Think what you want about the details of the new bailout package, there’s one part of it that few have major issues with. Promising to cut “the air out of the golden parachutes,” President Barack Obama announced last Wednesday that any executive of a company receiving federal bailout money will have to make due with a meager $500,000 yearly compensation package.
Personally, I have trouble relating to these company executives. I would be thrilled if, at some point in my career, I’m lucky enough to see my salary hit six figures. But if I ever become an executive for a company in financial trouble and my pay is greater than a half-million dollars, a pay cut would be the first thing on my mind. Why lay off hardworking employees so that I can continue to have luxuries such as a personal chef and driver?
Now, obviously these pay limits only apply to companies that are at the point where they feel they need to ask the government for financial assistance. Obama’s reason for implementing this is that taxpayer money would not go directly into the pockets of corrupt executives and into some ridiculous vacation home. However, the principal of the well-to-do cutting back so that the less fortunate can at least keep their jobs still applies. It’s not only what’s best for these people’s lives, it’s also what’s best for the company. You don’t need to be an expert in economics or management to realize that a company’s money is better spent paying an employee to do work than to fund an executive’s private jet.
As with everything having to do with our nation’s financial crisis, these pay caps are not without controversy. Some claim they don’t go far enough, and that $500,000 is still too high. Others think that a quantitative cap is not the answer, but instead there should be rules that provide for more transparency in general from companies. Shareholders could then be given the opportunity to vote on parts of executive compensation packages, thus ensuring that this transparency leads to more accountability. My only question is, why not have both?
The key thing to remember behind these pay limits is that they are, like everything in the bailout package, designed to be quick-acting and not necessarily permanent. Lowering the cap may be a good idea, but that would increase the shock executives would feel from the sudden cut in salary. On the other hand, requiring more transparency and accountability in general would ideally keep executive salaries lower in the long run, but that would do little to help the economy immediately. President Obama understands this fine line he has to walk, and I applaud him for it.
Interested in talking more about these issues? Come to the PSA’s meetings on Thursdays at 9 pm in Union Room 3202. If you have any questions, feel free to send an e-mail to psa@union.rpi.edu.
Editor’s Note: The Progressive Students Alliance, the College Libertarians, and the College Republicans rotate their columns on a three-week cycle.
