Why limiting CEO pay is a bad idea.
There has been a lot of talk recently, especially with all the companies receiving bailout money of late, about government imposed limits on CEO pay. Much of it has been in regards to companies that receive bailout money having their CEO pay limited. There is a huge problem with that, it will only serve to counteract the alleged purposes of the bailout money.
There are a lot of executives that have made a career as recovery specialists. They have spent years of their lives working and honing their reputation as being the person to call when your company is going down the tubes. Many of these people are capable of coming into a failing company and either, lessening the losses the company will suffer, or even taking a company that’s losing money and helping them to turn a profit. These people are worth a lot of money. If an executive comes in and takes a company that stands to lose 20 million dollars in a year, and the changes they make lead to either a profit, or only losing 5 million, I would say they deserve to get a hefty chunk of change. If a company gets limited by the government to say that they can’t pay over a million dollars for this persons services, because they have received bailout money, these recovery specialists are not going to waste their time working for this company, they’re going to go work for a company that is not limited, and can afford to pay them what they are worth.
This also applies to the concept that “if a company loses money the executives shouldn’t get paid millions.” If a company stands to lose 100 million in a year, and only loses 5 million, that executive has saved the company 95million dollars. I think there is justification there for that executive to receive a few million themselves.
If we prevent these companies from paying recovery specialists what they are worth, the recovery specialists will not work for these companies. These companies will then, therefore, continue going down the tubes, and eventually close up shop.