Sunday, November 1, 2009

When a Deal is Not a Deal

I am not a big fan of outrageous salaries. 99.99% of Americans will never get the opportunity to earn fat-cat paychecks of 8 or 9 figures (that’s $10 to $100 million a year or more), and at first blush, some of these compensation packages seem downright un-American.

However, this is America is it not? This is the land of opportunity where anybody who works hard and is fortunate and honest can achieve their highest aspirations whether it be President of the United States or just plain old filthy rich. Last time I checked being rich and successful is not in and of itself illegal or even un-American.

I must admit I have found myself even pondering the notion that I could run a major bank, or a telecommunications firm, or an insurance company. Yeah, two years at $10 million or more ought to do it. Then I could retire without a care or worry in the world.

But, do I really want to be responsible for thousands of employees and millions of customers, or answer to the stockholders and regulators, or fend off con artists and groupies, or work 18 hour days without a day off, or feel like everyone around you only likes you for your money? No, the money sounds nice, but that is where the appeal ends.

So, what is it with America’s fascination with corporate salaries? Why is it that we all feel that nobody in business should be making that kind of money? And it is big money. According to the AFL-CIO, Americas 100 highest paid CEOs start at over $17 million per year and top out at more than $133 million per year. By any measure, those are outlandish compensation packages even if much of the pay is based on performance and paid in stock options.

But, there should be equal outrage at the top-20 highest paid baseball players whose 2007 salaries, according to ESPN, range from almost $14 million per year to $26 million per year. Ninety eight players in MLB made $8 million or more in 2007, and to my knowledge none of them could even hit a baseball 4 out of 10 times at bat.

The liberal pundits also should be talking about the top-20 NFL players who earn from $12 million to nearly $28 million per year for throwing, catching or running with a pig skin. Will any professional athlete ever discover the cure to cancer, or invent the next piece of technology that will make life better for people all over the world, or create jobs that bring people out of poverty and into prosperity? Probably not.

But, America wanted “change” in Washington, DC, and now we have it. We have dozens of newly created Presidential appointed positions called “czars.” Well paid czars I might add. In a strange twist of irony, one of these new positions is called the “pay czar.” Under the Troubled Asset Relief Program (TARP), pay czar Kenneth Feinberg has explicit legal authority to cut the salaries of, even “claw back” payments already paid out to, executives at seven companies: American International Group, Bank of America Corp, Citigroup, General Motors, Chrysler, GMAC, and Chrysler Financial. Even more striking is the power the pay czar claims to have to cut and/or claw back the pay of executives at any company that received federal bailout money under TARP.

No matter how much I dislike ridiculously high salaries, it seems to me to be abhorrent that any government official would take it upon themselves to unilaterally decide whose paycheck is too big or what an individual ought to earn. I agree that nobody should get an exorbitant paycheck for running a business into bankruptcy, but the decision to hire and fire or to cut a CEO’s pay and by how much is appropriately within the purview of that company’s Board of Directors, not the government.

Some say that because a company received federal bailout money, it is appropriate for government to decide what the CEO gets paid. Really? Next I suppose we will be hearing that government should set the wages for the workers too, or set production levels and the price of the products. This is the slippery slope some people warned us about when we started all this government bailout spending.

It would be different if the companies who took assistance from the federal government were told ahead of time that the government may come back and retroactively set salaries and even take back money already paid out to executives. But, that was not part of the deal. George W. Bush supported TARP because he felt that the financial industry was too important to the rest of the economy to let the big financial institutions fail, but he did not want nor intend to dictate how those businesses were to be operated. President Obama, on the other hand, wants to control businesses and make day-to-day decisions for corporate offices and officers. Reading this writing on the wall is probably why Goldman Sachs and Bank of America wanted to pay back the TARP money last spring and why Obama would not let them pay back the money “early.” President Obama wanted control and nothing controls like the purse strings.

It used to be in America that a deal was a deal. People could be taken at their word and that contracts meant something. In the case of the TARP, there are only provisions for the government to control the salaries of executives at seven companies (American International Group, Bank of America Corp, Citigroup, General Motors, Chrysler, GMAC, and Chrysler Financial). But, this Administration has assumed authority to go beyond those seven companies and has even “fired” one CEO. They have exerted authority where they have none. They have changed the terms of the deal unilaterally. They are making value judgments about business practices about which they have little experience or knowledge.

I will not defend what certainly appear to be excessive salaries for CEOs who run companies into the ground and then step into the government trough with all four feet. Somehow though I am equally offended at the notion of some bureaucrat deciding on a whim what constitutes fair compensation and taking back salaries and bonuses after the fact. In my view, the recent actions of the Obama Administration are indeed as unscrupulous as the very CEOs they wish to demonize.

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