Salary Caps Make Me Laugh

Anyone paying even moderate attention to the headlines during all these bailout and bankruptcy hearings will be aware of the focus that’s been placed on executive compensation.  It’s an interesting topic.  In a crisis like this the public needs someone or a collective group of people at which to point the finger of blame.  Executives are easy targets because, in the public’s eye, they are the ones who have were responsible for the risk their firms were taking and should be the ultimate decision makers for a given company.  The fact that these executives have taken home exorbitant pay checks during the run-up to the crises makes the public even more irate at the lifestyles of these top dogs.  Sure, Joe the Plumber is probably a little irked at losing a significant portion of his retirement during the past few months; but if Joe’s retirement was invested in stocks and commodities then stiff cheddar, there’s a reason that stocks have returned in excess of bonds since the beginning of time and it’s called risk.  So if you invested money that you couldn’t afford to lose in the short-term, dry your eyes and tell your story walking. 

But that’s really beside the point, back to executive compensation…  I have no doubt that the American public is struck with a little jealousy over the inordinant amount of money collected by the top brass of American corporations.  If you’re reading this can you honestly say that you wouldn’t like to be collecting the median executive pay packet of $2,050,000?  I know I can’t.  Am I jealous?  I don’t know if jealous is the correct verbiage.  I have a certain amount of respect for someone who’s made their way up the corporate ladder of an American institution: they’ve no doubt endured many years of big-company-bureaucracy and politics to make it where they are; they’ve probably had to gain entrance to one of the nation’s top postgraduate business or technical schools along the way, which is no mean feat; and it’s likely they’ve had to work a great deal of 80+ hour weeks during their decades-long career to make it into the Golden Parachute Club.  Should the big wigs have understood a little more about the asset-backed securities their firms were underwriting or buying?  Yep, it would have been nice.  Could the compensation structure of the big banks’ money making engines be revisited to reassess the conflict of interest between risk taking and protecting shareholders?  Yeah, that’s possible too.  Is it necessary for the executives of these corporations to have private jets in which to whiz about the world?  No, I don’t really think so.  But I can tell you one thing, capping the compensation of executives isn’t really going to solve anything. 

American society feeds on greed.  It feeds on greed and competition, which is why it’s viewed by many as the epitome of a capitalistic society.  No other society in the world collectively strives more to achieve more, acquire more, win in the the face of adversity.  It’s a broad generalization, and I don’t think necessarily it’s a bad trait, it’s one of the reasons that such a massive proportion of our planet’s wealth is concentrated in the hands of so few; but it is one of the tenets of American society and the reason that capping executive compensation is going to be gone with the wind as soon as the USA realizes a quarter of positive GDP growth.  Why?  I’ll tell you why.  For the same reason that the cheapest gas station in town is always the busiest, the reason why comfortable middle-class citizens will drive five minutes out of their way to save $0.02 per gallon to fill up their vehicle.  If a successful executive has their salary capped or even cut this year they may stay on as a sign of good will, the may consider it a challenge to right their ship after such an economic crisis, a way to repay their shareholders for years of taking home million of dollars worth of compensation.  But I can tell you one thing: executives that have had their pay cut or capped won’t be around for years to come if their salaries and bonuses continue to come under scrutiny.  They’ll just walk down the street to the next cash-rich giant that hasn’t used bailout money or doesn’t have shareholders who are overly concerned with the pay packets of their big wigs.  That’s what this society’s built on, if Americans didn’t always strive for more we wouldn’t be reading about inflated salaries and bonus pools in the first place.