Capping executive pay

One of the many, many little goodies hidden in the massive stimulus package that has just been passed is a provision that sharply limits executive pay for companies accepting bailout money, limits much more draconian than those imposed by the Treasury department last week. The provision prohibits cash bonuses for the five senior officers and the highest-paid 20 executives in a company, and limits any bonuses to no more than 1/3 of their base pay and to restricted stock that cannot be cashed out until the government has been fully repaid.

There has been a lot of talk, especially in the financial world, about how this will cause a brain drain of talent from these companies. But of course, if a company was so poorly managed that it had to accept bailout money to stay solvent, then one has to wonder if the management was so brilliant that it would be a loss if they left!

More to the point, one of the problems with America in recent decades is that so many of our best and brightest have been attracted by the money to “non-productive” fields like corporate law or Wall Street, instead of to innovation, research, science, engineering, the arts or productive entrepreneurial activities.. The “non-productive” label will, of course, make lawyers and financial types bristle and defend their occupations, but in point of fact such fields generally produce little of tangible use in the world, besides paper wealth for practitioners and their clients.

Think about it. A brilliant fund manager may figure out a trading scheme that brings his clients a few percent more gain in their holdings. A brilliant financial expert may create yet another complex derivative that his company can market at a profit. And a brilliant corporate lawyer may craft a clever deal that allows his client to buy out a rival at a better price. But in the end, what have their activities contributed to the real wealth or knowledge or productivity of the nation or the world?

A sharp diminution in the salaries available in these fields might thus redirect many of our best and brightest back into the more productive occupations that originally made this nation great. And that might not be a bad thing.