Economics

Executive Pay Caps We Can Believe In

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Writing at The Freeman, economist Bruce Yandle (listen to him talk about his famous "Bootleggers and Baptists" article here) makes the case for capping a certain type of executive pay:

Yes, it is high time that pay and investment guidelines be mandated for all top level executives who may in the normal course their daily work push the entire economy too close to or even over the edge of systemic risk falls. If nothing else, this Great Recession has taught us that top executives can practically capsize the economy.

But the chief concern is not with presidents and vice presidents of too-big-to-fail banks and other bailed-out enterprises. As large as they are, they are small potatoes relative to the big generators of systemic risk. The critical concern is with top government executives who can create national and international panic, lay the groundwork for international inflation or deflation, and just by voting and writing regulations can change the risk profile of entire industries.

We taxpayer/investors demand a set of risk-sensitive compensation guidelines that will mandate pay and wealth-management rules for all federal government top executives starting with the president of the United States and all cabinet members and their deputies. While we're at it let's include all members of Congress and every member of the commissions and boards that manage the nation's independent agencies, including, of course, the board of governors and chairman of the Federal Reserve System.

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  1. And Union Official too.

  2. Add an s as needed.

    1. There is only one. The Union-Official-In-Chief.

  3. The only trouble is, people go into government for the power, not the pay. Some couldn’t care less about money and for those that do, money follows power.

    One of the chilling things about both Hitler and Stalin was their spartan lifestyle and indifference to their own physical comfort or status consumption. Hitler hated the famous Eagle’s nest that Borman built for him and Stalin seems to have sent most nights sleeping on an office cot.

    We are all genetically programmed to seek dominance over other human beings and our neurology rewards us with pleasure when we do so. For many people, that reward is like a drug and they never cease seeking that high. Government gives the true power to force others to do things against their own wills. It gives the greatest high of all.

    1. We are all genetically programmed to seek dominance over other human beings and our neurology rewards us with pleasure when we do so.

      I’ve seen nothing in the evolotionary biology literature to support this. Are you making this up to make a point? If so, it’s as easy to say that we are all genetically programmed to cooperate with each other and our neurology rewards us with pleasure when we do so. Your next sentence suggests that external — not genetic or neurological — stimuli reinforce the addiction, which isn’t supportable if you consider that people can and have abandoned positions of power because they were not rewarded with pleasure while they held them.

      1. You probably also haven’t seen anything in the biology literature that says people like to have a full stomach and a warm, soft bed.

        1. Sure we have, as it relates to selection pressures that favor satiation and warmth and which can be shown to universally apply to humans who wish to survive. If “we are all” predisposed genetically to dominate, than a simple look around the planet shows that most of us have failed (according to Shannon’s perceived or made up genetic program) which, from an evolutionary standpoint, is unlikely.

          1. Your picture is to simplistic. You don’t have to be on the apex to be dominate over somebody. All humans exist in a dominance hierarchy that stretches over multiple domains from the broad political all the way down to friends and family. Most groups of friends have one or two individuals who start most conversations, who interrupt others more frequently and whose ideas are more likely to be implemented by the group.

            1. Would you rather be subservient? All things being equal, no one would prefer to be under someone else’s thumb.

              With power comes perks. Look at the alpha wolf. He eats first and the most.

              To argue otherwise is failing to see mammalian biology. Not that everyone goes out to seek power, nor that everyone burns for authority, but all-in-all it’s certainly true.

            2. All humans exist in a dominance hierarchy…. And with that statement, I no longer have an issue with your position. It is quite a bit different from “We are all genetically programmed…” because it allows for a far wider variety of inputs: upbringing, culture, religion, cosmetic appearance, esteem, not to mention a whole array of soft sciences like evolutionary psychology. 😉

        2. As a biochemist, I have to say that I have.

      2. You’ve apparently missed a big chunk of evolutionary psychology then. All social animals save hive insects have a status hierarchy and all individual organism attempt to ascend that hierarchy.

        It is true that were genetically program to cooperate but what you miss is that it is that very cooperation that drives the desire for dominance. The goal is to get a disproportionate share of the benefits of cooperation. Everyone is seeking at least the 51%-49% split in their favor. High status/rank individuals get the split in their favor more often.

        Prior to industrial capitalism and democracy the three primary attributes of high status: fame, material wealth and political power, all came in a package in the form of aristocrats. Today we’ve split it up. Actors are famous, anonymous business people are rich and poorly paid politicians have the power.

        People who go into politics may not care much for money and relatively little for fame but they do like the idea of exerting their will on other people.

        1. Evolutionary psychology as a subset of sociobiology is, as far as I can obtain, a field with many more inconsistencies, detractors, and wild supporters than evolutionary biology ever had to deal with. However, if you are well versed in it, then I defer to you.

          It is true that were genetically program to cooperate but what you miss is that it is that very cooperation that drives the desire for dominance. The goal is to get a disproportionate share of the benefits of cooperation. Everyone is seeking at least the 51%-49% split in their favor.

          Hey Shannon, I think where we’re talking past each other. I am talking about pre-embryological genetic behavior. It is now clear that you are using a much softer science to make arguments. That’s fair, but more difficult to disassemble.

          I’m still not convinced (this is not an argument from incredulity) that the quest for a disproportionate amount of power is part of a “genetic program” that — as you put it — “we are all” subject to. Our facility for cooperation often has altruism, charity, and magnanimity built into it, which suggests that obtaining disproportionate amounts of power solely through the self-serving “benefits of cooperation” is at odds with power-less cooperation.

          It’s not difficult to find people who shrink from the idea of dominating others (perhaps we should identify domination more accurately), but who lead lives that, by evolutionary standards, outfit them magnificently for success (i.e., survival).

          1. I am talking about pre-embryological genetic behavior.

            As am I. All humans save autistics attempt to climb the status hierarchy. Dominance is in no way antithetical to altruism (especially when altruism is rewarded by increased status) and individuals can be dominate one moment and self-sacrificing the next.

            This is not just human behavior. It shows up in all social mammals.

        2. One other thing: People who go into politics may not care much for money and relatively little for fame but they do like the idea of exerting their will on other people. How can you possibly know this other than by reading about what people in power tend to do with their power, or about the reasons why people get into politics? It’s a bit like Radley Balko’s cult making massive generalizations about law enforcement because of his preoccupation with abuses of it.

          1. We all have “altruism, charity, and magnanimity” built into us, true.

            But it’s not for altruistic purposes, necessarily.

            Humans are tribal animals. The more eyes that can watch over children, the better their chance of survival. The better work gets subdivided and the better the standard of living becomes. This should be second nature to libertarians.

            Now. We have morality so we can ‘fit in’ with our tribes. If we didn’t have a moral code, it would be violated and the offender would be ostracized. His standard of living would drastically lower due to his not having a tribe.

            Morality and altruism are in human society but (genetically/biologically) solely for our own benefit. We are generally altruistic only so that altruism can be bestowed upon us in our hour of need.

            Simple enough.

    2. You are right, and better said by Lord Acton: Power tends to corrupt, absolute power corrupts absolutely.”

      Please go to Bondedtermlimits.org

      I think our concept presents both a viable and simple remedy to the accumulation of too much power that we see within the Beltway. See, especially the story on Will Breazeale, candidate for 6th Congressional District of North Carolina.

      Join us. Spread the word. Donate, if you see fit.

      Regards,
      Ken Benway
      Alliance for Bonded Term Limits
      Pinehurst, NC
      kjbenway@mac.com

  4. I thought government official’s pay were already mandated by the Congress. Besides, presidents make all of their money after they leave office. This is just silly.

  5. Silly, sure, but why not hit them the same way? I say make it all pay for performance. If you’re elected, then you don’t get paid a dime if GDP growth is low, zero, or negative. Ditto if the budget is in the red.

    1. You think they fudge the GDP and budget deficit numbers now…

  6. While Corzine was Governor, he only worked for a dollar. Didn’t help NJ any. I say hold their families hostage, and if GDP falls, start taking fingers.

  7. I dunno about pay caps. I thought all those positions had pretty measly salaries anyway.

    Instead, lets talk about getting that list of feds started on some weekly drug-testing.

  8. ..and for printing money, take toes.

  9. You guys won’t like this, but bear with me.

    The solution is to pay government officials what they are worth. Think millions per year for presidents and senators, 1/2 million plus for reps, etc.

    This is the only way to attract candidates who are not just running for office because they are power hungry and have deep personal issues.

    1. I agree that this would be a better system for elected officials. Its just flat stupid to put politicians who earn in the low six figures in charge of regulating trillions. I mean, when you look at Federal corruption scandals, the price that people pay for politicians is pathetic. Congressmen get busted by accepting bribes for mere tens of thousands of dollars. Raising their pay would at the least raise the cost, and the risk, of overt bribery.

      And we should bet trying to attack people more interested in money than power. A politicians who views his office as a well paying job is way less dangerous than self-rightous monk on a grand moral crusade.

      1. Although in my vision here, not just anybody is eligible to appointed to congress. Not sure exactly what the criteria would be, but there should be educational limits at least for the House, and property/money limits of some kind for the Senate.

        We must not eliminate the intended purpose of the House and Senate while we’re at this.

      2. Shannon,

        Along those same lines, I’d be in favor of increasing the number of reps in the House, so as to make it neigh impossible for any one individual, corporation, or trade group to bribe a majority.

        Because no matter how much you pay them, there will end up being back room deals some % of the time.

    2. Hmmm.

      Combine that with my idea that congress should be appointed positions like jury duty. Get rid of the campaign bullshit because we know in advance, all they’re going to do is spend obscene amounts of money to tell really pretty lies.

      So being in congress is an appointed position, and the pay is high enough to lure people into taking the appointment.

      This actually doesn’t sound bad.

      1. The server demons messed up the order of my posts.

  10. I have a cunning plan. Take all the metrics I mentioned above (e.g., GDP growth, no deficits–add and subtract as needed), but don’t tie them to pay. Tie them to whether or not a politician can stand for reelection. In other words, create a merit-based term limits system.

    Maybe this should be worked on a bit to avoid ejecting the fiscally sane just because they’re hopeless minorities, but maybe ejecting everyone for failure is worth the cost.

    1. Why not simply do away with government altogether, while we’re at it?

    2. I think my plan is more cunning than your plan.

      But if we could take my plan, and then use your plan to also impose some accountability on our public officials include congress, now that would be ideal.

      How can we arrange it so the government can actually go out of business, to be taken over by new management? Because that’s what we really need.

    3. btw PL, my plan is up above. In spite of the fact that the server demons stirred up the order of my successive posts.

      I want personal accountability imposed on demons while we’re at it.

  11. Well, yeah, something like that would be nice, too.

    I rather like the merit-based term limit idea. I wonder if reasonable metrics could be created to make something like that feasible? Granted, Congress would never go for it–not without a huge public outcry, anyway–so it would probably have to be done via amendment.

  12. I’ve been saying for a long time, it’s the biggest unanswered question in social psychology today…

    Why isn’t Barney Frank the most hated man in America?

    1. Because he’s a Democrat pushing lefty policies. If a Republican pushing righty policies had helped cause a financial meltdown, the media would be all over that story….

  13. I prefer my plan. I actually like elected officials in Congress. I’d like them even more if, say, the Senate were elected by state legislatures.

    1. Because state legislatures are so reasonable and trustworthy, churning out such fantastic laws and such…

      1. MNG,

        It’s not that state legislatures are especially wise, but that they serve as a check to Federal power.

        How many “unfunded mandates” would make it into law if senators needed to keep the state legislators happy?

        Do you really think the states would permit things like federal highway funds being held hostage unless the state passes laws favored by prohibitionists?

        Don’t get me wrong, I recognize that there are flaws. After all trying to come up with a decent government is like trying to come up with a decent system for mugging people. But it provides yet another check and balance and would be a vast improvement over the failed experiment of the last 150 years or so.

        1. The state/federal checks work even better if you also eliminate the income tax and require the feds to get money by “asking” for it proportionately from the states. 1913 was a **VERY** bad year.

        2. I see these advantages in theory, I just think they are outweighed by the increased parochialism that leads to much worse laws. Think of that Sheriff in AZ who makes the prisoners eat green bolagna and wear pink underwear that Balko posts about, that kind of local idiosyncratic rule is found much less when the lawmaker has to appeal to a wider electorate.

          1. Which has absolutely nothing to do with the laws the U.S> Senate passes…

            Think about it. Let’s say that America-hating traitor Sherriff Joe wants to make prisoners eat green bologna. He convinces his buddies in the AZ legislature to pass a law mandating it. They get so excited that they order their senators to propose such a law nation-wide.

            How far will that law really go? Yes, there’s a chance that it might get passed as a result of logrolling, but the probable outcome is that the rest of the senators will mack the Arizone delegation for being a bunch of barbaric rubes who think they are in Soviet Russia.

            The Senate was intended to be the mechanism by which state politicians kept the feds in check. Direct election of Senators removed that check on totalitarianism. It created a mechanism by which career politicians with the incentive to reduce government action to have access to the levers of power.

            1. tarran
              Excellent point, I concede to you on it actually.

              Let me bring up two other things on this:

              1. You still have a direct check on the feds here: the state voters who select the Senators. Presumably they will not elect Senators who will not watch out for the state.

              2. The process can work in the other direction, that is state legislatures can direct Senators they choose to bring federal pork back to the state, and more specifically they can bring back federal money for the state governments. They would have an incentive to do this as they can then direct the federal money in ways to protect their power and incumbency…

              1. May I submit that the assumption that state legislators would know and protect better the interest of the state in selecting US Senators than would the voters strikes me as strangely akin to the oft-criticized here tendency of assuming that regulators or legislators know best how to protect the interests of the people…

                1. Very briefly, MNG, that’s not quite correct;

                  After all the same electorate that elects senators elects members of the House and no one is talking about abolishing the House – well, except anarchists like me ;).

                  To descend into corporate buzzspeak, it’s giving stakeholders (state governments) a seat at the table. Yes, I did throw up a little saying that…

                  And yes, career politicians can be trusted to have insights that we regular hard-working god-fearin/rejectin folks on main street miss. Many Americans, for example, have no clue that the Davis Bacon Act was intended to prevent black people from immigrating to the North from the South. The politicians at the time knew what the score was.

                  Be that as it may, I don’t consider it a flawless system. I merely think it has advantages over the status quo.

              2. I deny point 1: see my comment below regarding the house o representing?

                As far as point 2. Yes that would happen fairly frequently. However, state legislatures would be far more likely to jump on federal legislation that disadvantaged them than a disinterested electorate, and far less likely to accept a senator’s lukewarm defense of their interests.

                BTW, thank you for conceding the earlier point. It was quite decent of you and I appreciate it.

                1. Hey, you were right and I was wrong, what can I say?

                  On the other two I’m not so sure ;). I trust the electorate as much if not more than I do state legislators to look after the proper interests of the state, and you don’t get the same incentive the state reps have to get the feds to send as much money as possible into state coffers for them to distribute to consolidate their power.

                  I also think that to the extent state reps know the score US senators can too…

  14. Your flaw, Mr. Scrooge, is in using threaded comments in the first place. Eschew them! Repudiate them! Exorcise them!

    Adnotatiunculae bilicis delenda est.

  15. Why not cap the pay of Fannie Mae and Freddie Mac executives?

    Oh, wait, I forgot.

  16. I will not cow to the threats of chronologically-posting terrorists.

    1. Or should I say, Chronofascists.

  17. Why not cap the pay of Fannie Mae and Freddie Mac executives?

    1. Oooh! Oooh! Kin I do it, Boss?

      1. Wit’ extreme predjudice. By all means, whack ’em.

          1. Hold on, Guido, I have my OWN brand of thugs for this job.

  18. I actually think it’s wrong to cap executive pay. I’m all for measures making it easier for shareholders to reign in the “principal-agent” problems in corporate America right now, but if the holders really want to pay somebody enormous salaries because they think they are worth it they should be free to do so. It’s their choice, and the person may be well worth the pay.

  19. Hear, hear MNG…

    You are quite right.

    1. Some people don’t realize that while some CEO’s get huge salaries, some of them are really worth it, that is they make their shareholders big dividends. And again, even if they don’t, if the holders are well aware of that fact and still compensate the CEO with gobs of money that is their business. Any holder who does not like it can take their investment elsewhere…

      1. Swoon!

        We’ll convince you to drink the anarchist koolaid yet. 🙂

  20. If you’re elected, then you don’t get paid a dime if GDP growth is low, zero, or negative. Ditto if the budget is in the red.

    Sounds good, PL. Plus, mandatory *dunce* caps.

  21. I kinda like George Will’s solution to executive pay for businesses that take government bailouts to stay afloat. Cap the executive pay at these businesses at GS-12 level, about $130k per year.

  22. Pro L,

    From now on I shall banish them from my sight.

  23. Actually i would do just the opposite…I would raise the pay of elected positions by 400% or more.

    This would help to attract people to elected office who are there for the money rather then those who are power mad.

  24. If we want to stop inflation once and for all, we just need to prohibit any increase in congressional pay.

    -jcr

  25. Money can’t be separated from power.

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