The Maximum Wage II

“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis is not only in bad taste, it’s a bad strategy, and I will not tolerate it as president.” President Barack Obama

Will someone please inform the President that with great risk comes great responsibility, then comes great rewards. If you are challenged with performing a task and in the performance of that task you meet or exceed those expectations then there just might be some sort of reward in place. Bonuses are not just awarded because a corporation decides it wants to do so. The merits and the criteria are spelled out at the beginning of the fiscal year, quarter or month. If this then that. In many cases these rewards (bonuses) are contractual.

Let's use fictional company, IRun Enterprises, Inc. They have been losing money for the past 4 quarters and are projected to lose $6 million this fiscal year. The board of directors fire the current CEO, Imma Screwup. They initiate a CEO search for a true turn-around manager and find a candidate, Mr. Ican Dooit. Mr. Dooit studies the business of IRun Enterprises and presents a plan to the board of directors. The plan does not include returning to profitability this year but does show that he can reverse most losses and finish the year at a loss of $3 million dollars and return to profitability by end of year 2. The board prepares a hiring contract for Mr. Dooit. His representative negotiates that if he meets his target objective then he will be paid $500,000 base salary and a bonus 30% of the savings (That's $900K for the math challenged.) The board agrees and along comes Mr. Dooit and his plan. By the end of the first year, Mr. Dooit and his team of executives have not only met their plan but exceeded it and Irun Enterprises has only lost $1 million dollars. So Mr. Dooit's contract calls for a payout of 30% of savings as a bonus, which in this case would be $1.5 million dollars.

Now should you be outraged? Yes, if you are a wealth envy nut job. You see the stockholders would not have a problem with this because Mr. Dewit just increased their shareholder value by turning the company around. Many of the employees will not have a problem with this as because a worse case senario would have meant greater layoffs. The board of directors would be elated since they made a good decision and their shares of this company have been improved as well.

But Barack Obama would have you believe that any company which receives any "exceptional" assistance from the government then their executives should be paid a Maximum wage of $500,000 annually. While the average American is somewhere around $50K a year this does seem like a great amount of cash. Would any top notch CEO looking to advance his/her career want to do this job where there will be tons of government interference and oversight? Long answer is NO! So if he is successful in implementing this Maximum wage then companies that really need a top notch executive will end up with an mediocre CEO at the helm. The talent will go where they can be compensated on a comensurate scale with other CEO's and with no government intervention.

I commend Goldman Sach's and J.P. Morgan for initiating their own version of a poision pill. That pill is to pay back the TARP money early. Goldman Sachs indicated that their financial condition was sound. JP Morgan said they didn't need nor did they ask for any bailout.

"White House spokesman Robert Gibbs said the rules weren’t intended to be “overly punitive,” while a senior administration officials said their primary goal is to align the interests of top executives at bailed-out firms with those of shareholders, who now include U.S. taxpayers.

I thought that the Treasury Department purchases preferred stock and warrants from these troubled financial institutions. That would ensure that the US Treasury would receive payment before common equity shareholders would. And since it is non-voting preferred stock how does the Treasury get to vote on how a company operates?

I hope that these financial institutions get back to the business of lending and freeing up credit so that they can began to pay back the American taxpayer quickly and get government out of of the business of running corporations. And for the rest of you.....Don't do it! Just Don't do it!

That's my word. Post yours.