Regarding Executive Compensation Limits

banker300pxOn Tuesday the NYT reported that the Obama administration is planning on capping compensation to executives of financial institutions accepting bailout money. The money quote that’s been floating around:


“That is pretty draconian — $500,000 is not a lot of money, particularly if there is no bonus,” said James F. Reda, founder and managing director of James F. Reda & Associates, a compensation consulting firm. “And you know these companies that are in trouble are not going to pay much of an annual dividend.”

Mr. Reda said only a handful of big companies pay chief executives and other senior executives $500,000 or less in total compensation. He said such limits will make it hard for the companies to recruit and keep executives, most of whom could earn more money at other firms.

My first thought when I read that statement: if some failing bank exec quits in protest of his “draconian” 500k salary, he or she will have a hard time finding another financial institution to hire him or her in the first place, regardless of the salary – banks are not exactly hiring these days. My second thought had more to do with the issue of gigantic exec salaries in general. I’m going to come right out and say it: high level bankers do not work any harder and are not any smarter than similarly-experienced professionals in many other fields (I’m thinking medicine, law, government, etc.). Despite being very confident in that statement, usually I don’t really care that financial execs make a ton of money; after all, they are leading companies that are throwing a ton of money into the economy. Fine, good. But guess what? At the moment, a lot of financial institutions (and by definition, those accepting TARP funds) are NOT throwing money into the economy. There are sucking money out (relatively) of the economy, and the economy is suffering mightily (duh) because of it. So these guys don’t get the big prize right now. When the sector rebounds, they can start work on the guesthouse for the Hamptons estate. But now? No way. And if they’re still feeling bad about 500k, go hang out with a Professor of medicine at a even at a major university, busting his or her ass with clinical duties, research grants, teaching, and writing papers all while advancing the good of mankind. And ask her how much she’s making this year.

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