Wednesday, February 04, 2009

Oh, This Has No Potential For Lasting Economic Harm

Obama Administration To Cap Executive Pay At $500,000



In response to recent, probably overblown, news reports of executives, at companies which have received bail-out money, continuing to receive performance bonuses President Obama has come up with a salary cap plan:

Under the president's plan, companies that want to pay their executives more than $500,000 will have to do so through stocks that cannot be sold until the companies pay back the money they borrow from the government, according to administration officials.

source


I hate the fact that CEOs are walking away from failing companies with huge bonuses as much as the next person, but as I read this, this proposal doesn't only effect them. It also effects highly paid executives who may have met their performance goals. Not exactly a great motivational tool there.

Two other problems immediately come to mind also.

First, this will place companies that have received bailout money at a competitive disadvantage for years. After the recession ends, and it will end, attracting top executive talent will be almost impossible because of the artificial cap on compensation.

Second, If I understand the law correctly this will artificially deflate a companies value since under Sarbanes-Oxley those stocks will have to be held on the books as a liability until they are sold.

Neither one of those seems to be a way of getting a company back on it's feet. To me this smells like a cheap attempt to garner support for President Obama's stimulus package by showing "We are going to carefully monitor the way this money is used to prevent waste". It's all show and no go in other words.

Of course this story is also fed to CNN by the usual anonymous sources so who knows how accurate it is.

On the Plus Side - Obama Has Backed Away From the Buy American Clause in the Stimulus Bill



AFP - President Barack Obama warned on Tuesday that "Buy American" provisions in Congress's version of his economic stimulus bill could ignite "trade wars" and exacerbate slumping worldwide growth.

"I think that would be a mistake right now. That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe," Obama told ABC News in an interview.

source


Personally I support the idea of buying American, as a choice, and I think one of the best ways to revitalize the American economy would be to revitalize the manufacturing sector, but the way this was proposed would have only ended up hurting the US economy.

I'm not sure exactly how to go about bringing manufacturing back onshore except through some sort of tax incentive plan. I have a vague idea of economic free zones where companies could operate without being bound by collective bargaining agreements, and certain portions of minimum wage laws, possibly for a slightly higher tax rate, but I am not smart enough to flesh out the details.

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