The orders capping pay at the seven biggest TARP recepients are unconstitutional, Michael McConnel writes in the Wall Street Journal this morning.
The problem with the orders is that they were signed by Kenneth Feinberg — who currently holds an unconstitutional office.
The pay czar was appointed by Treasury Secretary Tim Geithner to carry out the mandate Congress gave to him when it passed TARP. The bill authorised Secretary of the Treasury to “require each TARP recipient to meet appropriate standards for executive compensation.”
But it didn’t authorise him to appoint a “special master” to carry out this authority. So Feinberg’s office is unconstitutional.
The constitution is rather picky when it comes to the way government officials can be appointed. It requires “Officers of the United States” to be appointed by the President and confirmed by the Senate. If it choses, the Senate can exempt certain “Inferior Officers” from this requirement. But Congress never exempted the Pay Czar.
While somewhat more disputable, Mr. Feinberg’s is probably an “inferior” officer, defined as one subject to supervision and removal by a member of the cabinet. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.
But Congress has not done so. On the contrary, it vested the authority to implement TARP’s compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an “officer” properly appointed “by and with the advice and consent of the Senate.”
… The power to set compensation at large American businesses is especially subject to potential abuse, favoritism, arbitrariness, or political manipulation. It is no reflection on Kenneth Feinberg, who has a sterling reputation and who appears to have approached these sensitive duties with a spirit of commendable integrity, to say that the checks and balances of the Constitution should be scrupulously observed. They were not. Because he is not a properly appointed officer of the United States, Mr. Feinberg’s executive compensation decisions were unconstitutional.
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