OBAMA EXECUTIVE PAY LIMITS

I am posting two links to articles on President Obama's proposed executive pay limits. One article from the WSJ and one from the Washington Wire.

I am sure there will be a firestorm of opinions one way or the other over the pay limits. Another government intrusion? The first step to more sweeping executive pay limits? Bigger government? Will the good executives and employees leave?

One way to look at this is like a lender to a financially troubled company. What the US Government is a lender in these cases? The recipients of the "exceptional assistance" are troubled companies?

Yes, the recipients ARE financially troubled companies and the Government IS the last chance lender! Guess what, in the old days, the lenders of last resort called the shots. Those shots typically included:

a. Limitations on the amount and timing of executive compensation

b. Prohibitions against certain non-essential expenditures

c. Limits on capital expenditures

d. Limits or prohibitions on related-party transactions

e. Spending in accordance with a budget approved by the lenders

f. Actual to budget reporting and accountability

Over the years, large bankruptcies and troubled company situations have gotten away from these former tenets of last resort lending. It would appear that Obama is leading us back there.

By the way, if YOU were the lender of last resort to some company that may not survive, wouldn't you make sure that the money wasn't spent on expenditures that you thought were excessive?

I haven't seen all the details yet, but I hope it doesn't go further than financially-troubled companies and that there is a provision for troubled company experts who are hired to be paid a market rate. If troubled company advisors are subject to such rules, I suspect the best of them won't work as executives on such situations and that would be bad answer. Also, the cap should just apply to executives at the very top and not reach too far down. Nor should the cap apply to performance based compensation of the star performers of any organization. You wouldn't want your stars to an "exceptional assistance" company to go to the "garden variety" assistance company or to a non-assistance company, whoever they are.

One last thought, has anyone heard anything from any board of directors of a large public company? Where are these people? Let me know if you have.

Cheers, Mike