In business, the most difficult things to value are people.
As an employee, I have struggled at figuring out just how
much my work is worth. On the one hand, I don't want to price myself out of
getting that job or raise. On the other hand, I am not the only person who
doesn't like being underpaid.
Employers have the same problem. Overpaid employees are a
drain on resources but underpaying employees leads to constant turnover. Every
company wants to have the best people possible in each department. The best
people possible cost money.
Simply put, the issue of compensating employees is a tricky
and inexact science. Businesses that do it well succeed. Businesses that don't,
struggle. At least that's the way it used to be.
Then the Federal government got into the business of
rescuing failing institutions. True
conservatives will agree that TARP and the other assorted government bailouts
were among former President George W. Bush's biggest failings. Once the money was paid out, taxpayers do
have an interest in how the bailed out companies spend. Bonuses to AIG, Citi and General Motors
executives were particularly galling considering the amount of equity the
government held in these companies.
This week, Obama Administration "Executive Pay Czar" Kenneth
Feinberg announced some tough compensation rules governing the way financial
companies that received government aid pay their top executives. The new
guidelines cut some executives' pay by as much as 90 percent.
I can't sympathize with people like Ken Lewis of Bank of
America, whose earnings in 2008 were in the hundreds of millions. But I can
dislike the government's activism in the private market.
Executive pay is an issue that liberals have loved to throw
around since the beginning of time. It's an issue driven by jealousy, greed and
little else. So what if the CEO of XYZ
company makes $20 million per year in salary and a part-time janitor at the
same company makes $10 an hour? The janitor can aspire for a better-paying job
either with the same company or a different one.
It all reminds me of an ethics class when I was getting my
MBA. The professor (a libertarian for
good measure) polled the class on whether executive pay should be regulated.
The number of students who thought it should be surprised him. Normally, few
MBA students would be for such regulation. Why? "Aren't you here because you
someday want to be a CEO?" he asked.
Maybe not. After all, any senior management position comes
with a ton of responsibility to the board of directors, customers and employees;
long hours; civil and criminal liability; and now regulated pay.
Pay czar Feinberg enjoys a stellar reputation as an attorney
and mediator. However, is he any better suited than a company's board of
directors and ultimately its shareholders to decide salaries? Sen. Chuck
Schumer (D-N.Y.) thinks so, and that's why he's proposing legislation that will
put all 55,000 publicly traded corporations under Feinberg's jurisdiction.
Now Thursday, the Fed came out with a proposal that will
limit the types of bonuses and incentives that encourage "excessive risk." Some pay-for-performance plans encouraged
short-term profits at the expense of the long-term, Fed Chairman Ben Bernanke
said.
What is excessive risk? Some of the best long-term payoffs
come with taking extraordinary risks. Some of the best short-term payoffs come
from making safe short-term investments.
Whatever Bernanke's definition of "excessive risk," it
should not be the Fed's call on how private companies pay their help. If companies are rewarding bad risks, they'll
pay for it, as will those who chose to do business with these companies. That
includes good employees. That includes business partners. That includes the
customers.
The truth is that stakeholders appreciate the value risk
brings. Employees that make calculated risks that bring results should be
rewarded.
This all brings us back to the issue of excessive executive
compensation. Obama said earlier this
week that he's not about punishing success, but expanding Feinberg's powers
sends the opposite message. The top talent will seek careers in industries
unregulated by the government, or worse, overseas. Those asked to replace the
current crop of corporate chiefs might be even less qualified, less motivated
and less competent than their predecessors.
Even worse for Obama, limiting executive compensation might
create another problem for him. He would like to raise taxes on the "wealthy"
so he can pay for an expensive health care plan. Limiting the annual income of
the ultra-rich will severely curtail the treasury's take.
T. J. Brown's Bio
T.J. Brown is a small business executive by day and a freelance writer by night. He earned a Bachelor's of Arts in Journalism at Indiana University and an MBA from Loyola University Chicago. He lives in Northbrook, Ill. and can be reached at comments@tjbrown.com.
Posted
10-24-2009 10:29 PM
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