poor."

The rich will always get bailed out of their indiscretions, but the poor will have to suffer the consequences.

MC

Bravo Obama! Give me a break. $500,000 is poverty. These fat cat CEOs have been severely overpaid and are not providing value. They are undercutting their employees that do bring value. The truth is these CEOs don't want to associate with the "riff raff," because they believe they are too good. I think they need to be knocked down a few pegs. It's gotten out of control. You act irresponsibly then you get the government involved. It's the same with speeding--driving recklessly--no one bothers you until you do something wrong: Obey the "rules" and you should be fine. These guys have been violating standards for many years. It's time to pay the price for their greed and snobbery. They are no better than anyone else.

sumi cue

And what is the "American Way?" except that when the going was tougher, Americans reacted most calmly and focused just as during the New Deal Era and after World War II. Americans' reaction to our present crises had not been more pronounced when they elected an American of biracial heritage, educated through a civil rights bill the conservative critics considered as a part of socialist agenda of the country's liberals. I say, liberal or not, what is being done is grounded on the most fundamental ideas as proposed by the founding fathers of this land: liberty and justice for all. Misnomers and slogans predominated the debates between the conservatives and the liberals that pinned in between are the welfare and well-being of mainstream Americans who call themselves the middle-income Americans. The abuses of powers exercised by those who call themselves conservatives have created a new breed of young Americans who, now more than ever, must practice vigilance to make sure those who benefited in the excesses of the last Republican administration shall perish on the face of the USA if not the world. Corruption spawned by ignorance and sheer lack of intelligence and intellect allow short-minded, inept politicians to take hold of the country's three branches of the government. It was like a nightmare--a lesson the next generations of Americans have well learned. Salary restrictions for inept CEOs and executives are the consequences of the economic meltdown caused by their own ineptness and greed. Salary restrictions for CEOs are just and fair at this time and period in America. God bless the USA.

Rob

To all the dreamers in "free market space": Most of the U.S. economy is not "free market" but an oligopoly, and that's why we're bailing out all these companies that are "too large to fail." Since they're not really operating under free market rules regulation is fine by me.

Also, regarding the $500,000 salary cap, my understanding is that there's room for substantial more income for the executives via equity if they can actually manage the company so it's profitable.

Another John

Cloud Downey stated, "Anyone with the ability to turn around a company with tens of billions in debt wouldn't touch the job for $500,000 even if there weren't Washington spooks crawling through the conference rooms to 'guide' the decisions of importance in the name of 'transparency.'"

Though it sounds reasonable enough, it simply isn't true. Most capable people would not take the job at that salary because a successful turnaround could net shareholders (be they public or private) significant returns. So, the logic is why make others rich with your know-how ability and you get peanuts for your efforts? Hmm...

Garrett

Salary restrictions are just a way to avoid making tough decisions, and ultimately will cause a weakening of Corporate America.

Instead of cutting executive pay, we should be firing executives who are incompetent, replacing them with competent executives, and paying these competent executives large sums of money to keep them here at home creating American jobs, boosting the American economy, and returning America to the corporate powerhouse it once was.

Instead, we leave incompetent executives in place and limit their pay, virtually guaranteeing that the competent U.S. executives will take jobs with international companies that are not limiting executive pay. Then we pat ourselves on the back because we have, once again, punished the Undeserving Rich. At the cost of having the Deserving Rich take their U.S. dollars overseas.

Kat

Okay, want a compromise? Accept a bailout,and take the $500,000. Face it alone and succeed or fail, like we should be letting them all do anyway, and do as you please. Seems reasonable to me.

My real question is--when did our economic structure define our nation? Restricted or unrestricted marketplace, oversight in place or not, that isn't what makes the United States the nation it is. We became a nation to do as we saw fit for our own people. And clearly what has been done for the last eight years was the wrong thing, so let's try something else.

Oh, and laughs at Kelly. Better jobs in the industrial age? Yeah, again for the elite few. Most working Americans were living in squalor, barely scraping by on the low wages, and were working in dangerous, dirty conditions (oh, and child labor anyone?). The market created by the industrial boom was what helped form the middle class and an age of consumerism. But for the working man it wasn't until the unions and, uh-oh, the government stepped in to lend a hand did the conditions improve.

Erik

Why am I working so hard in business school just to settle for $500,000?

The American pursuit to "make it big" is the driver and has been the driver for America's economic success for over 60 years. Reducing incentives will decline worker and student morale, slow innovation, and ultimately hinder economic growth.

Alex

If you are a bank and are using taxpayers' money to operate and even survive--it seems only fair banks will need to deal with some increased level of regulation. Considering the billions worth of bonuses that are paid out while those same banks are in ruins and losing billions more, it's shameful. Nobody should be receiving bonuses at a time like this.

Rick

@ Erik, your comment is actually cynical and an embarrassment for all righteous people making genuine efforts in their professional and educational endeavors, way beyond the simple-minded "make it big" drive.

I was working hard in business school (along with many of my co-eds), perfectly aware of the fact that the odds of ever touching a paycheck of half a million a year (now let that sum sink into your mind for a moment) are about 1:500,000. With that kind of salary anybody could comfortably retire after 10 years in service, even in the USA. The sad truth is that you don't even need to work hard to "make it big" if you're lucky enough to be well established in a nepotistic circle.

I reckon the "socialism" paranoiacs need to go back to the drawing board and acquire a sense for proportion. Standing by and silently watching a handful of so-called business gurus recklessly deplete and hemorrhage nearly entire economies into their private pockets (into offshore accounts, etc.) was in fact one of the mechanisms of Communism in the 20th century. The only difference is that in a democracy you have a majority of voters who have the choice to condone this or to demand more transparency from their government when the livelihoods of the majority are compromised.

"Any intelligent fool can make things bigger, more complex, and more violent. It takes a lot of courage and a touch of genius to move in the opposite direction."--Albert Einstein

skohl

If the government is going to bail out bad managers (which is what it is when you go under because you made bad loans), then the government gets to tell those people what to do and how. Period.

I'm a Republican, and I'm disgusted by the hypocrisy of the "free market" crowd that now wants bailouts--now that they've tanked our economy and stolen from all the investors who weren't in charge.

The little guys pay and the big guys walk away? Disgusting.

skohl

I'll add that if the Republicans didn't like the bad loans that were being made, why didn't they yell and scream about it before the economy tanked? Anyone who wasn't being vocal before has nothing to say now.

Socialism isn't the answer.

But neither is corruption, which has obviously permeated the financial sector, or this wouldn't have happened, would it?

David

Erik, you are working hard in your business classes so you can live an enjoyable life. I'm sure if the choice came up between a $500,000 dollar job and a job flipping patties, you'd rather take the higher paying job, right? So it doesn't really matter if the pay has been restricted--you'd still take the job, unless you wouldn't like being paid that much in which case I'd say you'd probably enjoy flipping patties.

LooneyinCA

Simple. End bailouts and require 100% full disclosure. No government involvement, just full disclosure.

It's a dog eat dog world. I don't care how many people you employ. One large corporation will fail, and 100 small efficient ones will rise up. If their are no bailouts, shareholders will act. Heads will fly.

Kirk

It is fascinating that the government (who exists on the public dole) is dictating to others how much its executives need to be making. Let's just jump directly to central planning and we can call ourselves China. Perhaps people can only be 6 feet tall, and maybe only get two A's on a report card, and maybe only iron their clothes three days a week. Maybe politicians can only raise $500,000 to run for office. Maybe they will regulate cholesterol and 3 point shooting percentage while they are at it. Obama, Obama, it is not that he says this stuff, but that the news reports it. Stop passing on ridiculous ideas.

JohnPaulson

The socialism hyperbole is getting old.

Corporations that requested and received taxpayer money should certainly have government oversight (including executive pay limitations).

These are loans to failing corporations, not a start-up VC loan.

If private investors lent a significant amount of money to these corporations to help them survive, they would certainly place conditions on the operations of the business (and no one would care).

Once the company pays the loan back, the oversight and any restrictions should, obviously, cease.

It's your money, folks!

max R

Socialism may be hyperbole, but at the same time this is absolutely crazy. $500,000 is not even enough to raise a family in relative comfort in many major cities.

$10 Million is a reasonable maximum allowance for the CEO of a bank or publicly traded company. Perhaps $5 million for executives at a company receiving federal aid. Anything less than that is criminal and will result in a huge loss of value for stockholders and tax holders alike. Why? Because All the smartest and most experienced professionals will leave, and the banks, AIG, and everyone else will be run by the same kind of mediocre talent that climbs the ranks of government.

Take this example:

If I were going to spend $1 billion to build a huge basketball stadium for a team that was not profitable because their stadium was out of date, then I wouldn't try to save some extra dollars by getting my players from the D league. I would spend $30 million a season on signing Lebron James to ensure that the $1 billion I just spent wasn't all for nothing.

Talented bank CEO = Lebron James.

Vince

I think it's a good idea.

If these guys were truly capitalists, then economic Darwinism dictates that these companies should fail. Instead they want socialized losses and privatized gains.

Rick

By the way,the mess was in fact caused by mediocre talent--or should I say blatant incompetence?--in positions where remunerations defy imagination and the air was apparently too thin to hear the warnings from true talent in the ranks below.

It is beyond me how certain people still have the naivety to deny the fact that a high price tag does not necessarily equal high quality.

JohnPaulson

Max, I live in a major (Houston), and I can assure you $500,000 is certainly enough to live in "relative comfort." Sure, it's not concurrent with typical bank CEO pay, but then again, they're asking for my money. What you're saying is quite sad.

These guys have already amassed millions of dollars from years of pay & compensation packages. I'm sure they'll manage just fine with a temporary salary cut.

Siobhan Devlin

I agree that capping salaries and or limiting bonuses to execs who fail to deliver profit is only fair, particularly when American tax dollars are being used to keep these same execs in a job.

Although I'm sympathetic to those who take a "sink or swim" view of corporate America, the U.S. does not exist in an business vacuum. It is naive think that bad American corporations will be replaced with better American corporations if they are simply left to fail: Economic Darwinism doesn't really make sense in a global economy. I don't think any Americans (on the left or right side of the fence) Chery Automobile Co.( http://www.cheryglobal.com/index.aspx ) to replace General Motors.

wil

I think the shareholders should vote the pay for the board and executives. They should base this on how the executives have achieved the goals of the corporation for the year as well as the five and ten year goals. There should be no cap on the amount of income that Social Security and Medicare contributions are taken. Stock options and stock should be taxed on the true market value when issued.

David

How the CEO came to make 10 times as much money as the other employees:

It was a warm spring morning in Oakwood Forest, and entrepreneurship was in the air. Bear and Fox decided that today would be a good day to start a company.

Bear hired ten squirrels for his company and made one of them CEO. He paid both the worker squirrels and the CEO squirrel one acorn per day. Fox did the same thing, hiring ten squirrels (nine workers and one CEO) and paying each of them one acorn per day.

Business was split equally between the Bear's company and Fox's company.

Business continued as usual, until one day Fox had a brilliant idea. He decided to pay the CEO squirrel 10 acorns per day. The CEO squirrel didn't do any more work than he used to. He just got fat. But the other squirrels started working like crazy! They came into work early, ate lunch on the job, and worked late into the night. Some of them slept at the office. Others stopped going on vacation. All of their squirrel spouses grew quite upset and most of the squirrels working at Fox's company had sad squirrel divorces. All to have a better chance of being picked as the next CEO. But business was booming and Fox's company, with its highly productive worker squirrels, drove Bear's company out of business.

This is called "Tournament Theory" and it explains why CEOs (and partners, upper management, etc.) are paid so much more than average employees.

Moral: Pick your own acorns.

http://american-fables.blogspot.com/

langen

The arguments presented here are so full of half-truths and omitted details that it isn't funny. To those that claim that we have had unrestricted capitalism before, consider that tariffs might have been in place to "protect" business interests from foreign labor and companies. How then, is the government not affecting the market during those times?

Furthermore, those of you wanting less government intervention, consider the effect that reduction of government "social welfare" programs would have on costs of business. Schools, roads, police stations, fire stations, and courts would need to switch to for-profit models. This would mean enrollment costs, tolls on roads, and direct payment for protection. You think corruption is bad now? Would anyone's interest but the wealthiest be served by courts who were paid to adjudicate? Then think about how services are typically charged in this country, and how this would lead to further income-class division. Do you really want to live in such a place, where everything you do must be paid for, sometimes in advance of you actually having any experience doing it?

If there was a cap, companies could also use the resources freed up to attract more labor, or invest in more R&D, or bulk up their legal department. Or they could reduce the cost of their products to their customers.

To David's argument, working harder does not necessarily mean working better. The argument leaves out all the damaging effects of stress to the bottom line, such as absenteeism, work-related injury, and impaired decision making.

A salary cap is not necessarily a bad decision, provided the salary is not expected to be spent on business related expenses...

AntoinetteRyan

People in all countries take the personal loans from different banks, just because this is simple and comfortable.

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