Who Should Determine CEO Compensation?
I’m torn. I didn’t like the corporate bailouts and thought troubled corporations should use the bankruptcy if they were insolvent. Bankruptcy is a government sanctioned bailout designed to give businesses some breathing room while they reorganize themselves. It forces them to make tough decisions and enables them to correct some previously made bad decisions. Instead, taxpayers committed billions of dollars we didn’t have to prop up weak balance sheets. Many of the companies who were weak then are weak now.
Yesterday, Obama’s pay czar announced compensation changes for those bailout recipients who’ve yet to repay the money. There is logic to the argument that by taking the money these companies opened themselves up for this. As the majority shareholder, the government is exercising the kind of power that a private shareholder might exercise.
The unintended consequences might cause this move to backfire. GM is already having a difficult time finding a permanent CEO; the headaches of working with government involvement is keeping many of the best candidates away. Take away the financial rewards and there is little to attract good candidates. Should a new senior executive, not involved in the financial problems, be forced to pay the price for her predecessor’s bad decisions?
The government does not have clean hands. The loose credit that led to the financial meltdown was forced upon lenders by the government. Business leaders took advantage of the easy credit making business decisions that turned disasterous when the house of cards collapsed.
Who should bear the burden of the corporate bailouts? Help me clarify my thinking on this topic and send me your thoughts.
