by John Hawkins | July 18, 2002 8:44 am
The Hypocrisy and Ineffectiveness Of The CEO Price Cap: I was reading a Howard Kurtz column about how newspapers don’t practice what they preach in regard to accounting practices and one snippet from the article reminded me of a subject I wanted to explore more fully on the page…
“The Chicago Tribune said in a March editorial: “Put stock options on the books. The use of stock options as part of compensation packages has exploded, partly because of the 1993 rule that limited tax deductibility of executive salaries once they exceeded $1 million.”
But the Tribune Co. did not count as expenses substantial stock options to its top executives, including Chairman and CEO John Madigan, who received $5.3 million worth of options last year.”
This exemplifies what’s wrong with so much of what passes for legislation these days. Back in 1993, the Democrats in an effort to exploit the class envy they’re always promoting, capped CEO salaries at 1 million dollars. Notice that this only applied to CEOs, not entertainers or trial lawyers who tend to contribute to and promote the Democratic party. Moreover, Bill Clinton, the President who pushed this change, has no problem with accepting millions of dollars per year for giving speeches. Clinton even took 10 million dollars plus as as an advance for writing a book. How’s that for hypocrisy?
Furthermore, this change didn’t REALLY do what it was advertised to do. Since many CEOs are worth more than a million dollars and companies can’t simply pay them what they’re worth, corporations started paying them in stock options. Now 9 years later stock options are contributing to the accounting scandals that are part of the reason that the stock market is plunging. So just as they did with Campaign Finance Reform, health care, the public school system, the Farm Bill, Social Security, and many, many, other pieces of legislation, our government is going to create new legislation that will screw things up even worse than before in order to fix the damage done by their previous legislative screw-up. When government tries to thwart the market, much as California did with price controls in their energy market, there will always be an economic price to pay down the road. In California’s case they ended up with an extreme power shortage and in this case, these stock options gave many CEOs strong economic incentives to allow aggressive/shady accounting practices to be used. Limiting corporate CEOs to a million dollars a year appeals to all the practitioners of class warfare out there but it’s lousy policy and someone other than Right Wing News should be saying so.
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