Posted by
Andrews on Wednesday, February 04, 2009 6:43:53 AM
It appears Obama has jumped on the
CEO compensation band wagon. Unfortunately for him, it is about the worst thing he could do to an ailing company. However, as many probably disagree, allow me to draw an analogy.
Let us say the Baltimore Orioles are having a really bad season, or several in a row. They win maybe 1 game in 50, and the local fans are staying away. Revenues are way down, so they turn to the feds for a bailout.
As part of that bailout, the Feds note they have been paying too much for players. And so they Feds institute a player salary cap.
What would be the outcome?
If you said, continued losses, you won. Thanks to the salary cap, the Orioles would not get the best players, they would continue to lose, and the problems would only get worse. Same with CEO salaries. Despite the image presented by pundits and politicians (many of whom have never worked in private industry), as well as envious citizens convinced management does nothing but draw huge salaries, a good CEO is worth every dime. People mock CEOs getting $100 million from a company losing money, but if they cut losses from $5 billion to $1 billion, they earned their salary many times over.
A good CEO is essential to a large company, and to cap his salary is to guarantee these ailing companies will not get the top notch CEOs they need.
Even worse, thanks to plans for even more government meddling in some industries, such as automobile manufacture and finance, it is likely even the CEOs they could afford will not be interested. And so they will be stuck paying the maximum allowed to get a CEO worth far less.
It is a prescription to destroy any company taking bailout money.
That certainly is change you can believe in!
POSTSCRIPT
This does make Ford look prescient in turning down government bailout money.