President Barack Obama has had a rough week, culminating in the withdrawal of two potential Cabinet members because of their respective tax problems. Pundits and analysts have been calling this the roughest start to a presidency since William Henry Harrison, who ended up dying in office a few weeks after his inauguration.
This morning though, the commander in chief decreed an executive order that was a mix of pragmatism and populism. He installed a cap on executive pay for companies associated with the Troubled Assets Relief Program, the sweeping bailout plan signed by former President George W. Bush in his final days. $500,000 will now be the maximum salary for executives in companies like Wells Fargo and Citigroup. Bonuses cannot exceed that amount either, leaving the maximum amount a TARP-assisted executive can earn in a fiscal year at a measly $1,000,000.
Capital purists are outraged, and I’m sure our School of Management professors have a few choice words for the president. The progressive pay scale is a cornerstone of the financial sector. An entry-level mortgage trader may gain the company billions in a given year, but he or she will have their salary capped at a certain amount until they have been at the company for a certain amount of time. It creates a rigid corporate structure. An employee is kept in place as a peon, a middle-level employee, high management, and after putting in their fair share of 80-hour work weeks, an executive. Existing in a caste system rather than a meritocracy keeps business healthy and stable. Animosity among employees is reduced and loyalty is heartily rewarded.
This is different. These executives chose to accept TARP funds, thus making them publicly funded institutions. Taxpayers are not in the business of funding multi-million dollar paychecks, and, with another 100,000 jobs lost, many are not even in the business of receiving a paycheck themselves.
I understand that there is a worry about dictatorial perception in Obama’s new plan. Capping pay scales produces a cacophonic chorus of capitalist criticism, but it is needed. The president has reintroduced a variation of meritocracy to the financial sector with a clear message: stand on your own responsibly, or face the music.
Theodore Brown
’10 CAS
This is an account occasionally used by the Daily Free Press editors to post archived posts from previous iterations of the site or otherwise for special circumstance publications. See authorship info on the byline at the top of the page.
The progressive pay scale is a cornerstone of the financial sector. An entry-level mortgage trader may gain the company billions in a given year, but he or she will have their salary capped at a certain amount until they have been at the company for a certain amount of time. It creates a rigid corporate structure. An employee is kept in place as a peon, a middle-level employee, high management, and after putting in their fair share of 80-hour work weeks, an executive. Existing in a caste system rather than a meritocracy keeps business healthy and stable. Animosity among employees is reduced and loyalty is heartily rewarded.<p/>There is very little correlation between these comments and the reality of the job market. If you HAVE worked for such a company it is an aberration. You should seek employment elsewhere.<p/>Where the heck do you guys get this stuff?
FYI the salary caps are NOT retroactive, they apply to firms that accept new money. Therefore all those companies are free to pay their executives what they think the market price is (until they need to go back for more money).