POWIP Piece of Work In Progress

First they came…for executive compensation.

The Obama administration has announced that the U.S. Pay czar, Kenneth Feinberg, will be ordering compensation cuts for the largest recipients of TARP funds.  Details of the plan will be released in the next few days by Treasury, but some of the details have entered the zeitgeist.  There will be seven firms effected by this measure: Bank of America Corp., American International Group Inc., Citigroup Inc., General Motors, GMAC, Chrysler and Chrysler Financial.  And on average the compensation packages will be cut by 50%, although in some cases the cuts will be much deeper.  Funny, but I don’t see Goldman Sachs on that list.
 

According to sources, the salaries of the top 25 highest paid executives of the firms named will be cut an average of 90%, but factoring in bonuses, benefits, and retirement contributions brings that number closer to the overall figure cited.  According to one executive who chose to remain anonymous, the compensation restrictions were much worse than anticipated.  Still, the executives will still take home salaries that are large by the measure of most Americans.  And while the largest package, which will go to a Bank of America employee and come to a little over 9 million dollars, overall the pay czar’s ruling is sure to provide fodder to the administrations critics; not only for the restrictions themselves, but for the disproportionate way they are being applied.

The Obama administration gave Mr. Feinberg the job of more closely tying compensation to long-term performance, something the White House believes will help prevent employees from taking unnecessary risks for short-term gains. The administration believes skewed compensation incentives were one cause of the financial crisis.

Some of the toughest pay restrictions will come at the financial-products unit of American International Group Inc., which has been blamed for the firm's near-collapse. No employee within that unit will receive compensation of more than $200,000, people familiar with the matter said.

Mr. Feinberg will also demand a series of corporate governance changes at the firms, including splitting the chairman and CEO positions, requiring boards of directors to create "risk" committees and eliminate staggered board elections, which critics charge inhibit change.

Companies under the pay czar's purview gave sharply differing reactions to the latest news. At Bank of America, executives worried about how the changes will be received by the global banking and markets group, run by Thomas Montag and home to a number of highly paid investment bankers, executives say.

I expect that there will be mixed reactions to this policy.  While some may applaud, and readily accede to these invasive policies, owing to the back-stopping of the effected businesses with public funds, the move in itself is unprecedented.  Even more disturbing is the fact that these are being applied unevenly to the different companies and divisions within those companies, based on how the administration feels the blame for the financial crisis should be assessed.  It’s very much like what many on the left are often decrying about the justice system, that unequal treatment under the law based on status or identity is the norm; that we are, in fact, a nation of men and not laws-instead of the opposite, as was intended by the authors of the Constitution.

Plus, these government dictated compensation restrictions may have the adverse and unintended consequence of encouraging the experienced executives that are currently employed at these firms to leave, as well as discourage other talented individuals from joining these companies.  This could have a disastrous domino effect, not only hurting the firm in question, but also ultimately increasing unemployment, and perhaps even jeopardizing the government’s ability to ever recoup the funds that they were lent; as well as the fact that the shares the government has taken as collateral may greatly decline in value. And while I’m personally on record as wishing that the bailed-out firms would have exercised more constraint and discretion when awarding salaries and bonuses while owing the government money, this selective application of penalty increasingly seems politicized to me.

The government control of business executive compensation is part of the class warfare agenda that the left has been advocating for some time.  Indeed, Senator Chuck Schumer (D-NY) intends to press for legislation that would give the government control over salaries and governing executive practices of all publicly traded companies.  But these controls wouldn’t necessarily have stopped the fall 2008 market collapse, and when coupled with the fact that the U.S. has the second highest corporate tax rate on Earth would most certainly result in corporations choosing other countries to do business in instead of America; yet another factor that may result in even greater unemployment.
 

I believe that, just as with the Fox news vendetta, the dithering on Afghanistan, and the recent reiteration of the Presidents promise to repeal, “Don’t ask, Don’t tell”, this is another political bone being thrown to his far-left base to keep them energized and engaged for the struggles ahead.  Obamacare is facing increasing opposition by the public in spite of the full court press by the White House.  And cap-n-trade, the next issue to come into the public square will be a hard sell indeed; especially when the public is experiencing the coldest winter in 10 years.  During the campaign the President would have called this a “distraction”, but it’s really like a group of huddled up football players “pumping up” before a game.  He needs the fighting nutroots completely on board for the political battles to come lest his agenda, and administration, crash on the rocks of his diminishing approval ratings.
 

This is a disturbing detour born of classic Marxist style class envy that could lead to a slippery slope of wage regulation and de-facto fascism; but, you know, the trains will probably run on time.  In fact, the real danger is that we may be witnessing the first lines being written of the American version of the famous poem, “First they came…”

“Then they came for me—and there was no one left to speak out for me.”

Rocketman