As you have probably heard, President Obama has offered a plan to restrict the salaries paid to the officers of companies getting money from the federal bailout programs. The plan as proposed would limit pay to $ 500,000 per year although the officers could get stock compensation with the understanding that the stock could not be sold or vest until the government was fully repaid.

Now while I am generally opposed to having the government dictate things like this to the private sector I do think the plan is a reasonable idea. If we are giving a corporation money then it is not out of bounds for us to want to make sure that income goes to help the company improve their bottom line rather than buying a new condo for an executive.

But I think the plan needs some work before it is finalized.

To begin with I think you may need to adjust the amount of compensation upwards. Don’t misunderstand me, I know that $ 500,000 a year is a lot of money, if I made 10% of that I’d consider it a really good year. But we have to consider that there are many other companies out there who would not be covered by these rules.

If we want these companies to get out of their current financial problems then it follows that we would want the best talent to be working for them. If you have a minor cold you can go to any doctor to help but if you need open heart surgery then you want to go to the best. If you are a top executive and can work for Company A for $ 500k or Company B for ten times that amount then it’s not hard to see what most people would decide.

I suspect that Obama knows this and has started with a lower number so he can work up to an acceptable figure. I would not say we need to lift all limits, probably $ 1,000,000 a year would be reasonable. Again I know these are huge numbers to most of us but we have to look at the specific job market and in that case $ 1,000,000 is not that much money.

While my above statement undoubtedly upset our liberal readers, I will next move on to upset our conservative ones by saying that the rule should be expanded to cover ALL companies getting bailout money not just those getting ‘exceptional’ assistance. As has been noted by the media the currently proposed rule would not affect many companies and thus would simply make their position even harder.

I realize that many people are opposed to exessive government regulation and involvement in business and I am not a fan of big brother either. But the fact is that these are not simply companies out there doing business, they are companies coming to YOU and me asking for us to mortgage our futures to make up for their dumb mistakes.

If you go to the government for any other form of assistance there are extensive rules you must comply with and I see no reason that the same should not apply to the big companies.

Finally I think we need to consider a major review and reform of how we deal with executive compensation (something I will examine in detail in a future post). Right now these packages are a great tax dodge for corporations because they can be deducted as an expense from the balance sheet even when the ‘expense’ is only on paper (IE stock benefits). This kind of loophole is something that needs to be restricted if not removed entirely.

Similarly I think we need to consider how these benefits are taxed to the employee. I am not a big fan of taxes nor am I someone who is in favor of bashing the rich. But the simple fact is that taxes are part of the system that keeps things going from day to day.

If you want roads, schools, police, fire, national defense, health care, etc you need to get the money from somewhere. If you have to pick between making a $ 50 million a year executive pay an extra couple percent and an average family doing so, I think the choice is clear. As I’ve said I plan to expand on these thoughts in a future posting.

Overall I think that this proposal is something we need to adopt but I also think that we need to adjust the exact details to make sure they achieve the goals we require. We don’t want to further harm these companies by underpricing them out of the market but at the same time if you are taking our money you should be living as simply as you can.

While I don’t expect anyone to cut and paste these ideas into a Presidential speech, I do hope that others will come to similar conclusions so we can get a package that works for everyone.