Responding to outrage over reports of Wall Street excess, President Obama announced plans to cap executive compensation at $500,000 for those firms that accept significant federal assistance moving forward. Well, not surprisingly, a number of interested parties immediately began to point out that capping salaries on Wall Street is a mistake. For example, Heidi Przybyla and Christopher Stern of Bloomberg report:
Efforts to curb executive pay may backfire, said Scott Minerd, chief executive officer and chief investment officer of Guggenheim Partners Asset Management, who helps oversee more than $30 billion in stocks and bonds.
The Obama measure is “too draconian and too arbitrary, and doesn’t take into account free-market forces,” said Minerd. “Companies that need the most talented people to fix their problems won’t be able to pay them.”
Many white collar workers have bonuses – to a greater or lesser degree – as a part of their compensation package. Most of these same workers understand that if the organization isn’t successful then your bonus is negatively impacted. Hell, it is safe to say that many white collar employees did not receive bonuses this year due to the economic downturn.
So it is no surprise that the typical non-Wall Street white collar worker would be appalled that employees of “unsuccessful” Wall Street firms would receive nearly $18 billion in bonuses (6th highest total in Wall Street history), when nearly every firm received tax payer funds.
When your firm is on life support and is receiving public funds due in large part to your executive teams greed and very poor decision making, then the argument that limiting pay will cause brain drain rings hollow. It is difficult to believe that the firm has the best and the brightest who are deserving of extraordinary pay when the firm is in a ditch. In fact, those responsible for the firms decisions should be thankful to have a job because based on their performance they should be unemployed.
Ultimately the decision is simple. If your firm is confident in your team of rain makers that clearly is worth millions and can not live with pay caps, then don’t accept the funds and make them earn their pay. Use their extraordinary talents to pull the firm out of the ditch. We wish you luck and great success. However, if you need public funds in order to survive, then you need to tighten your belt and figure out how you will survive on $500,000 until your firm can pay back the public funds.