Americans overwhelmingly believe in capitalism, the laws of the marketplace and the free enterprise system. The issue for most is not whether corporate executives — particularly executives at financial institutions with the most direct impact on the economy — make a lot of money.
The issue is how and why they’re getting it.
Recent reports have indicated that Wall Street salaries and bonuses are on track to be higher than they were in 2007 — before the financial crisis, and before massive taxpayer subsidy of … Wall Street.
Such news has hard-working Americans fuming, as well it might.
And it has both the Federal Reserve and the Treasury Department planning direct oversight of executive compensation, as a condition of firms receiving significant taxpayer bailouts.
Apologists for multimillion-dollar salary and bonus packages — meaning mostly the executives who get them and the boards of directors that approve them — say such high-dollar incentives are necessary to lure the best and most able people to corporate leadership positions. That’s on some level a rational argument, but one without a lot of public-relations traction in the wake of a devastating financial meltdown and 11-digit public bailouts of private businesses.
At the same time, the decision by Treasury “Pay Czar” Kenneth Feinberg to cap at $500,000 the actual salaries, and cut in half the bonuses, of executives at large financial institutions getting taxpayer money is not just arbitrary, but arbitrarily low. Yes, a half-million-dollar salary is lavish beyond the dreams of avarice for the average working American. But that doesn’t change the fact that financial institutions have to be able to compete for executive talent with other corporations not under such restrictions. (One part of the Treasury plan that does make both fiscal and ethical sense is company stock as a larger percentage of executive compensation. As an incentive to performance, that’s as direct as it gets.)
Again, the problem is not a CEO’s or other executive’s paycheck per se; it’s the formula by which it is calculated. The Fed’s concern — and, it would seem, rightly so — is with executive compensation formulas based on short-term profit goals at the expense of longer-term outcomes. Such short-sighted pay plans, financial analysts say, were an incentive to high-risk investments with immediate, but unsustainable returns. Even the Financial Services Roundtable, the lobbying organization for major financial institutions, acknowledges the failure:
“From a banking standpoint, [the Fed] proposal is correctly focused on eliminating compensation practices that cause employees to take excessive risk,” said Scott Talbott, an FSR vice president.
The American free enterprise system is about the creation of wealth. But not by any means whatever, and not at massive public expense.
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