Salary Caps Will Chase Away Top Talent, Stall Economic Recovery

By John Cardillo
America’s Right

Interestingly enough, on the way to work today, the federal courthouse in Miami was still flying the American Flag. Such a sight was interesting to me today because, when I read the newspapers this morning, I figured we had been taken over by China, Cuba or Venezuela. After all, what else could explain the president of the United States telling private industry how much to pay their executives?

But no, America was not invaded, the government not overthrown. It was just B. Hussein Obama being B. Hussein Obama.

For those still in the dark regarding the latest leg of our trek down the slippery slope toward socialist, I’m talking about how our new president wants to cap executive salaries–in those companies which received bailout money–at $500,000. And, of course, he’ll do it with the help of a Congress which, back in December, just voted to give itself a pay raise.

Now, some of you might be saying “hmm, that’s fair, five hundred grand is a nice paycheck.” Well, yeah, it is. However, that’s not for you, me, or President Obama to decide — it’s for the market to decide. Sadly, what Obama and his fellow liberals don’t seem to realize, beyond the fact that the bailout was a horrible idea to begin with, is that everything possible must be done to ensure that these bailed-out companies now succeed. No longer is it only the money of stock speculators at risk; now, everybody’s money is at risk. And when it comes to ensuring success, one of the easiest ways to do so and help that process along is to hire top talent — and top talent in the financial world costs a slight bit more than $500,000.

As a private sector CEO, I will tell you that salary caps will do more to hurt bailed-out companies than the Obama administration and all handout-loving, newly socialist Americans realize. Say goodbye to the best investment bankers, the best traders, the best analysts; the very hearts and souls of finance profit centers. For better or for worse, these people, when at the tops of their games, make millions per year. And, why shouldn’t they? They make the banks and financial houses billions.

Five hundred thousand dollars per year is not even a negotiation starting point for these types of unique talents. They’ll just move on from companies that took federal money, and go to hedge funds where they’ll enjoy less oversight, less regulation, and bigger compensation packages. Taxpayer owned financial institutions will be left hiring the “B” and “C” teams, second- and third-string talent which will bring second- and third-rate results. As a result, large powerhouses of finance will subsequently lose investment to smaller private funds, and bank stock prices will continue to sink.

Bailed-out institutions cannot quit being competitive, especially with executive compensation, just because they’re using federal money. In fact, it’s their duty and responsibility to look for every competitive edge. Quite the opposite from capping salaries, large portions of bailout money should be used to search for, hire, and pay, the most successful money managers and analysts. They’re the ones who will restore profitability to the banks. Salary caps serve nothing but socialist agendas.

In the meantime, I hope somebody in the Obama administration realizes what a disaster salary caps will be, and has the resolve to speak up. If not, say goodbye to good taxpayer money poorly spent.

—————
John Cardillo, a former NYPD officer now considered to be one of the world’s foremost experts on online safety and security, is president and CEO of Sentinel Tech Holding Corp., an Internet security company which specializes in online crime and predator detection, online child safety, and the protection of Internet end users from criminals and sexual predators. Cardillo lives in Miami, Florida and, in his spare time, can be found astride his Harley-Davidson, in the Florida Keys, at the shooting range, or on South Beach. He has been contributing to America’s Right since January 2009.

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  1. cjt1101 says:

    My understanding is that the $500,000 executive salary cap only will be imposed on any institutions that go to the Treasury Department for “exceptional assistance” in the future.

    So while I agree that “everything possible must be done to ensure that these bailed-out companies now succeed,” I think that the cap is irrelevant in this regard, because it doesn’t apply to companies that have already been bailed out.

  2. Jose Alvarez says:

    You know that I was thinking just that same thing this morning about the salary caps chasing talent away? Being a pastor however and not an economist, I thought I could be wrong. I realize that Lord was speaking!
    Now I read the that the stimulus pack will also penalize schools encouraging prayer and religious activities by denying them funds for renovation. Let me see now… ban Gitmo, ban space weapons, ban modernizing of nuclear weapons, ban CIA prisons, promote abortion, cap salaries on execs. and ban prayer to The Only One who can save us from the mess!
    What do we get? DISASTER!!!!
    God save the republic!!!

  3. Anonymous says:

    John,

    Just about everything you say makes sense. Like you, I am a good Reagan Republican.

    In a true free market, capitalist economy, there are no bailouts — companies succeed or they fail.

    It starts and ends there with me. Everything that is happening right now completely offends my capitalist sensibilities.

    But here is the political reality: The Best and The Brightest in many of our (formerly) great American companies have fallen flat on their asses. They have been humiliated. They have failed.

    And now, these great minds have picked themselves off of the ground just enough to sit on their knees and beg money from the government. By definition, these guys can no longer be labeled as true capitalists. They’ve converted to another ideology. They have sold out. And worse than that, it is widely perceived that it was their greed that ultimately did them in (and maybe it was). Ergo, there must be some sort of punitive action taken by the executive and legislative branch.

    And here you have it: proposed limits on executive compensation.

    It should not be surprising to anyone that we have reached this point. After these companies have taken the first nickel from Uncle Fingers, they are no longer private companies or companies owned by shareholders alone. Just as with a federally guaranteed studen loan, the government now has a say in how you spend its money.

    What is funny about all of this to me is how outraged Americans suddenly are by executive compensation. Many act as if it hadn’t been common knowledge for many years that CEO’s earned themselves a handsome sum. It didn’t occur to them to boycott GM or Ford during the dozens of years its executives were flying around in luxurious private jets. The talking heads at CNBC, MSNBC, and CNN never feigned outrage because CEOs at Citi or Merrill Lynch received bonuses of $20 million and up. No, it is only now that we see Americans behaving in their typical reactionary fashion.

    Americans don’t get up in arms because legislators never fail in a vote to award themselves pay raises. And that is what is most interesting to me in all of this: Politicians, who have virtually no fear of electoral reprisal when it comes to voting themselves raises, are now going to annoint themselves arbiters of what compensation levels are fair in corporate America. Unbridled hypocrisy in American politics is the only tradition that will survive this economic crisis.

    -G. Shultz in Orlando

  4. Anonymous says:

    This idea of salary caps set by the federal gov’t smells like it COULD be unconstitutional…any information on that???

  5. Anonymous says:

    This doesn’t surprise me one bit – goes right along with the minimum wage, affirmative action, government preferences, etc. Where will it stop? It will not stop, because we will be socialist and that is what socialist governments do. The govt will be in every aspect of our lives, so hang on folks, the idiots that voted this idiot into office have gotten what they asked for.

  6. Gail B says:

    Rev. Alvarez, somebody say, AMEN!”

  7. Anonymous says:

    Some of this “top talent” should be more worried about going to prison than salary caps.

  8. Amy says:

    And, don’t think they’ll stop with just controlling how much some CEO’s can make. Anybody and any job is fair game from here on out. If the government gave money to your employer for any reason, the government can put restrictions on your wages as well.

    But, why stop there? Why not tell theaters how much they can charge for tickets or how much Campbell’s should charge for soup? There’s no end in sight for the control that Obama wants over our lives.

  9. bdaman says:

    McCain is back paste this far and wide vote no to the stimulus package.

    http://www.countryfirstpac.com/petition/economic.aspx

    Yesterday, the Senate began debate on an economic stimulus package that is intended to get our economy back on track and help Americans who are suffering through these difficult times. Unfortunately, the proposal on the table is big on the giveaways for the special interests and corporate high rollers, yet short on help for ordinary working Americans. I cannot and do not support the package on the table from the Democrats and the Obama Administration. Our country does not need just another spending bill, particularly not one that will load future generations with the burden of massive debt. We need a short term stimulus bill that will directly help people, create jobs, and provide a jolt to our economy.

    I believe we need to evaluate every bit of spending in this stimulus proposal with one important criteria – does it really stimulate the economy and help create jobs – if the answer is no, it does not belong in a so-called stimulus package. Furthermore, the stimulus must include significant direct relief to American workers in the form of payroll tax cuts and programs to help homeowners keep their homes. Finally, we need an end game to this stimulus so that when our economy recovers, these spending programs do not remain permanent and saddle our children with a skyrocketing national debt.

    I appreciate the discussions President Obama is having with my Republican colleagues, but the time for talking has come to an end and we must now begin some serious negotiation. But as of yet, Republicans have not been given the opportunity to be involved. The House of Representatives passed a stimulus bill without a single Republican supporting it. In the Senate, the Democrat leadership is trying to jam the existing proposal through regardless of reservations from a number of members. With so much at stake, the last thing we need is partisanship driving our attempts to turn the economy around.

    I have long been a fighter against wasteful spending in Washington and long an advocate for a balanced budget — that will never change. I realize we face extraordinary challenges with our economy today, but that is not an excuse for more irresponsibly from Washington. I hope you will join me in saying no to this stimulus package as it currently exists by signing this petition.

    Sincerely,

    John McCain
    Chair, Country First PAC

  10. JeanWTPUSA says:

    John, come on! These overpaid CEO’s and their overpaid underlings got those companies into that mess to begin with. I think a base salary of $5OOK, plus lucrative performance bonuses is warranted under these circumstances.

    If they want to leave, so be it. Everyone these days is easily replaceable. These companies, like others must start to focus on leaner operations, human capital and knowledge transfer.

    The best run companies should be able to continue function well when any KEY employee no longer works there.

    Americans are some of the most unproductive workers in the world. We work more hours, get less vacation time and only about 20% of their time each day doing value-added activities, which are activities that actually have an impact on the companies bottom line or the quality of products and services. Most time is WASTED!

    Why? Because much of the work we do is duplicated or has to be relearned when someone knew comes into a position.

    With over 75 million baby-boomers retiring in the next 5-7 years, who will be replaced by the MySpace and Facebook generation, if you think we have a financial crisis now, just wait.

    Companies realize they are spending BIG money on executive salaries and less on improving workflow, creating lean operations and mechanism to be able to transfer knowledge from one generation to the next, but they keep on doing the same old thing and expecting different results.

    Hence we have a huge mess and every industry has suffered. One high priced executive or a team of high priced executives will not save a drowning company who does not have the internal mechanisms in place to plan and implement strategies, coordinate workflow, create self-managing teams and develop and monitor initiatives that spark innovation and improve quality and customer satisfaction.

    When was the last time you received great service….when was the last time you had a product that didn’t break right after the 1year manufactures warranty expired.

    Pay, especially executive pay should be based on performance. PERIOD, expecially for bailed out companies.

    If we started paying executives based on performance, there would be no fat bonuses being paid out to execs at failed companies.

    Something to chew on. You are dead wrong on this issue.

  11. Anonymous says:

    If talent equals higher pay, then why were the idiots who destroyed the financial industry paid so much?

    We can’t expect the market to fix things if the market is broken. Also, the cap is only being enforced to businesses requesting bailout money (making sure they don’t blow it all on outrageous salaries and bonuses).

    http://www.newsy.com/videos/obama_we_all_need_to_take_responsibility/

  12. Linda says:

    Sorry, cjt, but you’re mssing the point. There should be NO cap at all. The government does not have the right (at least not yet – and hopefully never) to dictate salaries to private businesss.

    Not entirely pertinent to this article (with which I agree and the same rationale I was propounding this morning to coworkers), but a pertinent quote nonetheless:

    Karl Marx 1867
    “Owners of capital will stimulate the working class to buy more and more of expensive goods, houses and technology, pushing them to take more and more expensive credits, until their debt becomes unbearable. The unpaid debt will lead to bankruptcy of banks, which will have to be nationalized, and the country will have to take the road which will eventually lead to communism.” (Das Kapital, 1867)
    ________________________________________

  13. Anonymous says:

    I don’t know, folks, Obama has already revealed to us that there will be “Absolute Catastrophe” if his bailout/pork package isn’t passed immediately. He’s probably right about salary caps and everything else that pops into his socialist noggin. If he says so, it is so.

    Dear Leader knows best. All hail Dear Leader. I was getting bored with living in a republic anyway.

    JV

  14. Claudia says:

    What most here are forgetting on this salary cap that Obama is saying must happen for all banks that “took” monies from the TARP, is that just about every bank, including Wells Fargo and BofA were forced into taking the $25 Billion from the fund, they weren’t given a chice or an option to say NO and some tried to say NO, in particular, BofA and Wells Fargo both said NO but were told that they had to take the money, by Paulson and the TARP people at the time. In fact it was in the News and the papers. So,…. IF the bank takes the money, then they are not allowed to pay higher salaries or go on Bonus parties like Wells Fargo had planned, well that is total BUNK. They didn’t want the money at the time, in fact, Wells Fargo bought Wachovia to help keep that bank afloat. They didn’t want or need the money at the time that the Wachovia deal happened, and yet they were forced to take it and now chided, derided, villified and ambushed because they planned a party in Vegas…..

    Use your memories folks…. remember who did what and why.

  15. Anonymous says:

    This may do some unintended good by forcing troubled institutions to create banks and businesses out of good assets.

    Good banks and businesses, under the direction of the best minds, will lead the economic start up.

  16. tm says:

    Typical Marxist crappola – trying desperately to put FEAR FEAR FEAR
    MUST DO THIS – HAVE TO DO THIS
    It’s crap here is proof of their EPIC FAIL
    Today, without anything done by the feds and buried on the last page – you have to look to find it

    Pending home sales post increase of 6.3%
    This must drive their marxism dreams into a frenzy

    http://www.usatoday.com/money/economy/housing/2009-02-03-pending-home-sales_N.htm

  17. CryingBabe says:

    It is not up to the government to control anything if they can’t even control their own wage structure. They do nothing and get thousands of dollars. There should be a cap on their pay. Most of them do a poor job and get paid far, far to much for the little they do get done.
    Too bad the creators of the Constitution didn’t put caps on salaries and term limits back then.

  18. Anonymous says:

    “top talent in the financial world costs a slight bit more than $500,000″

    So far the last ten years have proven how worthy of their salary they are.

    Although I agree with you that this is not the roll of government, one must ask themselves where society places value. Jeff, you yourself has stated how you’ll be making 250K as an attorney, are you worth half a typically corrupt CEO? Are public school teachers worth 10% of 500K (if that) when administrators are paid exorbitant salaries plus perks? Are physicians (not doctors, iow non-elective procedures) with minimal 8 years of postgraduate study worth less?
    Are sports figures worth and their coaches of state run universities worth 10x 500K?

    It’s all relative. Hold on to yer bootstraps, society is about to implode.

    Society wreaks of self, and it perpetuates the mentality of “oh sorry, but at least I got mine.” (quoted by a deceased attorney friend of mine)

    ps. Just where do you think this talent is going to go? Probably start their own firms without taxpayer subsidies. If they are truly worth their salary, they’ll land on their feet just fine.

  19. Ted says:

    While it should go without saying that even a legitimate President’s “ordered” $500,000 pay cap is an unenforceable intrusion into the private sector, as if that weren’t enough, Obama LACKS EVEN OSTENSIBLE AUTHORITY to issue the order UNTIL HE OVERCOMES “RES IPSA LOQUITUR” BY SUPPLYING HIS LONG FORM BIRTH CERTIFICATE AND PROVING HIS ELIGIBILITY TO BE PRESIDENT UNDER ARTICLE 2 OF THE US CONSTITUTION.

  20. Let us move forward says:

    check this out

    “US President Barack Obama has already used experts within the last few months to hold high-level but discreet talks with both Iran and Syria, organizers of the meetings told AFP.”

    More at:
    http://uk.news.yahoo.com/18/20090201/twl-obama-has-begun-discreet-talks-with-3cd7efd.html

    This is a link in:
    http://www.americanthinker.com/2009/02/obama_may_become_a_disaster.html

    This article points out that we need to watch who Mr. O has appointed just below the top jobs. The top jobs could become for “show” with the real decisions and direction coming from below. Remember what Mr. O thinks about the Cabinet. It’s right up there with his opinion on the Constitution.

    Last night there was an interview with Mr. O by Charles Gibson. Mr. O seemed to be in complete agreement with the House’s version of the Stimulus bill. He justified the purchase of all the new government vehicles and the conversion of government building to “green” status because it was needed for the future. He said that houses must have the energy efficient upgrades. We must not forget that coal based energy will be made too expensive for anyone (including the government) to buy.

  21. Let us move forward says:

    Iran has successfully launched a satellite! When will they have the tip?

    I grew up in the Cold War, with CD drills.

    Here we go again?

  22. Seeks Truth says:

    John,
    Right on the money.

    Claudia,
    You too. I was just recollecting this today but couldn’t remember which ones turned it down. This is just wrong, wrong, wrong!

    The class warfare perpetrated toward business owners is out of hand. For those who support this cap, how you feel when he caps your salary, because they will eventually. Slippery, slippery slope. Beware.

  23. Let us move forward says:

    Remember 1970s gas lines? Jimmy Carter thought that he could fairly distribute the gasoline during the 70′s oil embargo. There were price controls and gas stations ran out their gas quotas before everyone who needed the gas could buy it. People waited in gas lines in the the cities, but small towns always had gas for sale. If only he had let the market dictate, there would not have been as much of a crisis.

    During the depression, wages and prices were fixing prolonged the depression. The companies and unions had to be saved then.

    Today’s CEOs have not been worth the money that they have been paid for a long time. Most of them (like the politicians) have been in the business of looking after themselves and most of them are just in it for the money and their egos. Now that the companies are failing, do we really need the wage controls for the CEOs or anything else?

    Has a government ever proved itself smarter than the market?

    In the normal course of a bankruptcy, the assets of the company would be sold probably at a deep discount, hopefully to someone that could do more with the assets.

    The main problem is the common man, saddled with heavy debt on credit cards, new cars, and mortgages and without enough savings to pull through a rough time. The credit card companies have been pushing debt on many people (including college students) very hard, and these people did not understand the consequences of what they were doing. These debt ridden people probably do not understand the consequences of the government taking on such a massive debt right now, as debt is a way of life for them.

    I found the Marx quote very interesting.

  24. cjt1101 says:

    In response to Claudia, again, the cap won’t apply to companies that were previously told “they had to take the money) (such as Bank of America, Wells Fargo, Citigroup, AIG, etc). It will apply to those that ask for it in the future.

    To Linda, I’m surprised to hear you say that the government doesn’t have the right to dictate salaries to private businesses. First, not only has the government been determined to have this right, but it already exercises it routinely (ever heard of the federal minimum wage law? A perfect example of the government dictating what private businesses have to pay their workers).

    But second, your wording seems to indicate that you think the cap applies to executives of EVERY private business. Were this the case, I would agree with you that the government doesn’t have the right to impose it. But the cap will apply only to the executives employed by companies that voluntarily approach the Treasury Department and solicit it for bail-out funds. If a company doesn’t want to accept the conditions of the cap, it has a very simply solution available: Don’t go asking for a hand-out. Live by the free market, and die by it.

    But if a company (particularly one that has already shown a penchant for financial mismanagement) willingly makes the decision to go to the government and beg for what amounts to a gift, a do-over, a donation of U.S. taxpayer money that it otherwise would have absolutely no right to, and the government agrees to do this company a favor and give it some money, surely you would agree that the government has the right to impose at least SOME conditions on how that money will be spent.

    You can agree or disagree with whether there should be a bail-out at all. That’s a separate issue. But if it’s going to happen, I think most people acknowledge that some amount of oversight regarding HOW the disbursed funds are spent is called for.

  25. d says:

    Those of you may remember what Obama did in regard to public financing during the election.

    “One year ago, he made a promise. He pledged to accept public financing and to work with the Republican nominee to ensure that they both operated within those limits.

    Then it became clear to Sen. Obama and his campaign that he was going to be able to raise on his own far more cash than he would get with public financing. So Obama went back on his word.”

    So now that Obama had bought the election with his illegal campaign fund, he wants to put a cap on salary for Execs?
    Give new meaning to “Do as I say and not as I do”.

    Read the full article here:
    http://www.cnn.com/2008/POLITICS/10/28/campbell.brown.obama/#cnnSTCText

  26. Cromagnum says:

    Salary caps are for gov’t bureacrats.

    Why not a reverse dutch auction for these jobs????

    http://nymag.com/news/features/all-new/53352/

    Problem: CEOs make too much money.
    Solution: Make them bid for their jobs, like contractors.

    Plenty of smart people have tried to think up ways to rein in bloated CEO salaries: Treat stock options as expenses! Let shareholders vote! But Selena Maranjian of the investment newsletter Motley Fool recently suggested, audaciously, that if companies really want to save millions, they should start holding Dutch-auction-style competitions for their CEO slots. The idea is that the board of directors would identify well-qualified people they’d be interested in hiring as CEO and then have the applicants bid on the job, stating the least amount of money they’d accept. Lloyd Blankfein raked in $70 million last year for the top Goldman post, but who’s to say there’s not some well-qualified executive out there who’d do the job for a mere $30 million?

  27. Anonymous says:

    I hate OBAMA. But I think this was a wise move. If companies who need tarp funds to keep afloat, then the ceo needs to be paid the cap until they pay it back. You can’t take the taxpayers money without restrictions on it.

    $500,000 is much better than being fired and getting nothing because the company went under. You won’t get the talent… BULL! There is plenty of talent out there and you will probably get rid of the cronyism. Sorry… Obama was right on this. But he is totally wrong on the new $800 billion bill.

  28. Lisa says:

    The salary caps on CEO’s is a perfect and graphic picture of the consequences of wanting the federal government to bail you out. Let us all learn a lesson from this: IF YOU GET “HELP” FROM THE GOVERNMENT, THEN GET PREPARED FOR THEM TO OWN YOUR LIFE!

    Wake up, people!

    It is all just pure and simple incremental socialism!

    Why is no one paying any attention to the Federal Reserve….a private entity of very powerful people that basically CONTROL OUR MONETARY POLICY!

  29. Brian3B says:

    This might be the first article I disagree with on this site. Although I do not like the idea of bailing anyone out, I cannot prevent that… therefore, if the Gov’t is using MY TAX DOLLARS, then I believe they can do whatever they want in terms of restrictions and I think this is a good one. If it keeps the best of the best away, then that’s a result of the government interfering in the first place.

    Furthermore,

  30. Wendy says:

    If these guys are so great, making “billions a year” then why’d we have to bail them out to start with? They should have all been fired for running those companies into the ground. Sorry, I agree with you on most things, but not this. Why should I pay for them to go on a Las Vegas Junket after bailing out their sorry asses?

  31. Anonymous says:

    Yeah it would be a shame to run off the “talent” that did such a good job that a company needs a handout.

  32. CAL says:

    Since most politicians have never held a real job, they do not understand basic principles of economics such as paying market prices for employees. Now that the politicans have ruined our financial industry, they will move onto the healthcare industry. It is really going to be scary when all the best and brightest do not want to become doctors because they cannot make enough money with government run healthcare to cover their school loans or their malpractice insurance.

  33. Ian Thorpe says:

    I can’t really comment on American executive pay but in London, where most of the same organizations were involved in the collapse, it was the bonuses that were obscence.

    Now there are many perfectly legal ways to move bonus funds offshore to light regulation regimes before handing the money to the recipient.

  34. MattD says:

    I have to agree with the sentiment of some others here. This is the first article here I have disagreed with. Personally, I would take it further. I don’t agree with socialism and believe the free market principles are important. But I also feel like Executive America and/or Wall Street are completely out of touch with reality. No one needs or deserves a 70 million dollar salary, especially when the POTUS only makes 400K. I think 500K is fair considering living expenses and such. Bonuses shouldn’t be more than half that if they perform well. Personally, any bonus should be tied directly to stock dividends awarded, not just for sticking around. Where is reality?

    Again, I would want to limit the salaries of any publicly traded company. If a private company honestly thinks someone is worth 70 million, let them pay it, but not private investors. It makes me sick to see what the managers make who manage my retirement funds, especially knowing the also manage other funds. And then there is the board that meets four times a year and they get paid 8-9 times my annualy salary for these 4 meetings. I feel like many of the publicly traded companies simply take our investments and place in the back pocket of the executives in their company. I’m about done with Wall Street.

    I don’t care how talented you are, 70 million, 40 million, 20 million is just crazy. They may be good, but they are not that indispensible. They are carried away with Greed.

    If you are in sales and your pay is based on performance and you work hard to make that much great. But to take private money, run the company in the ground, take your bonus and ask for public funds . . . forget it. The same lack of fiscal responsibility that is in Washington is also on Wall Street. If this top talent can find a job elsewhere, let them go. They have all pretty much driven our economy in a huge hole together with credit card companies and personal debt. I think anyone of us to do at least as good for a whole lot less.

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