The Obama administration is undertaking steps to reign in lunatic corporate salaries for CEO’s and others in corporations that have taken federal bailout money. It’s about time, in fact it’s past time, but this move should be welcomed by every investor, employee, taxpayer and customer. This isn’t a socialist inspired policy, it’s a free market move.
Zeusiswatching is unapologetically a capitalist and Republican blog. This is also a blog that is willing to give credit to whom it’s due and President Obama deserves a word of thanks for getting a grip on this problem. A real capitalist should welcome his moves, at least in the short term, for insisting upon accountability from companies that are on the biggest, and to date the most questionably managed welfare program ever enacted.
In the first place, investors don’t put their money into businesses to principally enrich the hired help. That help, especially at the uppermost levels, is there to run the business profitably. The banks, automotive manufacturers, insurers and others who have taken bailout money have by and large not run their businesses successfully or they wouldn’t have gone begging for gigantic handouts. Investors put their money into the market with the intention of earning returns on their investments.
The execs. taking bonuses from depressed businesses are taking money off the bottom line . It’s investors and lower ranking employees who are both getting the shaft — and generally the consumer too. Frankly, if CEO’s are taking huge bonuses rather than investing that money back into the company, both the investor and the taxpayer should be worried about ever getting their monies back. It’s at least cause for concern.
Now almost certainly at this moment, a writer on the political right is typing furiously away at the keyboard decrying the “socialistic” control of compensation by big bad Obama or some other drivel. The argument is wrong. These firms are recipients of taxpayer money and as such, taxpayers have a stake and a say. If the corporations that have taken the money want to pay it back, then that should happen. If these corporations continue to take government assistance, then like recipients of welfare to work programs so beloved by conservatives, these companies too must take direction.
There is a lesson for investors in this. In the long run, executive level compensation is something that investors must start thinking about seriously. Good employees are worth a great deal of money, even in a bad economic cycle. That said, an executive taking a huge payout should always be answerable to the people who own the company. That includes the small shareholders. That also includes the bondholders, people who don’t own the firm but take a risk lending to a company that should be shoring up the bottom line, investing in new markets, and cutting costs, not services or the quality of goods as top level employees take money out of the bank for themselves.
October 23, 2009 at 02:33
Thanks for visiting my place at 27th Street, and hi from Toronto. cheers.
November 9, 2009 at 17:10
Executive comp is an interesting problem for the capitalist system. Theoretically, the board, who reports to the shareholders, is supposed to control compensation. Practically, most boards are beholden to management, and thus approve these outrageous pay packages. But small shareholders (like us) have no influence on the board, and the large institutional shareholders have historically been loathe to use their influence, partly because they are often competing to win the pension/cash management business of the same companies. So the market clearly isn’t working. I would argue that if the government steps in to fix market failures, that is regulation, not socialism. Obviously the details of how the market failure is fixed are important, but calling all government activity “socialism” is just fear-mongering.