Democrats in Congress and the news media have long pushed for pay caps for the very rich. President Barack Obama complained about “corporate excess” while campaigning and had introduced a “say on pay” bill while in the Senate, according to CNN. But on Feb. 4, Obama took the first real steps toward wage restrictions.
“For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn’t just bad taste – it’s a bad strategy – and I will not tolerate it,” Obama declared on Feb. 4.
Obama said the government will be “demanding some restraint” and will prohibit senior executives of companies getting money from the federal bailout from earning more than $500,000 (other compensation will be restricted to stocks that cannot be cashed until the government is repaid).
The networks barely criticized Obama’s plan, while CNN anchors praised the move. CBS’s “Early Show” called Obama’s move “trimming the fat,” while ABC’s Terry Moran summed up Obama’s speech: “For Americans disgusted by big bonuses and the lifestyles that go with them, his message was clear. This country’s culture of excess must come to an end.”
Anthony Mason’s Feb. 4 report for CBS “Evening News” only included two experts and neither criticized the policy. One of them, Neil Weinberg of Forbes, said there had been “an executive pay orgy that has been going on in this country for far two long.” Another said “sometimes you need an external whack.”
CNN anchors and reporters welcomed the plan. Ed Henry told “Anderson Cooper 360” viewers that the move was “wildly popular” and Larry King told his audience Obama was taking on “corporate fat cats.” The decision was “guaranteed to make a lot of Americans stand up and cheer,” according to Campbell Brown.
Historically the media have complained about “staggering” salaries and profits of Wall Street and other businesses.
At this point the compensation rules would not be retroactive to institutions that took money from the first $350 billion loaned by the Treasury to banks as part of the Toxic Asset Relief Program (TARP), but that could change. Right now companies like Goldman Sachs would not have to comply, yet that financial group announced the very same day that it would like to repay the TARP loan from the Treasury Department.
Goldman released a statement the same day Obama made the salary cap announcement. “Operating our business without the government capital would be an easier thing to do,” Goldman’s Chief Financial Officer David Viniar said to Bloomberg.com. “We’d be under less scrutiny and under less pressure.”
Goldman rival Morgan Stanley also wants to be rid of the TARP according to Forbes.com. Its CFO Thomas Colm Kelleher told those gathered at a Credit Suisse investor conference that the company would like to repay its $10 billion loan as soon as possible.
We Can Only Pay You a Fraction of What We Used to Pay You
A pay cap of $500,000 would be a huge pay cut for many executives even though it “sounds like a ton of money.” CNBC’s Melissa Francis was one of the few reporters to present this perspective. Francis told “Today” viewers on Feb. 4 that Goldman Sachs’ CEO Lloyd Blankfein made $68.5 million in 2007. How would you like to keep working, but for 1/137th the salary?
Economist Gary Becker was skeptical that the caps with have the intended result and wrote that wage and price controls “never work.” Becker said that such caps will encourage companies to hire attorneys and accountants to work around the rules and will also put those companies that are in trouble in a bad position – because they will be unable to afford top talent.
Economist and Business & Media Institute adviser Walter Williams once wrote something similar. According to Williams, companies must put a value on a good CEO’s contribution – which sometimes amounts to turning around a failing multimillion-dollar business. And they have competition to contend with.
"If one company has an effective CEO, it is not the only company that would like to have him on the payroll," Williams wrote. "In order to keep him, the company must pay him enough so that he can't be lured elsewhere."
Bloomberg quoted a compensation consultant on Feb. 11 who said that a half-million dollars “may not buy a seasoned executive for a major
In fact, according to that Bloomberg article only 14 CEOs in the Fortune 1000 make less than $500,000.
While the new rules are only part of Goldman’s reasons for wanting to repay its TARP loan (Viniar told Bloomberg “we’d like to get out from under those [compensation restrictions]”), there are signs that salary caps may be imposed on other businesses too.
According to Chris Isidore of CNNMoney.com, businesses should expect more signs of government action on executive pay – even for companies that didn’t take federal funds.
Isidore’s article pointed out that the public’s mood now supports wage restrictions and quoted Robert McCormick, chief policy officer for Glass Lewis & Co., a research firm advising institutional investors.
“McCormick said it is almost certain that so called ‘say on pay’ rules will pass Congress and be signed into law this year. In fact, Obama was a co-sponsor on such a measure when he was in Congress,” Isidore wrote.
Judge Andrew Napolitano wrote in the Feb. 6 Wall Street Journal that such salary caps violate the Constitution and economic sense.
“[T]he federal government wants to interfere with private employment contracts already entered into – and regulate those not yet signed – in order to satisfy the perceived populist instincts of the electorate,” Napolitano said. The caps also constitute a “taking” which “is prohibited by the Fifth Amendment.”
San Diego Union-Tribune staff writer, Dean Calbreath, called the uproar over executive pay limits “misguided” on Feb. 8, but even his column on the issue included criticism that some network reports left out.
Calbreath quoted Former Treasury Secretary Paul O’Neill’s claim that the cap is “a huge mistake,” as well as Carly Fiorina, the former Hewlett-Packard executive who advised Sen. John McCain during his presidential bid.
Fiorina said the cap was a problem because “the opportunity to be rewarded for taking prudent risk is fundamental to our economic vitality and strength.” A lobbyist with Financial Services Roundtable told Calbreath that salaries should be determined by the open market.
Jealous Journalists Champion Pay Caps
Network reporters barely criticized Obama’s plan to cap executive salaries, while CNN praised them. Some reporters mentioned how angry Americans are about executives making millions during an economic downturn. But only in rare cases were critics of the plan and its downsides mentioned. The unbalanced coverage isn’t a surprise given the news media’s history of complaints about overpaid executives.
“Stratospheric.” “Staggering.” Those are just two of the words network reporters have used since 2006 to bash CEOs and other executives for making “obscene” profits.
Businessmen are often put on defense in the news – commonly over how much they earn. A yearlong study of American businessmen and women found them portrayed negatively 57 percent of the time in evening news coverage.
Brian Williams talked of “runaway pay” and “stratospheric sums” in April 2006, while NBC’s Anne Thompson described Lee Raymond, Exxon’s former CEO, as “unapologetic” for making so much money. Would Thompson ask any union worker to apology for making too much money, despite the havoc wreaked on the auto industry from union contracts?
Lisa Sylvester and Lou Dobbs were in agreement on Oct. 19, 2006 that CEOs make too much money. “A little unfair indeed, Lou,” Sylvester said.
Even a CEO giving up millions of dollars wasn’t enough to appease CNN. Countrywide Financial executive Angelo Mozilo gave up $37.5 million in severance pay in January 2008 calling it the “right thing to do,” but CNN’s “American Morning” still complained.