• Obama’s Salary Cap Red Herring

In effort to appear attentive and accommodating to the crowd’s discontent, Obama has made a big deal of announcing an executive salary cap policy targeting financial institutions that receive exceptional government assistance. Then, the cap will spread.

Obama has every right to claim, “I will not tolerate it as president,” referring to abnormally high compensation during an economic crisis. This restriction will not affect past beggar recipients of taxpayer cash, but will impact future negotiated bailouts.

Why would I dare presume to call this, “a red herring,” when on the surface it seems to be a reasonable expectation?

Obama has been provided a perfect straw-man that presents him an opportunity for demonstration of righteous indignation, effectively used to inject government tentacles into corporate America, and to leverage the passing of an enormous and costly stimulus-bailout package. The stupidity of a few executives running failing companies has put executive pay into play. It has provided the fuel needed for a power-play by the White House and Congress to insinuate government into the Board Rooms of America. Obama could just as easily have made a statement, and required individual contracts to govern each bailout, affecting stipulations for each company. No such agreements will exist and the government is overstepping the bounds of reasonableness. This should be of concern to all, well, … other than to those dependent on government for income.

We all know Wall Street’s compensation is out of synch with common sense, but panicked reaction is absolutely not the right path to correcting the abuse. Exploitation of executive power has been the privy of the heads of Fortune 500 companies and has been exercised for years. It did not create the meltdown we are now enduring, but some corrective measures are needed to curb the excess in certain corners of the capitalist system’s underpinnings. Geithner, the Administration's favorite economist, is considering extension of salary caps to ALL U.S. companies. This, however, will not affect or control issuance of equity to compensate for lowered salaries. Obama has played to public outrage, but has ignored the rights of shareholders whose companies he is now sending the government to infringe on. There are specific actions he should have considered, or somebody in his crowd of experts should have thought of.

A year ago this post urged that consequential changes be made in Board Rooms and in CEO offices across the country. We also addressed a return to common sense on executive compensation and the elimination of stock options, … for good reason. A restructuring of the corporate body, and some of its processes, would be more advisable than government intervention such as Obama, Geithner, Pelosi and Barney Frank are demanding. They appear to lack basic understanding of corporate governance. They should be mandating a fix in the relationship between shareholders and management. There should be reconsideration of accountability – Management to the Board, and the Board to the Shareholders. There should also be an implementation of changes to Director elections. Shareholders should have very direct impact through affirmative votes on both Director election and compensation, as well as executive compensation. The current friends of the CEO, and pay-you-pay-me, style of Board compensation should be trashed, along with any determinations of government infringement.

There is a very uncomfortable incursion materializing into the foundation and fabric of the capitalist system by the White House and Congress. That intervention is misguided, and I suspect they are reading the electorate incorrectly. Red herrings get old quickly. The trend of this new Presidency, as short as it is, appears suddenly disturbing.