Site for Free Markets and Free People

Wednesday, February 04, 2009

Reversal of Capitalism - Part I: Limits to Executive Compensation

The official line is that he wants to limit executive comp to $500,000 to those companies that have received "significant" federal aid. First of all, I'll say that if the US government has taken a stake in these companies, and that if they hold shares, then they should be able to influence the decisions made in the companies. Shareholders have influence - that's capitalism.

Now in the long run, I'm against government intervention - reason being: can someone can give me an example of a company where the government makes all the decisions, and it is the model of efficiency? I'd like to hear about it. None come to my mind.

In the long run, I'm also against this because within a bank, there are several departments - some guys may have made the bank millions of dollars while others have lost them millions of bucks. To limit EVERY person to this rule, even the long term proven money makers, just means that those guys will leave to competitors. The government can implement this rule, but I think it will not end up with the desired effect - they will be in effect, helping the non-government aided banks. Not sure if Obama has thought this through.

I also wonder if this plan is not part of a longer term Obama objective to limit compensation for all companies, and if this is the case, then I'm really against it. If a man starts a company and develops a successful product, why can't he pay himself more than $500K per year. I'm not sure what Obama's end game is, but he's talked numerous times about "spreading it around" and this might be the beginning of a Soviet-style plan.

The plan would be acceptable to me if it's limited in scope and short term in nature with the idea that the government also sells their stakes over time. What is NOT acceptable is if this is the next step in Obamanomics and his attempt to redistribute income. Is there reason to worry? Yes.