The desire to have the government control executive pay has great populist appeal, but it is fraught with shortcomings.

I do not have a problem with the government exercising some control of executive pay when they are bailing out those organizations. You can not get government’s help without expecting some control. But interference into the compensation of independent companies is neither necessary nor productive.

While the tales of excess compensation makes great press it is not representative of the vast majority of businesses. Yet regulations on general compensation can have serious impact on all industries.

I agree that much executive compensation has been excessive. Part of the reason is the short term focus engendered by our tax code and current restrictions. It was the executive pay restrictions passed under previous adminsitrations that led to some of the abuses with options that we recently experienced.

The idea to tie compensation to longer term performance is a good idea; I just find the government’s execution of the idea to be inflexible, preferential, and clumsy.

Will we tie the pay of the high paid athletes to the long term financial performance of their teams? Will we cap the pay for movie stars based on the long term performance of their films? Will Bruce Springstein’s performance be restricted by the long term performance of his record label? Will there be a cap on contingency fees of class action lawyers?

We all probably know the answer here. But the question is why should only the executive’s pay be restricted?

We also can not neglect the global market for real talent. Will we just lose our best talent to our global competitors, and will our recovery suffer as a result?

I say this with the opinion that much of our reliance on talent is misplaced. Our compensation has clearly become disjointed from performance and this needs to be corrected. I just doubt that the federal government is best agent to execute this change.

Compensation is just too complicated to fix by federal edict. Sometimes you need to pay a premium for a worker to help a troubled company. Sometimes you need the talent of a turnaround expert that does not need to be tied to long term performance. The talent you need for a company in one environment may differ when the competitive landscape changes. Companies need flexibility and such compensation restrictions can damage that severely.

Such restrictions can damage our economy far worse than many of the tax proposals that business professionals fear.

print