Penny Wise, Pound Foolish: Slashing Executive Salaries

Even for Congress, this is extraordinarily dumb:

Responding to the growing furor over the paychecks of executives at companies that received billions of dollars in the government’s financial rescue, the Obama administration will order the companies that received the most aid to deeply slash the compensation to their highest paid executives, an official involved in the decision said on Wednesday.

Under the plan, which will be announced in the next few days by the Treasury Department, the seven companies that received the most assistance will have to cut the annual salaries of their 25 best-paid executives by an average of about 90 percent from last year. Their total compensation – including bonuses and retirement contributions – will drop, on average, by about 50 percent. The companies are Citigroup, Bank of America, American International Group, General Motors, Chrysler and the financing arms of the two automakers.

You could certainly argue that the poor performance of executives in these companies means that they should be replaced. That at least makes a certain kind of sense. However, no evidence has been presented that these companies, despite their performance, have been overpaying to get talented executives.

So, what is going to happen when they dramatically slash the top executive salaries at the companies? Well, their top talent are going to flee to greener pastures. Who wouldn’t leave a job where their salary was slashed 50 to 90 percent? Very few people.

Then, these top execs will have to be replaced and guess what? Their salaries will be too low to attract quality talent and the companies will end up being run by people who are utterly unqualified. Who else would take a job in a failing company that the government was tinkering with when the salary would be so much lower than the industry average? Again, very few people other than those who are completely unqualified for the positions they’d be holding.

Now, here’s the real kicker: Your tax dollars are invested in these companies and if they’re poorly run, chances are, you’re going to lose your money. But, I guess that’s a small price to pay if we can allow Barney Frank, Nancy Pelosi, Harry Reid, and Barack Obama to live out their little socialist fantasy, right? Would you really want to deny them the chance to be pretend-CEOs of companies like Bank of America and General Motors? What’s a few billion dollars lost between friends if it puts a smile on Barney Frank’s face?

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