Sunday, March 22, 2009

The Wedge Strategy Revealed Through Executive Compensation Attacks

The outrage over the AIG executive compensation and bonuses was phony and ginned up as I've repeatedly noted over the past few days, since both the Administration and Congress knew of these provisions and chose to exempt them from being regulated as a condition of receiving TARP funds and bailout money.

Instead, it appears that it was meant to lay the groundwork for the Administration to start demanding increased control over executive compensation - all executive compensation.
The Obama administration will call for increased oversight of executive pay at all banks, Wall Street firms and possibly other companies as part of a sweeping plan to overhaul financial regulation, government officials said.

The outlines of the plan are expected to be unveiled this week in preparation for President Barack Obama's first foreign summit meeting in early April.

Increasing oversight of executive pay has been under consideration for some time, but the decision was made in recent days as public fury over bonuses has spilled into the regulatory effort.

The officials said that the administration was still debating the details of its plan, including how broadly it should be applied and how far it could range beyond simple reporting requirements. Depending on the outcome of the discussions, the administration could seek to put the changes into effect through regulations rather than through legislation.

One proposal could impose greater requirements on the boards of companies to tie executive compensation more closely to corporate performance and to take other steps to assure that outsize bonuses are not paid before meeting financial goals.

The new rules will cover all financial institutions, including those not now covered by any pay rules because they are not receiving U.S. government bailout money. Officials say the rules could also be applied more broadly to publicly traded companies, which already report about some executive pay practices to the Securities and Exchange Commission. Last month, as part of the stimulus package, Congress barred top executives at large banks getting rescue money from receiving bonuses exceeding one-third of their annual pay.

Beyond the pay rules, officials said the regulatory plan is expected to call for a broad new role for the Federal Reserve to oversee large companies, including major hedge funds, whose problems could pose risks to the entire
This goes beyond reckless disregard for the market system to imposing a socialist regime on businesses that the Democrats do not like. The government is stoking populist outrage to further its agenda, claiming that executive compensation should be tied to performance.

Businesses already face the risks of poor business performance and compensation for executives is tied to that - even with the golden parachutes. The overwhelming majority of businesses in this country have corporate boards that are responsible for their business actions and will find themselves out of jobs if they do a poor job.

It's hilarious that Democrats are pushing this at a time when their own performance in Congress is abysmal. They're pushing trillions of dollars of spending as far as the eye can see and massively expanding the deficit, both of which would be as fiscally irresponsible as it gets. Yet, the same Democrats are refusing to alter their mandated pay raises. Why should these Congressmembers get raises for poor performances under their own rationale for controlling the private sector compensation system?

What this shows is the Democrats absolute disdain for the market economy and free markets where businesses can contract with employees - in this case business leaders - for compensation packages to manage the affairs of large corporations. If these businesses give outlandish compensation packages and suffer business losses, the outrage belongs on the business leaders and the corporations for the outsized compensation, but it is not the government's place to direct the compensation packages. It is antithetical to the market system and is a socialist answer to a problem that simply doesn't exist.

Keep in mind that the government has routinely failed to maintain proper oversight based on its existing regulations and attempts to tighten up the lending standards were rebuffed because Democrats feared it would adversely affect minorities. This includes the SEC, which failed to pick up on the Madoff Ponzi scheme and other wrongdoings until the entities involved melted down in full public view. The SEC and Federal Reserve can barely handle its existing responsibilities, and yet the Democrats are pushing for an even larger role. They can't handle their current role.

Case in point is the fact that the SEC failed to engage in proper oversight of companies leading up to the credit meltdown (which led to a Geithner appointee to withdraw her name from consideration). Further, the Treasury Department isn't fully staffed at this late date with Obama appointees to see through any of Obama's policies and that Secretary Geithner continues showing himself to be inept at proffering a credible policy to deal with the ongoing problems in the credit market.

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