No doubt many will cheer executive pay cuts ordered by the Obama administration at companies that received U.S. bailouts last fall, but the celebration will prove short-lived. Obama pay czar Kenneth Feinberg, who has unprecedented authority to dictate pay in the private sector, has told executives at seven companies that their paychecks will be cut by 90 percent this year. In lieu of cash, the top 25 executives at American International Group (AIG), Bank of America, Citigroup, Chrysler, General Motors, and the financing arms of the two car companies will receive restricted stock in their companies, most of which they can't touch for years. On average, their total compensation will drop by 50 percent.
So what's the problem with the administration dictating deep pay cuts for a few fat-cat corporate types, especially those whose jobs might not exist now if the taxpayers hadn't rescued the companies they work for? These guys having been making what seem like obscene amounts of money for years. And now that taxpayers are footing some of the bill, why not use the opportunity to roll back pay? But as natural, and tempting, as these sentiments might be, acting on them will be a bad bargain for Main Street as well as Wall Street.
If Americans are ever to recoup their investments, we must have the best available talent to return these companies to profitability. Like it or not, that usually means paying top dollar, not punishing the people who will get the job done. And drastically cutting pay will likely lead to an exodus in talent -- not only at the very top, but in the layers underneath where much of the work gets done.
Why would a chief financial officer at a major bank stick around when he's just seen his actual paycheck reduced by 90 percent, even if he's promised long-term incentives in stock, since those incentives, too, would be less than he formerly made? He could probably walk out the door and sign on with another company or get a partnership in an accounting firm that would pay him far more -- and without the hassles and insults. And last I checked, even well-paid indentured servitude was outlawed by the 15th Amendment. Though, who knows, the Obama administration may seek to amend the Constitution to punish executives at companies the feds now virtually control.
Linda Chavez is chairman of the Center for Equal Opportunity and author of Betrayal: How Union Bosses Shake Down Their Members and Corrupt American Politics .
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