Ah, liberals. You’ve got to give them credit. They’re tenacious with a capital “T.” And consistent. Just maybe a little forgetful. You see, Bill Clinton wanted to find a way to put a cap on all these outrageous CEO compensation packages back in the early 90’s. So, he went after the tax deduction corporations are allowed for their top executives’ salaries. Enter Section 162(m) of the US tax code. This was an addition to the tax code that capped the deduction at $1 million. Oh sure, there are ways around this. You can set up a series of performance-based salary enhancements (or what I like to call “bonuses”) which can be deducted if the executive meets whatever criteria the company’s board establishes.
Well, according to an article I found in Business Week from 2006, this (obviously) didn’t have the effect of LIMITING CEO compensation to $1 million. Instead, it created a new baseline. Now, “any self- respecting CEO expected” to get that as the minimum salary, a sort of white collar minimum wage. Then the bulk of the executive salaries came in the form of a variety of bonuses (there’s that word again). The article cites a 2005 Harvard Law School study that says, “Over the law’s first decade, average compensation for chief executives at companies in Standard & Poor’s 500-stock index soared from $3.7 million to $9.1 million.”
But I want to go back to the beginning. Who does Bill Clinton think he is to dictate what proper compensation for a top executive is? Why does he care? If a company thinks they need to offer a certain amount of money to attract the best talent, who cares? If the company can afford to pay that and the board and the share-holders approve it, why would the government get involved? All good questions. Of course, I have the answers, so stay tuned.
Fast forward now to 2009. What are we hearing about in the news today? The Obama administration is trying to find a way to limit the CEO bonuses of companies who are taking TARP money. But make no mistake, Geithner has told Congress that they are going to have to have much more oversight of all financial institutions, not just those who have been bailed out. You can read that as dictating what “appropriate” compensation should be for top executives.
So let’s track this pattern:
Clinton doesn’t like CEO salaries and implements tax law to limit them
His tax law causes CEO compensation to explode
Now the Obama administration is promising more “oversight” of how companies do business
Anyone wanna guess where this gets us in 10 years? (Another good question, if I do say so myself)
Here are the answers to the questions I posed before and how they relate to what’s going on today. I believe the main reason Bill Clinton (and you can insert your own liberal into this equation) doesn’t like CEO compensation in the millions of dollars is because he is jealous. What he will tell you is, it’s not fair to those who do the hard work, the little guy, to get such a small piece of the corporate pie. That would be a plausible position if they exhibited this philosophy in other areas of their life. The Clinton’s specifically have made tens of millions of dollars since retiring from the White House, and yet give very little to charity. For the record, the Clintons released their tax returns last year when Hillary was running for President. Since leaving the White House, the Clintons have made over $100 million. They have given over $10 million to charity, according to their tax returns. This would be good except for the fact that they gave that money to THEIR OWN FOUNDATION! According to the New York Times, these foundations have paid out very little of the money. But in 1992, when he was running for President, these kind of riches were unthinkable. When he took office, the yearly pay was $200,000. Remember, Bill Clinton has never had a private sector job. He had been on the public dime since he became Arkansas Attorney General, just one year after leaving Yale law school.
So without any real-world experience, Mr. Clinton is unfamiliar with the incentives inherent in the free market. He feels (I surmise) that if he is the most powerful person in the world and he’s only making $200,000 a year, anything more is obscene. He felt he was being generous by capping executive salaries at $1 million. I’m sure he feels differently now.
Mr. Clinton’s story is standard for liberals though. They believe they have a right to dictate what is fair and what is not. The truth is, their tampering has led to increased executive pay and the bonus scandal they now decry.
As for the question about where this get us in 10 years, the one thing that is certain is that whatever the liberals decide they want to change by tampering with the system, it will not have the desired effect. At this point, the most likely outcome is that the system itself will collapse meaning that these high executive compensations are not being paid out anymore and a requisite drop in tax revenue will ensue requiring higher taxes for everyone. Including those “little guys” the liberals love to champion.
So, just in case you’re keeping score, here’s the lowdown:
Liberals created the bonus system that the AIG executives benefitted from
Liberals guaranteed those bonuses by passing and signing the recent stimulus package
Liberals then demonized these executives for taking the bonuses the liberals created and mandated
Maybe we should just let companies decide if they can afford the bonuses or not and if not, let them fail!