Wednesday, October 21, 2009

I am somewhat conflicted over the government micro-managing executive compensation at bailed-out firms...

PRO: it is quite right for the 'owners' of a firm to set compensation for workers at the firm. Lenders can also insist on limits on executive compensation. And the government, by virtue of the bailout, falls into a quasi-owner/lender role.

CON: However, the owners of a firm usually don't set the pay level themselves but rather defer to a chosen board of directors to make those decisions. Absent evidence of malfeasance or fraud, I am leery of second-guessing the decision of the directors that the existing pay levels are appropriate and in the best interests of the company.

CON: I have no confidence that any of the people determining the 'appropriate' level of executive compensation have any real world experience necessary to properly balance compensation with performance. And lacking experience and detailed knowledge of the business, I fear the government will use too broad of a sword in making cuts.

CON: I have every reason to believe that the decision will be made more on the basis of how it plays politically than whether it is in the best interests of the business, and especially so given the extent to which the Obama Administration is politicizing everything.

PRO: Can't think of any more.