Get Ready for the Pay Czar

The Associated Press story put it in stark, clear terms: Democrats on the House Financial Services Committee said Thursday the administration's efforts to hector the private sector into reining in executive pay might not go far enough.

Now, this is after naming a Special Master for Compensation to make sure that the pay and bonuses of executives for companies that needed to be bailed out is not over the top. As I mentioned in a previous article, this is a fine, populist move, but hardly an economically practical one unless the entire playing field is leveled by across-the-board wage controls. Now, as if fulfilling a prophecy, we have this: [Congressional] Democrats and administration officials agreed that companies across the private sector need to adjust compensation practices to avoid damaging the economy.

Right now, they are talking about ways to have the shareholders of these companies make the decisions about executive pay, and if it goes no further than that, they might be on to something. After all, the executives—right up to and including the CEO—are just employees. Sure, they make lots more money than anyone else in the company and they have all sorts of perks, but they are employees all the same. The shareholders are the owners. They ought to have a very strong voice when it comes to determining the pay of their company’s executives.

There was another idea worth considering, new administration guidelines that call on all publicly held companies to link compensation to long-term performance rather than short-term gains. "We believe that compensation practices must be better aligned with long-term value and prudent risk management at all firms, and not just for the financial services industry," said Gene Sperling, a counselor to Treasury Secretary Timothy Geithner.

Two great ideas, but that is really not the point. Executive pay did not damage the economy regardless of what Obama and his Congressional minions claim. The damage to the economy came from short-sighted but socially laudable programs that put people into mortgages they could not afford on the mistaken idea that the real estate boom would last indefinitely. It was further exacerbated by poor government oversight and an abandonment of the regulations that ensured fiscal safety and stability from the Great Depression onwards. These were political decisions made by politicians pressed by lobbyists from the financial sector and made for political purposes and personal gain. Sure, executives made a lot of money, and they made decisions that would guarantee even more, but it was not their pay that was at the center of the problem, it was the environment created by Washington politicians of both parties that opened the door to the abuses we now have to clean up.

Capping the compensation for executives in firms that received bailout money makes sense. The tax payers are part owners of these companies and so they ought to have a say in the pay and bonuses of the executives. That, by itself, should be enough to keep any company from taking any government money at all. However, this notion that the executive pay for all firms across the private sector should be subject to controls for the good of the economy is ludicrous.

Executive pay regulation is just another in a string of political decisions that have little to do with helping the ailing economy but everything to do with furthering the political ends of the American Left. It is really little more than a ham-handed populist tactic designed to garner support among an increasingly unhappy citizenry for Obama’s big government policies, a way for him and legislators like Barney Frank to be able to identify with the proverbial “little guy.” Of course, Obama and company will argue that they are doing the Lord’s work and that everyone has to sacrifice. All he wants to do is narrow the gap between the workers and the executives and since he can’t raise the workers up, he will push the executives down.

So, to recap, corporate greed as typified by high executive pay—not a long string of harebrain political decisions—damaged the economy. Lowering that pay across the private sector is good because it will A) Save the economy; and B) Narrow the gap between the executives and the janitors. Well, if all that is true and righteous, then there should be no problem whatsoever in following the advice of the Workforce Fairness Institute: Apply the same caps to the executives of the labor unions. In a story by Amanda Carpenter for The Washington Times, we learn that a 2008 Hudson Institute study that suggests unions have short-changed benefits for their rank and file in favor or generous executive compensation packages and to pad the coffers of their political allies, who are mostly Democrats.

According to the study cited in the article, the 21 largest unions’ pension plans had less than 70% of the funding needed to meet their obligations, and none were fully funded. Seven were less than 65% funded. Yet, in spite of this, 23 officer and staff funds from the same unions were 88.2% funded. Seven were fully funded plans and another 13 were at least 80% funded. Isn’t this the same sort of financial malfeasance and gross underperformance that has corporate executives under attack? Where is the outrage in Washington over how the “little guy” is being cheated by the “fat cats”?

The Bottom Line

It is not there, union bosses are above reproach these days since no one in the current government is going to go after their benefactors in the labor movement. This is more than mere politics; however, it is damning proof that the executive pay cap issue is nothing more than an unconstitutional ploy to win some votes and initiate some of the Left’s long sought after social change by vilifying a certain group of people in the finest Saul Alinsky tradition. Seeing that this is a recipe for disaster, Representative Tom Price of Georgia, chairman of the Republican Study Committee, summed it up perfectly: "The president cannot continue his heavy-handed meddling in the private sector and expect it to function, much less flourish."