A great debate is brewing on a Harvard Business Publishing blog devoted to the question should government have a hand in setting executive pay, as the Obama administration now proposes.
My answer: No, of course not –enter weasel factor — except in this case, where company executives accepted government funds with the understanding that compensation was a hot button, must-be-addressed issue among taxpayers.
The Obama plan would allow a pay czar to review compensation of the 20 top executives at seven of the largest bailed-out firms: Bank of America, CitiGroup, AIG, GM, Chrysler, and the two financing arms of the car companies. (It also offers legislation that would grant shareholders a greater but non-binding say in how execs are compensated at all publicly traded companies.)
Doesn’t Go Far Enough
Here’s the rub. As far as some academics and members of Congress, such as Barney Frank (D-Mass) are concerned, government control of executive pay must extend to many companies — not just bailed-out ones. This has been a real debate in Washington D.C. this week. Their bottom-line argument: Business compensation programs have become so encouraging of risk-taking that they hurt not only investors but the economy and taxpayers as a whole when things go awry, such as in the subprime mortgage mess. The remedy can only come from government.
Here’s a pro/con sampler from the forum at Harvard Business Publishing:
Pro Controls: “Let’s get real. Outrageous pay is not the answer and its not inhibiting our best performers. It is only inflating the cost of luxury goods and increasing the visible gap between the haves and the wish-I-haves. Stockholders are not benefiting from overpaying CEOs. And the bubble that created overinflated prices and unsustainable business models also created overpaid CEOs and other senior execs… Regulation could level the playing field.” –Harvey Summers
Con Controls: “Legislating and regulating executive compensation has the capacity to do real damage. Our research has shown that the traditional executive pay model using cash and stock incentives continues to work for the vast majority of companies… In general, high-performing companies’ CEOs get paid a lot, and low-performing companies’ CEOs get paid much, much less.” –Ira Kay, global practice director of executive compensation consulting at Watson Wyatt Worldwide.
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