Is there Logic in Limiting Pay for Bailout Executives?
So it has been announced that Obama along with Congress will limit the executive pay for companies accepting bailout money. I understand the sentiment, I understand the anger and resentment, but I don’t understand why anyone would think this is a good idea. A lot of these companies who need to accept bailout money need to do it as a result of poor leadership in executive positions. The only way for these companies to recover is to fire these executives and replace them with new blood or old experienced blood. The problem is that these companies will not be able to attract the most talented executives who can really turn the company around because the companies those talented people helped run didn’t suffer to the point to require a bailout - their companies can still afford to make them a great offer and they will.
This leaves us with keeping the ‘talent’ already in the companies, we have to keep the people who got us into this mess and hope they’ve wizened up. Unfortunately a lot of these people have very specific contracts stating how much they are to be paid and in what form, what perks they will receive, and what their bonuses will look like. These contracts aren’t somehow dependent on whether the company takes a bailout or not. If these companies wanted to be out of these contracts perhaps they should have just filed bankruptcy. As it stands now congress may be wishing a pile of litigation on these companies.