Washington, which has run up a $10.7 trillion national debt, wants to punish Wall Street execs for running their companies into the ground. How ironic.I don't agree with the idea of capping pay just to cap pay since these companies will not be able to retain quality CEOs who can go to other firms that haven't taken TARP money or any other bailout and get paid according to whatever measures they can negotiate. If bailed out companies can't compensate their CEOs and other top managers who turn the company around, then what these companies will get is lower quality CEOs. The companies will continue to struggle and likely will continue to need further bailing out.
President Barack Obama proposed that the salaries of top executives whose companies seek federal assistance be capped at $500,000 a year. Congress went further, moving to restrict performance bonuses for more employees at those companies.
The bonus language was inserted in the federal stimulus package by Sen. Christopher Dodd. You might think Dodd was offering this as penance for the preferential treatment on mortgages he received from Countrywide Financial Corp., which has been caught up in the subprime lending mess. But with this legislation Dodd is asking everyone else to do penance.
A lot of people are furious about the nation's economic meltdown and the gaudy sums that taxpayers have been asked to provide to shore up banks and other businesses. Hence the move to haul execs into brightly lit committee rooms for public shame sessions. Hence the move to cap their pay.
A much better approach will be for significant deferment of bonuses based on real performance benchmarks. If Congress is going to limit pay until the bailout money is repaid, fine, but the CEOs will need some sort of incentive to stay with the foundering ship until it is salvaged, rescued and put back on a profitable and even keel. That means bonuses later on, deferred compensation, etc. Keep quality CEOs in place.
But this piece and the sentiment behind the reduced pay for CEOs leads to another question. How much will Congress give up to help the country along? The median net worth of a Member of Congress is nearly $750,000 and nearly 2 of every 3 Senators are millionaires.
Members of Congress get paid a pretty heft sum for their work. I am not saying they don't earn it, but it does make you wonder in this age of "sacrifice" that is being requested of Americans and more importantly their children and grandchildren, how much sacrifice will be borne by Congress?
Members of Congress also get a heft "Member's Rpresenttional Allowance" which they use to pay their staff, buy equipment, supplies and rent office space in their home districts. The MRA for 2009 is between $1.3 million and $1.6 million (Members in leadership posts get a bit more to cover additional staff). The MRA for Senators varies widely depending on the size of their state. So here is the question, will the Legislative Brach Appropriations bill have a reduction in the MRA for the coming years? Not a smaller increase, an actual reduction?
Will Members of Congress, most of whom are personally wealthy give us some of their pay just like they are asking of banking CEOs? After all, if it is good for private sector executives to reduce their pay, isn't it good enough for our lawmakers to reduce their pay? How about means testing their salary, i.e. if they have a net worth in excess of say $1 million, they give up 10% of their salary, with a sliding scale that says if the members net worth is greater than say $20 million, they get no salary at all?
I might see a pay raise this year, I am almost certain my wife will not, not even COLA incease (she works for the University of Maryland). If I have to bear the brunt, why aren't lawmakers (most of whom are millionaires) bearing some burden also?