Stepping Over a Line

I totally agree with the notion that TARP funds and other bailout monies ought not to be used to fund executive bonuses.  That totally makes sense.  Why should taxpayer funds be abused in this way?  Anyone who doesn't meet a projection of financial success ought not to be rewarded, especially with money that's supposed to loosen the credit markets. But as the sentiment of mainstream America swings like a pendulum, it often swings too far.  And we end up with people criticizing other people for making too much money.  If we continue down this path, we're in a lot more trouble than anyone ever thought.

An economic environment where people take risks but are shamed out of collecting the rewards is a poor place to make a living.  It means that the people who push the economy forward - small business people, investors, executive management at larger companies - won't take risks.  They'll latch on to the money they do have.  And it will make things worse.  A lot worse.

But it seems like we're heading down that path.  Watch the network or cable news shows.  There are a lot of stories bubbling up.  Not all of them are about abuses of TARP funds.  Some of them are about revelations concerning what a CEO makes in comparison to what his workers make.  These stories try to shame a CEO into taking lower pay because they ought to "in this economic climate."

What these stories neglect to mention is that a CEO doesn't make whatever the hell he feels like paying himself.  If the company is a public one, it's got a board of directors that approved an executive compensation plan, and can apply pressure if it feels its CEO is making too much money.  Yet, how many stories are you reading about boards of directors doing that?

What many of these stories also forget to mention is that many executive managers elect to take deferred compensation for past milestones met.  Sometimes a CEO might defer his compensation until the following year, electing to keep capital within the company.  Perhaps, due to a tax situation or other extenuating circumstances (cash flow?) a CEO might elect to take deferred compensation even though they're entitled to it during that particular year, according to their compensation agreement with the board.

Pressuring executive management to leave money on the table that they're entitled to is what Ayn Rand called "looting."  It's worse if the pressure comes from the general public, especially if they're not investors in the company in question.  It's yet worse when people neglect to hold the board of directors accountable rather than executive management.

If this idea that people aren't allowed to earn more than a certain amount during a recession manages to take hold in mainstream America, then we're well on our way to stepping over the line when it comes to providing a fertile environment for businesses.  If we don't have a business-friendly economic environment, people with the money to invest in business (and thus, jobs and local economies) take it elsewhere, and we end up screwing ourselves.

This isn't to say that we ought to avoid keeping a close eye on TARP funds - I do agree that taxpayers ought not to be forced to line the pockets of the under-performing ultra-rich.  But we can't let the pendulum swing too far in the other direction such that making too much money is a crime against America.  If it does swing that far, we're all up a creek.