Friday, January 30, 2009

Bluster or Dangerous Path?

Senator Claire McCaskill (D-Missouri, bio here) is proposing a compensation cap for employees working for companies which have received federal bailout money.  Senator McCaskill's plan would cap salaries, including bonuses and stock options) at the salary of the President of the United States, which presently stands at $400,000.  Her plan also comes on the heels of President Obama's attack on the bonuses, totaling $18.4 billion as being irresponsible and shameful.  

I'm interested in seeing how this plays out.  To stand in front of a microphone and blast the "evil and greedy" Wall Street guys is easy.  Introducing legislation is taking it to a whole new level. If nothing else, I respect Senator McCaskill for putting her money (or legislative pen) where her mouth is. It'll be interesting to see if President Obama jumps on board with this idea or otherwise backs some form of legislation.  It's possible that President Obama might find himself between a rock and a hard place. If he doesn't support any legislation to remedy something he calls "irresponsible and shameful", he runs the risk of being perceived as all words and no substance (a perception which dogged him in both the primary and general election).  If he jumps on this piece of legislation, he might be getting himself into an even worse mess.

Creating a compensation ceiling is surely going to create a mass exodus of the most talented people in companies which have received bailout money.  Even with a historically bad week in the job market, someone who is very good at what they do in the financial services sector will find a way to get paid above a $400,000 ceiling, whether it be by finding another company outside of the country or by though some entrepreneurial venture.

Senator's McCaskill's retort might be, "Let 'em go, they created this mess in the first place. There are plenty of bright people who are willing to work for $400,000 who can lead Citibank."  That's where things get a little dicey.  Are we going to find the most qualified person who is willing to get paid $400,000, or are we looking for the most qualified person who can justify the return on investment of his/her salary, period?  Is Senator McCaskill really willing to turn Citibank, Morgan Stanley and AIG into higher paid versions of the Social Security Administration office? I have a friend who works there, but she'd be the first to admit that when it comes to workforce, you get what you pay for. If you need some complex financing for a multibillion dollar takeover, do you really want to be serviced by a bunch of people who aren't crazy about the pay, but like the 9 to 4 work hours and benefits?

So I think our Congress should tread very carefully in this area of mandating compensation rules.  But like I alluded to earlier, at least Senator McCaskill is putting her neck out on the line as opposed to simply "expressing outrage".  President Obama?

1 comment:

nz said...

How about out-sourcing CEO's? With all those people out there, wouldn't you expect at least a few of them to have what it takes to run a company. Of course, how do we find them?