Category: 
by C. William Chattin
If one believes this AP article, the Obama Administration is actually obstructing the next step in our precipitous march to socialism: government-imposed limits on executive compensation. The article paints the Obama Administration as sensible pragmatists in an effort being championed by Congressional Democrats — chief amongst them the architect of the Fannie and Freddie Mae crises, Barney Frank (i.e., the most dangerous man in American finance) — to constrain pay to corporate executives.
Congressional Democrats are seeking to limit compensation in two ways: (1) requiring shareholders to approve certain compensation packages, and (2) actual government regulation of compensation, tying all permissible compensation to long-term, rather than short-term, performance . Conversely, the Obama Administration (apparently) wants only to have non-binding shareholder votes, which would give tacit (dis)approval.
As between direct government regulation, on the one hand, and mandated shareholder approval, on the other, the latter seems the better course. Here’s a video of Barney Frank purporting to defend shareholder approval mandates against the charge such a requirement would be impractical.
My question is: when it comes to shareholder approval requirements, why stop at executive pay/compensation?
Traditionally, shareholders do not run the day-to-day operation of a corporation. Shareholders elect a board of directors, which then selects/employs management to manage the day-to-day operation, which would include determining compensation packages.
If the system is going to be modified so that shareholders have a direct say in the day-to-day operations of the business (or, at least, major corporate expenditures), why limit the shareholder role to executive pay? Why not condition approval of collective bargaining agreements and other deals struck with organized labor (a much greater source of financial obligation to corporations) on direct shareholder voting? What about shareholder approval of other compensation — bonuses, health benefits, vacation days, etc.?
The obvious answer is that Democrats don’t want shareholders vetoing otherwise favorable treatment of labor and/or the benefits provided to typical corporate employees.
Virtually no corporate failure in the financial crisis was created by executive over-compensation. For sure, certain compensation packages seemed egregious in hindsight, particularly where executive’s performance now appears woeful . But, it’d be a giant mistake to confuse an annoying footnote to a crisis with the actual cause of the crisis.
Financial firms failed because of loose lending and poor investments. The auto companies failed because of bad labor agreements and inferior products. Neither failed because their executives were paid too much.
If history has taught us anything, it’s that government-imposed solutions, to what were never really problems in the first place, always have a way of hurting everyone in the end — and in ways that are usually difficult to predict.
