Horror In CEO Suite: Bailout Pay Capped At $500,000


CEO pay at companies that take huge helpings of taxpayer bailout money will be limited to $500,000, people familiar with Obama’s plan tell the New York Times.  No bonuses, either.

Given that many bailed-out companies were reluctant to make such symbolic gestures themselves, this is inevitable and understandable.  Unless it’s just temporary, however, it’s also a horrible plan for the economy, the country, and the companies in question.

Why is it a horrible idea?  Because the government should not be making politically motivated operating decisions at private companies, and because the caps will incent CEOs to do everything they can to avoid taking government money even when their companies need it.

What would be better? Put the banks into receivership, chop them up, and dispose of the parts. Same for the car companies, which appear headed for disaster. We’d rather buy companies at firesale prices with our tax dollars than pay elected politicians to tell those companies how to run their businesses.

The caps won’t be retroactive (if you already got your loot from the Bush administration, you’re safe), and they also presumably won’t apply to stock compensation, which is where CEOs make most of their money, anyway.

But still, it’s a bit of a change, and compensation consultants are already crying poverty:

“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”

The big question: How long will it last?

Vikram Pandit and Ken Lewis might put up with chicken-feed for a year or two to help convince the public that they’re not monsters, but they’re unlikely to put up with it for longer than that. Whoever takes their place isn’t going to put up with it for long, either. And forget about bringing in someone talented from the outside.

See Also: Administration “Tying Itself In Knots” To Avoid Doing Right Thing