Good Honest Dollar $$

Contrary to the opinions expressed from certain quarters within the business world, the U.S. government is right on the money in seeking to place limits upon executive compensation in firms who receive government assistance as part any bailout of financial institutions.

American taxpayers should not have to subsidize mass exit packages for executives whose firms have failed to deliver acceptable results.

An in-depth examination of specific proposals is beyond the scope of this discussion. However, I do wish to comment today on the general issue of whether the American Congress should seek to intervene in relation to executive compensation at firms which participate in any taxpayer-funded bailout.

  
Generally, the government should stay out of it …
In general, governments should not intervene in the process of determining appropriate compensation arrangements for executives in private sector firms.

The process of determining fair and appropriate structures for executive remuneration is extremely complex, and a high degree of flexibility is required for corporate boards, acting on behalf of shareholders, and the executives concerned to negotiate compensation packages which are appropriate in the context of the individual firm concerned.

Governments are in no position to intervene in this process. Indeed, any significant level of government intervention would most likely entail unintended consequences, and could, in many cases, be detrimental to the objective of achieving reasonable and fair compensation arrangements. This is particularly the case particularly if the intervention resulted in an overly prescriptive, one size fits all approach.

Moreover, any intervention should be limited strictly to firms participating in the bailout. Under no circumstances should it apply to any other firms. Nor should it be used as part of any wider plan to increase the level of government intervention in relation to the broader issue of executive compensation structures.

  
… but not when taxpayer money is involved
But things are different where taxpayer money is involved.

Governments, as custodians of taxpayer funds, are obligated to ensure that such funds are allocated in an appropriate manner. Support for the financial system may or may not be an appropriate use for taxpayer funds, but the payment of grossly excessive compensation packages is not.

Wall Street should accept this. Taxpayer bailouts should, and do, involve consequences. One such consequence is a significant increase in the importance of the general public as a key stakeholder, and this necessitates a much greater degree of public scrutiny and accountability. This includes the area of executive compensation, which must not exceed levels which are considered to be fair and appropriate from a public viewpoint.

Firms cannot expect taxpayer help without accepting the associated consequences.

To be fair, I have no doubt that each of the individual executives concerned devoted considerable effort toward their employment responsibilities. But compensation should be proportional to outcomes, and given the extent to which negative outcomes have had an adverse impact on American taxpayers, limits on compensation are more than fair.

  
In short
In cases where firms receive taxpayer assistance as part of any Wall Street bailouts, sensible government intervention to prevent excessive remuneration is justified.

American taxpayers should not fund mass exit packages at firms which have failed to deliver acceptable financial outcomes.