If you listened to Barack Obama on the subject of executive pay, he is of the belief that it is high executive pay that leads to risky behavior by Wall Street companies. With this mindset, Obama, vis a vis his pay Czar, Kenneth Feinberg, has decided to slash executive pay for bailout companies (Click to See Full Story: "Washington to enforce executive pay cuts").
What Obama doesn't seem to understand is how executive pay got to where it is. The risky behavior and the desire of companies to pay higher and higher salaries for their CEOs actually comes from the external forces that are being applied to these companies.
The short-term behavior of companies is actually being driven by the Federal government. Under the rules of the Security and Exchange Commission (SEC), each publicly-traded corporation must issue a fully-certified (audited) earnings report on a quarterly basis. In other countries, this is not the case. That means that our CEOs must manage to the bottom line and do that each and every 3 months. A failure to do so could result in a dramatic drop in stock price and, additionally, result in lawsuits by angry investors who want some of their lost money back. To make things worse, companies are expected to meet the analyst's projections for earnings or suffer the consequences of missing them. This is unbelievable pressure. In sports, it would be like expecting a highly paid player to hit a home run at every at-bat.
Like it or not, American corporations are being forced to manage their companies on a short term basis. The risky behavior is being driven by this need. And, high salaries are being given out to attract the talent needed to meet that goal.
While it is true that executives continue to get high salaries, even when the company is doing poorly, those salaries aren't necessarily based on the current activity but what will be delivered in the future. In a similar comparison, should an actor, who gets $20 million or more a movie, give his salary back if the movie is a box office flop?
I am willing to bet that this move by Obama is just the tip of the iceberg. My guess is that he will find other ways to cap executive compensation by using the "they took government money" excuse for other, non-bailout money companies. He might even formulate that excuse for companies that get government contracts. That's because he, like the rest of the capitalism hating left, want corporations to be punished. In their minds, a company like Wal-Mart doesn't create jobs but, instead, gyps people out of good pay while their executives lavish themselves. The only way to stop that kind of thing is to impose socialist practices that level the "paying" field for everyone. Just mark my words.