Obama and the $500,000 Executive Pay Cap

I don't like the idea of having the government determine the salaries of executives in corporate America.

Obama imposes limits on executive pay

President Barack Obama on Wednesday imposed a $500,000 cap on senior executive pay for the most distressed financial institutions receiving taxpayer bailout money and promised new steps to end a system of “executives being rewarded for failure.”

Obama announced the unusual government intervention into corporate America at the White House, with Treasury Secretary Timothy Geithner at his side. The president said the executive-pay limits are a first step, to be followed by the unveiling next week of a sweeping new framework for spending what remains of the $700 billion financial industry bailout that Congress created last year.

The pay limit comes amid a national outcry over huge bonuses to executives who head companies that seek taxpayer dollars to remain afloat. The demand for limits was reinforced by revelations that Wall Street firms paid more than $18 billion in bonuses in 2008 amid the economic downturn and the massive infusion of taxpayer dollars.

...Obama touted the broad symbolism of his action.

“This is America. We don’t disparage wealth. We don’t begrudge anybody for achieving success,” Obama said. “But what gets people upset — and rightfully so — are executives being rewarded for failure. Especially when those rewards are subsidized by U.S. taxpayers.”

“There is a deep sense across the country that those who were not ... responsible for this crisis are bearing a greater burden than those who were,” Geithner said.

Firms that want to pay executives above the $500,000 threshold would have to use stock that could not be sold or liquidated until they pay back the government funds.

Generally healthy institutions that get capital infusions from the Troubled Asset Relief Program in the future will have more leeway. They also will face the $500,000 limit, but the cap can be waived with full public disclosure and a nonbinding shareholder vote.

Obama said that massive severance packages for executives who leave failing firms are also going to be eliminated. “We’re taking the air out of golden parachutes,” he said.

Here's the thing:

When tax dollars are being used to bail out private businesses, then they've forfeited their freedom to a certain extent. If they're going to take government money, they should expect to have government intrude on their practices.

I understand that.

Still, the fact that Obama is deciding salaries makes me very uncomfortable.

Why $500,000? If that's the limit today, then maybe tomorrow it will be $250,000 or more or less.

What else will Obama decide? How long lunch breaks should be?

This doesn't feel right.

Should anyone accepting tax dollars be at the mercy of the U.S. Government?

If you get food stamps, should Obama decide which foods can be purchased with them?

No Cheetos. No Doritos.

Maybe if you're overweight, there should be a cap on your food stamps.

...Compensation experts in the private sector have warned that intrusions into the internal decisions of financial institutions could discourage participation in the rescue program and slow down the financial sector’s recovery. They also argue that it could set a precedent for government regulation that undermines performance-based pay.

Actually, I think it might be a good thing if participation in the "rescue program" is discouraged.

A handout isn't productive in the long run. It creates dependency and invites government intrusion.