Don’t Slash Executive Compensation

Hold on a second…. Executive compensation will be reduced in the Pig Seven (the seven companies that split up the multi-deca-billion dollar bailout). The argument is against this is that with lower executive compensation, these executives will bail, go away, move to other companies.


But these are the executives that ran these companies so deep into the ground we had to ask the naked mole rats for directions when we went to bail them out.

So … why do we care of these executives stay vs. go away? Why are they still breathing our air?

Economists take note: You may be scientists. Or at least scientistic. But when I hear the old saws repeated again and again like a mantra, you are actually rather full of shit.

I’m not against the bailout. But I am against this abuse. I disagree that the top exec. compensation should be cut. They should simply be fired.

Don’t Slash Executive Compensation. Just fire them all, hire new ones, and pay what the market demands. Let them live with their theory.

Comments

  1. #1 John McKay
    October 21, 2009

    Cutting their pay isn’t even a very good symbolic gesture since most of their compensation isn’t in the form of pay; it’s in the form of stock options, stock grants, bonuses, and expenses. Firing is a good step, but most CEO types never fail. Other CEO types do the hiring for major corporations and always hire each other. It’s a shame that we don’t have internal exile in this country. I think these people should be fired, taken a away from their stuff and peers and told to make a living as minimum wage service employees in places like Pocatello, Idaho or Prescott, Arizona.

  2. #2 Bob
    October 21, 2009

    Amen. For all the pants-wetters’ talk of Obama being a socialist, they wouldn’t recognize socialism if it made them stand in line for three days, held hostage by a petty bureaucrat.

    The bailout money should come with the stipulation that the Gov’t gets representation commensurate with the amount of equity they hold as a bailer-outer. At that point they can cap exec compensation and replace the exec team as they see fit. If the bailed-out firms don’t like it, they can go under. Tough shit.

    The fiscal conservatives have whined for decades about Democrats’ tendency to blindly chuck money down a hole. If you want government to act more like a business, here’s the perfect opportunity. No businessman would fork over that much money without demanding control; why should we expect less of government?

  3. #3 John
    October 21, 2009

    From Wikipedia on Corporal Punishment:
    judicial corporal punishment, official caning or whipping of convicted offenders.

    Okay, not legal in the USA, but as a group, these billionaires are responsible for an incredible amount of human suffering. I don’t know that making them live as mere millionaires is sufficient.

  4. #4 bobh
    October 21, 2009

    A different take on this. The argument about being able to keep top executives is horseshit. these guys have built this mythology that they are the smartest guys in the world. Its a total myth. Yes they are perhaps above average in intelligence and are certainly extremely very ambitious but the ones who have been in charge are also ignorant of real risks and more importantly have a weak sense of ethics. Those guys may leave but we don’t want them anyway. We want smart people. All of the rest of the characteristics we can do without. Smart people can be hired cheap – look at most professors salarys.

  5. #5 Bob
    October 21, 2009

    If they want to ‘go Galt’, let them. I’m not sure where they’re going to go where they’ll attract such immense salaries & benefits, but if they want to bail, let them. For each one that leaves, there are a hundred greedy assholes waiting in the wings. They can be replaced.

    If Malcolm Gladwell is to be believed, their primary talent is being tall.

    It would be very interesting to see what would happen if Obama treated Wall St. like Reagan treated PATCO.

  6. #6 Pierce R. Butler
    October 21, 2009

    The argument for “retention bonuses” and the like for these guys is straightforward and logical: they might indeed move to other companies.

    In which case, we’d then have to cope with the consequences of the failure and collapse of those companies, too. Keeping the rat bastards where they are might be the best way to contain the havoc they wreak.

  7. #7 Greg Laden
    October 21, 2009

    John: I think caning is still legal in certain parts of far eastern Cuba. If you catch my drift.

  8. #8 NewEnglandBob
    October 21, 2009

    So many people named Bob are commenting here so I will jump in too.

    If ‘we’ are going to clean house, lets go all the way. Corporations can just declare bankruptcy and be forgiven their debts when they get in trouble. The government changed the law a few years ago so that individuals can not do that. Why should corporations be allowed to do it?

  9. #9 Travis
    October 21, 2009

    Individuals can still do it. It is just different as to how it is done. Yes?

  10. #10 Rich
    October 21, 2009

    In general, we (economists) are not actually full of crap. We appreciate that the picture is far more complex than presented in the populist media, or in simplistic blog posts that advocate the taring and feathering of all those greedy capitalist bastards. The arguments about if CEOs are paid for performance (they are), whether the labor market for CEOs actually works (it does) are clearly not of interest here.

    Interesting the first poster hits the nail on the head. These CEOs are heavily compensated in stock and options, and guess what happened to the value of that compensation when the company tanked?

    Gregg, you have a great blog, but occasionally, you get out of your depth.

  11. #11 hibob
    October 22, 2009

    one more Bob chiming in.
    @Rich: “The arguments about if CEOs are paid for performance (they are)”
    Yes. CEO compensation is determined by committees and chairmen completely independent of the CEOs, they work out transparent compensation packages based on company performance, put the packages to a vote of the shareholders, and NEVER (since they started getting caught) revalue stock options after the stock tanks.
    BWA HA HA HA HA HA HA HA HA!
    CEOs are paid for their performance and ability – for the most part, their ability to hire and manipulate the people who determine their compensation.

    At any rate, I haven’t heard any reasons outside of realpolitik as to why the fed couldn’t have preserved the just the functions of the bailed out banks, etc. while letting the corporate entities themselves fail, a la the RTC in the S&L crisis back in ’89. Keep the people servicing the notes, fire the people (and their bosses) who wrote the bad ones.

  12. #12 MadScientist
    October 22, 2009

    It’s a crazy world; if those bozos were in charge of a smaller business they’d be out on the streets begging because it’s obvious to anyone with a brain that they are not fit to run a business – and yet they receive their bonuses and increased salaries – go figure.

  13. #13 katydid13
    October 22, 2009

    I say let them work for civil service wages like the rest of us who work for the government.

  14. #14 andrew
    November 7, 2009

    we all love to complain but it is pure jealousy because we are not getting these outrageous pay ourselves.

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