Posted: 02/04/09

Why Capping Executive Pay is a Good Thing

President Obama and Treasury Secretary Timothy Geithner recently announced a plan that would put a $500,000 cap on the pay of executives working for companies that receive part of the $700 Billion economic bailout money.  Reactions have been mixed.

Most liberals see this as a huge step in the right direction.  Why should executives be given huge bonuses and salaries while their companies are driven into the dirt?  That's a fair question.  If the government is footing the bill to restore these companies, then certainly the government has a right to dictate how the funds used in that restoration are dispersed. 

Many conservatives see this as another step, a rather large one to be sure, in the direction of a government-controlled economy; just one step closer to socialism.  Neill Boortz pointed out that a pay cap, especially one as low as $500k, will significantly reduce a company's ability to recruit the talent they need to get back in the black. 

As a conservative, I am a firm believer that whenever you put a limit on what someone can or cannot make, you are tampering with the free market unnecessarily.  The market has checks and balances inherent within the system to take care of both excessive and insufficient pay.  Overpay and you lose money on your product because of expense, underpay and you lose money because your product won't be any good.  There is a delicate balance and the free market has, historically, regulated itself in this regard. 

So why would I say that I'm a fan of Obama's latest plan to cap executive pay?  Two reasons.  First off, it might very well serve as a disincentive for companies who consider walking into our Congressional halls, hat in hand, begging for money.  Maybe it will encourage them to become innovative (again) and figure out ways to make a profit on their own.  Imagine that, private companies going it alone; taking the successes and failures that come with risk. 

Second, I think it may serve as a sign of things to come for those "conservatives" leaning toward supporting universal health care.  If legislators can stipulate the pay of a TARP-funded company's executive, why shouldn't they also stipulate exactly what Government-funded health benefit recipients can or can't eat, drink, smoke, where you can live, what you can drive, how many children you can have, etc.? 

Obama's pay-cap is the same wolf as universal health care; it's just wrapped in a different sheep's clothing.  In order to receive X, you must first do Y; this is always the case when government gets involved.  Maybe, just maybe, the restrictions that accompany TARP will bring that to light.   

By Paul Shelby Lewis Click here for bio and archived articles