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Archive for February, 2009

Even though government may have a philosophical right to do something, that doesn’t mean it should

Posted by Chance on February 10, 2009

First of all, if anyone still reads this blog, I sincerely apologize for my very infrequent blogging. Part of the reason is just being busy at work. More importantly, however, is the birth of my baby girl Abigail. My wife and I no longer outnumber our kids; we have a family of 4 now.

Onto other stuff. I am a free market advocate, but I didn’t have an immediate problem with the idea of capping CEO pay for banks that take bailout money. After all, if the government pays the bill, shouldn’t it have some say in how the money is spent? From a philosophical standpoint, yes. (I should note that I completely oppose any current bailout or typically any financial assistance from government, though I could probably make an exception for events beyond control, i.e. airlines after 9/11) However, I started to think about it. Ideally, the government, and the people, would want the companies to get back on their feet. If paying a CEO a high salary is the way to do it, shouldn’t we let the company do so?

This blog sums it up nicely.

Companies that take government assistance do so because they fear going bankrupt. Sometimes that is because they were badly managed by the CEOs and other executives in charge. What many of these companies need are new executives who can take a fresh look at their problems. Unfortunately, pay caps that leave total pay considerably below what able executives receive in other companies make it more difficult to attract these executives to companies in distress because they can earn more, and work with considerably less government interference, in companies that do not take or need aid. Moreover, severe limits on severance pay help to lock in incompetent executives who then might refuse to leave voluntarily because they would not receive any significant financial incentives to leave.

With high risk should come high reward. Why would a brilliant, qualified CEO take a position at a failing bank; where stability AND pay are low?

Hat tip to the Market Power Blog.


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