Weblog Navigation

First Previous Index Next Last

What..?

Tuesday, 31st March 2009

I don't know where this idea is coming from, but I've heard the same thing from two different people now, so somebody out there must be saying it, and people are listening. Someone is claiming that the Democratic party wants to limit the maximum salary of all corporate executives to $500,000/year. This is such a completely nonsensical idea that I haven't been able to form a coherent response to it.

What they're talking about, of course, is the idea that's been floating around Congress to limit executive compensation for companies receiving government bail-out money, in response to the perceived atrocity that AIG paid $168 million in bonuses to its executives just after the government bailed them out. Several of these executives have voluntarily returned the money, and Congress is exploring ways to extract as much of it as possible from the rest, including by unconstititionally amending the tax code to target these specific individuals with a 90% tax on their earnings.

That's all. Nobody wants to limit executive pay at any company that isn't receiving government bail-out money. Congress wants to limit it to half a million dollars a year at companies that are so broke they'd go bankrupt if the government didn't rescue them, and Congress wants a way to make this retroactive for the companies they've already given bail-out money to, because Congress was too stupid to realize that if you give a company a big pile of money without specifying what they're supposed to spend it on, they're not going to spend it the way you wanted them to.

The AIG bonus issue is a red herring; a distraction from what's actually important. As I understand it, these “bonuses” weren't performance bonuses anyway. When people think of a bonus, they think of a gift to reward exceptional work, and the idea of rewarding failure understandably offends people. These “bonuses” were something else entirely; they weren't a gift, but an obligation written into the executives' employment contracts as part of their regular compensation, and just like your boss can't suddenly start paying you half the salary you had agreed to, AIG can't suddenly not pay the bonuses these executives were supposed to receive.

The reason I said this isn't an important issue is two-fold: first, because AIG was contractually obligated to do what it did (and someone in the government was well aware of the bonuses before the bail-out happened). Second, because executive bonuses are a very small part of the problem. The comic strip xkcd explained this well. Congress should just let this one go, focus on more important issues, and try to do better next time.

Anyway, this claim that the Democrats want to destroy our way of life by limiting CEO pay is completely absurd. This isn't the beginning of a slippery slope: “Today AIG, tomorrow the world!” No. Please stop trying to scare everybody with what you imagine the Democrats might someday want to do, and instead focus your outrage on what they're actually doing.


Weblog Navigation

First Previous Index Next Last