As if we needed any proof of the fact that arbitrarily cutting salaries drives away top people.
It turns out that a quarter of the execs targeted by our new Pay Czar Kenneth Feinberg jumped ship before their pay cuts were even finalised.
At some firms, it was even worse, with almost half the top people bailing.
Where did they go?
To their old firms’ competitors of course where they can command market rates for their work.
Washington Post: Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
“There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”
At Bank of America, for instance, only 14 of the 25 highly paid executives remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.
At American International Group, only 13 people of the top 25 were still on hand for Feinberg’s decision.
Shareholders of the companies affected, such as Bank of America (BAC), Citi (C), and AIG (AIG) should be furious. Executive salaries aren’t threatening the sustainability of these companies, proper management going forward is. So why is the government making it harder for these companies to hire and retain top people?
While many of these companies’ old execs may have take their eye off the ball in the past, one must understand that these pay caps will deter future leaders from joining these firms. Thus it is destructive to shareholder value, which means it is destructive to the taxpayer, even if taxpayers unfortunately support these draconian measures.
And the great irony, of course, is that U.S. taxpayers are some of these companies’ biggest shareholders. As if we needed more evidence that government command-and-control just screws everything up.