Capping executive pay

The Obama administration announced Wednesday new restrictions on compensation for senior executives at any firm receiving government assistance.
The proposed restrictions would cap cash compensation for senior executives at $500,000 and subject the dispersion of privileges such as private jets and country club memberships to scrutiny by corporate boards.

Further restrictions would be placed on severance pay and stock incentives, which compose the bulk of executive compensation and would come in the form of restricted stock that could only be redeemed after government funds have been repaid.

We applaud efforts by the Obama administration to hold firms and executives accountable for their behavior. Whether it’s been golden trash cans or golden parachutes, companies have thus far found no shortage of ways to misallocate taxpayer funds.

Despite the gross mismanagement of many firms, particularly in the financial industry, Wall Street paid tens of billions of dollars in bonuses last year. It is clearly unacceptable to use taxpayer dollars to reward those most responsible for creating much of the current economic crisis.

At a time when most Americans are being asked to economize in light of the recession – national unemployment hit 7.6 percent this past week – and countless others are being asked to take cuts in salary and work hours, it’s time Wall Street bore its share of the pain.

Naturally, the proposed cap on compensation has its fair share of detractors who profess that – consistent with a free market system – executives should command a salary reflective of their market value.

On the contrary, the proposed cap has its fair share of loopholes and in many respects doesn’t go far enough in its intended purpose.

While shareholders might scrutinize stock incentives above the proposed cap, and these could only come in the form of restricted stock, there is no set limit on how large bonuses can be.

Furthermore, the cap does not apply retroactively to companies that have already received money under last year’s $700 billion bailout.

Nonetheless, the proposed restrictions on executive compensation are by far the most comprehensive of their kind and reflect a concerted effort by the Obama administration to bring accountability and equitability back into corporate culture. For that, they should be commended.