"Will the administration then order people back to work?"


At Marginal Revolution, economist Alex Tabarrok has some unkind words for the Obama administration's decision to order massive executive pay cuts at firms that took TARP money:

There is no way this will work as advertised.  If the administration actually follows through, most of these executives will quit and get higher paying jobs elsewhere.  Executives not directly affected by the pay cuts will also quit when they see their prospects for future salary gains have been cut.  Chaos will be created at these firms as top people leave in droves.  Will the administration then order people back to work?

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  1. Back-door nationalization. “Hey we didn’t want to nationalize, but the guys quit their jobs.”

  2. “Will the administration then order people back to work?”

    No, they will be sent to re-education camps.

    1. Re-Neducation!

      1. Now that you mention it, a nice glass of warm milk, a little nap, and a full frontal lobotomy would probably help me deal with these policies a little easier…

        1. Fundamentalists Christians(I know a few) stopped worrying once Obama was elected (“a sure sign that the end times are near, don’t you read the Bible?”) — they’re contentedly waiting to be Raptured to their reward. A frontal lobotomy in another form…..

          1. To borrow a line from O’ Brother, Where Art Thou, “that don’t make noooo sense!”

          2. How I Learned to Start Praying and Love The Com(munists)

  3. In the late Roman Empire the economic policies of the emperors caused a massive flight from urban areas, creating extensive economic decline. Their solution? No, it wasn’t liberalizing their economic policies, but rather to force craftsmen and other laborers back to their jobs where they and their posterity were required by law to labor.

  4. BTW, this administration is so fucked up. I heard them saying that if they hadn’t bailed out Crysler, 300,000 people would have lost their jobs. Last month, nearly twice that number lost their jobs.

    Why is Crysler special?

    Conversely, cutting back the number of F-22 jets originally ordered by the pentagon will put about 300,000 people out of work.

    Why is Crysler special?

    1. Wow, them and Chrysler too? This is more far reaching than I thought!

    2. Why is Crysler special?
      Three letters:
      U A W

    3. Conversely, cutting back the number of F-22 jets originally ordered by the pentagon will put about 300,000 people out of work.

      Are these Union jobs?

    4. Why are these executives special? People around here like to talk about TEH UNIONS and anyone else they don’t like making too much money, but somehow now it’s different. OH NOES THE TALENT


  5. Wage freezes work just about as well as any other government program.

    However, in the short term, this is great political theater. The average schmuck is going to feel that it’s OK because the people in question already make more than 30 times what he does.

    1. I din’t RTFA or the comments but why don’t we want wage caps for bailout recipients? Their top talent need to quit and find honest work.I want every one of those companies to fail hard.I don’t want a cent paid back to the government.Harsh lessons need to be learned and those responsible for TARP held accountable.

  6. How is cutting someone’s pay by 90% not tantamount to slavery? Did the 13th Amendment get repealed when no one was watching?

    1. It’s not slavery when a black person does it.

    2. I remember when I was a slave, and the plantation owner said “Sorry guys, gotta give you a 90% cut in your food ration”. I was all like, “Fuck this shit, I quit.” Worst. Job. Ever.

    3. It’s not slavery when you’re free to quit and find another job.

      1. Another job where the taxman only takes half of the money you make?

        I guess you always can work for minimum wage where you pay nothing in taxes. So you get either half slavery or just a really crappy job.

        Or you beg.

    4. Ahhh! The idiots who massacred their own companies are whining because they can’t get platinum parachute paychecks on the taxpayers dime.

      Maybe they will all “go Galt” on us and ruin a few more outfits stupid enough to hire them.

      1. Use some common sense: The companies they worked for weren’t charities. They paid them that much money for the same reason, Baseball players are paid lots of money, e.g. it’s their market value. If they leave they take that value with them.

      2. And Obama will be right there behind them, with a large blank cheque in his hand…

  7. Will the administration then order people back to work?


      1. Oh, come on, nobody has thought of this? A bunch of old white guys lose their high-paying jobs, so it’s a perfect opportunity for underrepresented minorities and women to be promoted! The magic of diversity will cure the ills of the economy! And if they screw up, they can just blame the people who came before. There’s little downside for Obama on this one, except for you nitpickers and reactionaries concerned about liberty and the Constitution and other obsolete things.

        1. Are we talking about the presidency or i-banks?

  8. Will the administration then order people back to work?

    They could threaten to enforce the non-competes that are often ignored under normal circumstances.

    1. While ignoring the fact that the government is breaking their agreement.

      This is Stalin, FDR and Truman rolled into one.

  9. Dude, teh only reason those high salaries are possible is because of the bailouts. Quit whining.

  10. Dude, teh only reason those high salaries are possible is because of the bailouts.

    Way to miss the point. Try again.

    The author is talking about the real effect this will have. Your (and my) feelings about their pay are moot.

      1. I surrender. Typed sarcasm hath brung me low a time too many.

        1. Looks like your radar s better than mine.

      2. I’m serious. I also don’t care much if they leave.

        1. If they quit, they can go on to a productive job that will grow the economy.

          1. How about the gummint not baling out failed businesses and then we can all go about our days with a big, steaming cup of noneofyourfuckingbusiness as to how much these losers get paid?

    1. If he’s right, then he hasn’t missed the point, and he’s also talking about a real effect.

      “Hi, I just took too many wild risks, ran my company’s balance sheets into the red, but fortunately kept my job because we got nationalized instead of having our bankrupt remains sold to the highest bidder. How much money do you want to give me to help run your company?”

  11. You know what might solve this? Invent a time machine, go back in time and not hand out massive amounts of taxpayer money (and the strings that inevitably come with it).

    Were firms made aware before accepting the money that salaries were subject to government dictate?

    1. Under this administration? I on’t think they will be going back in time to reduce socialization.

    2. actually, some of those firms were coerced into accepting those payments by Hank Paulson, to hide the fact that Citibank was on the verge of collapse.

    3. “I am altering the deal; pray I don’t alter it any further.”

      *hhooo-pah, hhoooo-pah*

      1. “This deal is getting worse all the time.”

  12. But they can’t quit! That’s a violation of Directive 10-289!

    1. At a time like this, we can’t afford the luxury of thinking!!

  13. I know rock-ribbed conservatives who support the cutting of “obscene” compensation for these high executives.
    When asked what will happen if they quit, they believe there are hundreds of quite talented and smart lower level executives that will jump at the chance for higher comp. And if the people at the top are so talented, why did things go all to hell? Never discount those who are willing to cut off their noses to spite their face (and then will be running to plastic surgeons demanding free surgery.)

    1. I think those are reasonable questions. Hell, I will take one of those jobs at the lower compensation. What is the worst that can happen? Am I going to invest in bogus mortgage backed securities and destroy the world economy?

      The companies should have gone bankrupt and then we wouldn’t have to worry about what they are doing with their money. This kind of bullshit only happens when you insist on sucking on the government’s tit.

      1. Am I going to invest in bogus mortgage backed securities and destroy the world economy?

        You would if they were rated as AAA investments with implicit and explicit guarantees from the government. As they were. People responded rationally to the incentives put in place by the government’s insane credit and housing policies.

        1. There is more to it than that. The ratings were worthless. Maybe if I am investing a few billion I might want to do more than just take the ratings companys’ word for it, especially when the investment is built on the idea that housing prices are somehow immune from the laws of supply and demand.

          They basically checked out of common sense and invested in bullshit. Maybe they really are genuises who were just caught up in the moment. I don’t really care, as long as they go broke like they deserve to.

          1. Well, yes, you do. You take out a CDO with AIG, so that the down side is covered and AIG absorbs the loss when things go bad.

            Or, by extension, the US Taxpayer, when AIG gets bailed out.

    2. Also I call bullshit on this “you must pay top dollar to get top talent” idea. IF that were true, why aren’t the Knicks dominating basketball? Isn’t it possible that boards, who are made up of other CEOs, pay CEOs huge salaries to enforce the myth that huge CEO salaries are necessary? Maybe you could run a company under a moneyball theory where you go find up and comers and pay them less by a factor of ten and then let them go after they are successful and get another one? Considering how many hugely paid execs have destroyed companies there seems to be little correlation between pay and performace.

      1. CEOs are essentially salesmen. Good CEOs have the credability to go to any other CEO and sell massive amounts of product, which another person with the same talent wouldn’t have until they had built up their reputation.

        The TARP/Auto CEOs aren’t credible at all and if they made a recomendation I would probably do the opposite.

      2. Your last sentence pretty much hits the nail on the head. I don’t believe that all CEOs of these companies played fast and loose with no regards to the well-being of their company, but for those that felt there is little impact to themselves if everything goes to hell then having a non-performance based compensation doesn’t provide any incentive to perform well – much like politicians.

        I’m sure there are more factors involved than simply how they are compensated – and it’s really not the government or non-customers/shareholders decision – but I certainly wouldn’t want to place my money in a company with a CEO who can be there for 2 years, jump ship when he sinks the boat, and can get away with a fortune. It would certainly aid in discouraging bad management, although asinine regulation can negate anything good.

      3. Good point! If the Knicks were smart, they’d cut the salaries of their entire bench to a maximum of $100K. (And if the Knicks had been bailed out by the government, I’m sure they’d be required to do exactly that.)

      4. I thought that “boards, who are made up of other CEOs, pay CEOs huge salaries” because they fucking can.

    3. I’m not a ‘rock-ribbed’ conservative, and I support cutting the entire firm off and letting them go into an orderly bankruptcy.

      Something that Obama (or Bush) can’t fathom.

  14. Reason number 8 million why the bailouts were a stupid idea. Of course the top people were going to steal the money. They were crooks who ran their companies in the ground. So we are going to give them a boatload of free money and act shocked when they stole it.

    If these companies had been allowed to go out of business like they deserved to, we wouldn’t be worrying about what they were paying people. Pathetic.

  15. Just wait until health plans and doctors stop taking medicare and medicaid money. What will the government do then?

    1. The government controls licensing. So no medicaid, no Dr. license.

  16. Chaos will be created at these firms as top people leave in droves.

    I think these places are already in chaos. Not knowing what the government will do to you, but accepting boatloads of cash anyway, has a tendency to do that. Besides, Professor Chaos initiated everything anyway.

  17. Well said, John. I wish TARP was so bad it went back in time and prevented itself from being passed. No such luck.

  18. When asked what will happen if they quit, they believe there are hundreds of quite talented and smart lower level executives that will jump at the chance for higher comp.

    If they’r really that talented, etc., they can get even higher comp at non-bailout firms.

    This will have lots of people who aren’t directly affected putting their resumes in circulation. The lid just got slammed onto the prospects of everyone with ambition at these firms.

    And if the people at the top are so talented, why did things go all to hell?

    If only they would ask that about the geniuses in government.

    1. RC,

      I have a hard time caring that so many talented people are puting out their resumes. They should have all been putting out their resumes last fall. These are zombie companies. If they hadn’t sucked on the government tit and died like they were supposed to, they wouldn’t have this problem. Fuck them all.

  19. they won’t be publicly “ordered” back to work. They will be publicly chastised by the white house, and privately pressured/threatened to go back. I dunno which is worse.

    1. Perhaps if they hadn’t destroyed their companies and gone begging to the mafia for money, they wouldn’t be in this situation. Yeah, Obama is wrong. But I have a hard time haveing much sympathy for these losers even if they are facing endentured servitude.

      1. Yep, that’s just what happens when you take the King’s shilling.

        1. Yep, that’s just what happens when you take the King’s shilling Messiah’s shekel.


          (I know TARP started under Bush the Lesser, but Barry the Anointed is in charge now.)

      2. John, go back a read the old threads and news reports. The companies that crashed typically had many division that were hugely profitable, but their profits were swamped by the bad deals made in mortgage backed derivatives.

        The bulk of the people being hurt by these types of executive pay slashing had nothing to do with crashing the company.

        That being said, the companies should have been allowed to die so that the profitable devisions could be bought up by better managed firms.

        1. I really don’t care if they had anything to do with it or not. The fact is they are working for companies that as far as I am concerned looted the treasury. Fuck them. If their divisions are so profitable, then they should have quit and gone to work for someone else when the bailout happened.

          1. You’re pissed off at the wrong people John. And you’re smarter than that.

            1. Obama is wrong to cap salaries. But, he was wrong to bailout the companies. This is the kind of crazy shit that happens when you take the govenrment’s money. That is all I am saying.

              1. And what I’m saying is that it’s crazy to compound the craziness by capping the pay of executives who are performing. Yes, the firms should have been allowed to fail. If that had happened, the liquidation process would have involved spinning out the profitable divisions, which would today be paying the high salaries necessary to retain the executives who make those divisions profitable. But instead, the government took over the companies, presumably because it thought it could turn them around and make them profitable. (Maybe I’m wrong, and the purpose was only to keep the companies in business so that jobs there could be handed out as rewards to Obama faithful. I’m going to pretend that’s not a possibility.) Well guess what, if you want the company to become profitable, you have to be willing to hire the talent who can make it profitable, at the going price for that talent. (That’s why, by the way, the Fiat executives who were brought in at Chrysler were made exempt from pay caps.) I’m presuming, of course, that Br’er Rabbit’s position is not that of most people and that, having thrown the money at those companies, we’d actually like to have some chance of getting the money repaid.

  20. As a lad I heard a manager at my first job proclaim “Any company with a union deserves it.” Now, I’d say that any company with a governmental bureaucrat determining the CEO’s pay deserves them.

  21. I’m not tooo unhappy … this will help drive these firms into bankruptcy – where they belong.

    1. I don’t mind either. The Obama administration descends further into a corporatist state, and these firms fail. It’s a win-win.

    2. I don’t think so. The governemnt is highly suseptible to the sunk-cost fallacy.

      A whole lot more money is going to be dumped into these firms so that they can be managed by the government through remote-controlled robots that are willing to accept the below par compensation.

      1. I would accept below-par compensation. I could use the raise.

    3. What precisely makes you think that will be allowed?

      Was this the first time the auto companies were bailed out?

  22. It they’re going to order people back to work they should order the millions of involuntarily unemployed people back to work!

    1. Yeah, and order them to buy health insurance, too – even if they can’t get back to work.

  23. Will the administration then order people back to work?

    Can you say, “Compelling National Security Interest”?

  24. Uh oh… I wonder if this means the administration is going to say that “Jeopardy” is not a real game show?

  25. And if the people at the top are so talented, why did things go all to hell?

    If only they would ask that about the geniuses in government.

    Just imagine how bad things could have been *without* these talented geniuses running things. [shudders, sighs]

  26. The Obama administration is trying to do something that’s never been done before: Not control the means of production, but control the results of production. This is entirely new territory. The Obama administration wants to organize sectors of the economy such as Textiles, Auto manufacturing, transportation.

    The factory owners will remain owners, but they must adhere to a national agenda as far as employment practices and how goods and services are produced.

    We’re talking an entirely new form of government, never before tried.

    And I’ll bet when he’s done, the trains will run on time.

    1. Or not. This only applies to major TARP receiptants, namely auto companies and financial firms, and only ones that would have otherwise failed.

      1. One word: Healthcare.

    2. What are you talking out. It is clearly National Socialism. I don’t mean that as some retarded “Obama = Hitler” comparison… I mean, Obama’s economic policy is very similar to WWII Germany: Centrally plan the economy, but let owners still retain ownership and make a profit.

      1. Actually I was hoping people would grok Mussolini’s Italy, but yes.

        And for those students of history, they might recall that the industries were completely on board with the whole idea. So again, Democrats, when industry gets on board with your creepy progressive ideas, you should be afraid, very afraid.

  27. This new system will be called Flashism. Or maybe Fukuism.

  28. Well, if they are so damned talented let them go find work elsewhere. As it stands now they are working for ME (as a taxpayer) and I agree they are overpaid. Banking appears to be the only business that is currently rewarding failure. I do think it would be simpler to just tax officers of firms receiving TARP funds at 90%.

    1. No, the government is rewarding failure. When the banks were rewarding failure, the were…failing. But the Bush and Obama administrations stepped in and said “What’s this? Failure?!! Can’t have that!” and proceeded to wire them billions of my money.

    2. ever watch a weather forecast Bob?

  29. Crashism?

      1. National Audacialism.

  30. If these people were so good at their jobs in the first place, their company wouldn’t be needed to be bailed out, now would it? Also, it appears that stock compensation above the limits, with redemption delayed until after the company repays the TARP funding, is allowed.

    I do think new hires should be exempted. Ain’t their fault that they are entering a shithole of a company.

    1. Dude, none of these companies needed to be bailed out. That was a complete fabrication leveled on the American people by the former and current administrations.

  31. It isn’t only the incompetent CEOs that will be effected by this. It will also effect the executives in charge of individual units, some of which have been quite successful on their own, who had no influence on the meltdown. These people do have the talent to go elsewhere. The ones who will be left are the incompetent ones who know they don’t have prospects elsewhere.

  32. I support this only because it will, in the future, make top executives wary about accepting a government bailout only because it may hurt them directly.

    1. Some companies where forced to accept the bailouts, against their will.

  33. Easy solution.

    1) Declare financial institutions key to the “War on Poverty”, new legislation is passed making their oversight a military matter.

    2) Institute a special draft for executives.

    3) Retirement, movement to another country, will be treated as treason.

    4) Profits?

    1. 5. Create “journalism Czar” who will determine what are and what aren’t proper “news” organizations.

      6. Institute government “licensing” of all journalistic organizations.

      7. Study Ralph Nader’s new book for ideas on “The Agenda”.

      1. You left out the subsidies for “proper” news organizations.

  34. Since TV shows like “American Idol” and “Dancing with the Stars” seem so popular, I’m considering this idea:

    Each executive has, say, ten minutes to explain what (s)he did/does. Then the viewers phone/text in the pay/penalty the executive should receive.

  35. You know, I’m sympathetic to complaints about executive pay being out of whack. But I don’t want the government intervening to “fix” the problem. I suspect that somewhere in all of this, the government has helped to create that problem.

    1. PL, I seem to recall an article a while ago that suggested that the depression era reforms to ostensibly protect investors transferred a lot of power from shareholders to management and boards. This has led to a culture where corporate officers have disproportionate and often unchallenged power.

      IIANM, one of the “protections’ with unintended consequences is the requirement that anyone trying to take over a company through stock purchases has to publicly announce his intentions before aquiring a certain percentage of shares. To the extent that takeovers have been successful most observers, I think, agree that they have had a generally beneficial affect on corporate governance.

      It’s kind of vague in my mind and, needless to say, I haven’t the time (or more to the point the skill) to research it further.

      And, in fact, I may have taken away a completely wrong impression. As I say, I read the article a long time ago.

      Also, my impression is that the laws controlling corporate governance are to some extent a mixture of the Federal (SEC regs and the like) and State incorporation law. I have heard that both have have a distorting affect. But again, I freely confess, this is really a case of too little knowledge.

      And given that dearth of knowledge I hesitate to make grand sweeping cries for reform and I suspect a lot of others would be well advised to be equally cautious.

      1. There is something wrong about the way shareholder rights work. I can understand requiring some distance between the shareholders’ and the daily operation of the business, but shareholders seem to regularly lose any battles against the board or management. Something’s not quite right there, especially when you look at how other entities (like LLCs) get the limited liability and seem to allow more member control of the operation. After all, shareholders own the business.

  36. That’s the beauty of my idea. It’s you, the viewer, who fixes the problem!

  37. “Will the administration then order people back to work?”

    Nah, they’ll just fill the positions with federal bureaucrats.

    What could go wrong?

  38. How many of these executives are the SAME executives who were in place 2-5 years ago when the bad decisions were made? Of the CEO’s of the 7 affected companies (Citigroup, Bank of America, AIG, General Motors, Chrysler, GMAC, and Chrysler Financial), only 2 have the same CEO now as in 2007. One is Ken Lewis at BofA and he’s on his way out. The other is Vikram Pandit at Citi and he only got there in Dec. 2007, well after many of the shenigans went on (although many would say he’s nothing wonderful either). It seems this policy is punishing current execs for the sins of the previous execs, and can only make it harder for these companies to get the talent they need to get better.

    1. Sounds like the Obama excuse: “b-b-but my predecessor caused all this.”

      How fucking naiive can you get? It’s not like the guys currently in charge had no clue what they were getting into. They knew DAMN WELL what they were getting involved with, and were integral parts of the creation of the mess before they assumed the top position.

      1. Well their predecessors did cause it. They were hired for the purpose of cleaning it up. Going back on contract isn’t a good way of keeping those people on.

      2. Good point! Since Obama continues to preside over a clusterfuck of an economy, his salary should be capped at $100K, instead of the obscene $450K that he pulls down.

  39. The argument that these were failing companies, and that if you take tax dollars you deserve what you get, so the Pay Czar should do whatever he wants, runs aground on the age-old fallacy:

    Two wrongs don’t make a right.

    It was a bad idea to bail them out. Its a bad idea to give the Total State control of compensation. The first bad idea in no way rehabilitates the second.

  40. A machining company in Ontario, Canada, went out of business rather than let themselves be unionized after the employees voted to go union. The provincial government ordered the company back into business.

    We’re all Canadians now.

  41. The real problem is when the shysters who got their pay whacked eventually quit they’ll be replaced by political appointees. The new boss will be an even more incompetent crook because the likes of Barney Frank and Maxine Waters will have a say in it.

    I’m fine with that actually. The TBTF banks are mostly controlled by public pension funds anyway, so the current assholes in charge are de facto political appointees already. Gotta save those public pensionSS.

  42. Can we unbail them out?

    1. Can you unbreak my heart?

      I didn’t think so.

      1. No, but I can reduce your salary.

        Yes, it’s true: I’m the Blog Commenter Pay Czar.

        Half! One year!

    2. They were too big to fail BEFORE they were shoveled billions and their competitors crumbled.

      Now, the fate of mankind lies in their hands alone…

  43. You left out the subsidies for “proper” news organizations.

  44. This likely to provide another excellent lesson in unintended consequences resulting from government show boating.

    From the comments at marginal revolution

    Alex is right, but with a caveat. The talented ones that can get jobs elsewhere will leave.

    The ones that suck will be willing to stay and put up with the adminstration’s bullying.

    It is already happening:

    Citigroup sidesteps pay row with Phibro sale

    The guys worth $100M? Already gone, along with his revenue stream.

    Posted by: anon at Oct 22, 2009 9:09:26 AM

    1. Wow, they sold a unit that “generating average annual profits of $371m over the last five years” for $250m. Genius.

      1. The article says “under a contract written well before the financial crisis, he is entitled to a slice of its profits,” so the firm’s take-away might have been some unimpressive coupla mils.

  45. The ones that suck will be willing to stay and put up with the adminstration’s bullying.

    “Ladies and Gentlemen, let’s have a nice round of applause for Ken Lewis!”

  46. The executives gave up their freedom when they took our money. Please don’t make it sound like the President is being mean to those nice rich people whose salaries we are paying. Enough!

    1. And it’s clear that I gave up my freedom, too. And I didn’t get any money from anyone. So how does that work?

    2. I pay the president’s salary and I’d like him to suck my balls

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