Wednesday, February 4, 2009

Cap 'em All

Geithner announces salary caps on executives at companies receiving government money. This is fair and good and, in fact, not an unusual demand when putting money into a company, especially a troubled company. No investor wants to fund a company just to see the money flow back out to executives. No taxpayer should want that either.

I believe this program also applies to the car companies receiving government money. This also makes sense. Any company that gets taxpayer money should have this cap, as a matter of consistency. I hope that companies like Cargill and Archers Daniel Midlands, who receive massive farm subsidies, will be included next time a farm bill is up for debate. This seems only fair, since their executives are paying themselves with our money.

And it's not just federal subsidies we should look at. Any government subsidy should incur the obligation to not pay more than a living wage to those taking the dole. Consider the state and city subsidies of the new Yankee Stadium: nobody in the Yankee's organization should be taking a salary of more than $500k, including the players: I have heard that some are taking home quite a bit more taxpayer money than this.

Preferred tax treatment is no different than government payments, if you think about it. Both result in more money in the company's pocket and less in the taxpayer's pocket. So, executives of not-for-profits and other entities that don't pay taxes should be subject to the salary cap. Charities like the Metropolitan Museum of Art have paid execs more than $500k. Not to mention universities: my alma mater has quite a few people living large on my tax money.

Then there are government subsidies that are not direct cash payments or cash credits. For instance, the use of the airwaves at below-market costs. For the privilege of relying on these, the executives of Disney and GE need to be subject to the salary caps. And the cell phone companies, of course.

Similarly, government enforced monopolies cause higher payments from consumers to monopolies. Because these are government mandated transfers, they are certainly a form of tax. Companies that rely on government enforced monopoly must be included in the salary cap. This gets Major League Baseball, of course, but they are already in there. The cable TV companies are certainly government protected monopolies, so they should be salary-capped. And then there are the patent and copyright holders. Patents and copyrights are inarguably a form of government protected monopoly. So, the movie and record companies, for instance, need to have caps. And then, by extension, the actors and musicians. And don't forget Oprah, and Steven King. Oh, and the software companies.

This is getting to be a pretty broad net, but it's certainly fair to say that if anyone getting taxpayer funded support of their business is going to have a salary cap, then they all should. And if the companies in question don't like it, then maybe they should stop taking my tax money.


John K said...

Hard to tell how serious or sarcastic you are trying to be here.

But don't forget NPR, and the athletic programs at all colleges.

Of course, the president and Senators easily rack up annual compensation far above their cash payouts too. They should be scaled down as well.

Jerry Neumann said...

I'm serious. I think this concept should extend to everyone who receives specific government attention (ie. not people who are protected by the police, for instance, because that's supposed to be everyone.) I've been on one side or the other of many a corporate loan document and they are always about 20 times thicker than equity documents. They contain pages and pages of provisions to make sure the money lent is kept "in the box": not paid out to execs or equity holders. And these loans were to people I knew and trusted, not a bunch of bank presidents who were well-known greedheads. There's just a fundamental agency problem when lending money or putting equity into a company run by people who aren't major shareholders. That they avoided this issue when initially distributing the TARP monies would shock me if I had the slightest shred of faith in the wisdom or morality of politicians.

That said, it always confuses me when people complain about the money that businesspeople make (especially the ones who run productive businesses employing thousands of people) but seem pretty much okay with the amounts that entertainers and artists make. I think there's clearly no link between the pay and the social utility of the latter, while there probably is some weak link in the former group.

But, really, I think the pay cap is not going to work at all. I can sit here and think of a thousand ways to get around it, so I view it as more bread and circuses for the masses: a pandering program with no real substance that has distracted us from making real change. The 'say on pay' provisions will provide far more substantial change, if they are actually implemented and kept--which I have to admit I find exceedingly doubtful.

John K said...

Jerry, not only is the pay cap not going to work, it's going to make things worse. In fact it's irrelevant, because the magnitude of pretty much everything else that Obama, Geithner and Pelosi are going to do is going to make things worse.

ACT NOW! Don't THINK! Borrow a ton more money and bailout a ton more things.

And borrow some more and funnel it to expanded entitlements. Just reward all the bad behavior that got us here. And do it with your present and future dollars.

Bottom line is we are going to become Europe (without the quaintness). Which will suck.