Wednesday, February 04, 2009

A $300,000/year compensation cap for all

I hope that those who read the quote by James F. Reda in today’s New York Times recognize Reda’s words as representing a huge part of the problem facing this country.

Reda, the founder and *managing director of James F. Reda & and Associates, a compensation consulting firm, was asked what he thought of the Obama Administration’s plan to place a $500,000 cap on compensation to executives at companies receiving federal bailout money.

He responded:

“That is pretty draconian, $500,000 is not a lot of money, particularly if there is no bonus…And you know these companies that are in trouble are not going to pay much of an annual dividend.”

I don’t know about you, but to me $500,000 is absolutely a lot of money. It is more than 10 times what the average worker makes. Make that “made.”

Annual compensation of a half million dollars is “not a lot of money” only to the few, powerful and self-indulgent living in a world of Riviera mansions, Aspen ski chalets, private jets and pearl-handled toilet plungers.

The article lists some of them. Kenneth D. Lewis, head of the hat-in-hand Bank of America, took home more than $20 million in 2007. The clearly clueless Richard Wagoner, head of GM, raked in $14.4 million. (Don’t get me started on college football coaches and NBA point guards.)

A story in last Friday’s New York Times tells us that in 2006 (the last year for which the figures are available) the 400 wealthiest Americans made, ON AVERAGE…are you ready for this?…$263 million.

That’s on average in one year.

The motives, wisdom and competence of those allowing themselves to be paid so lavishly should immediately be suspect.

They have lost touch with reality — yours, mine and that of the vast majority of Americans.

So let’s just put it out there—and, Mr. President, note that I am reducing your cap number here. It means a cut of $100,000 in your own presidential salary of $400,000.

Bailout money aside, no one should be compensated at a rate of more than $300,000 a year. That’s enough. Actually that’s more than enough, as 98 out of 100 know, but we have to start somewhere.

If a company has more money available for executive compensation, it should rework its numbers. The money should used to raise the wages of everyone else, starting at the bottom — from the secretaries to the janitors, to assembly-line workers to the accounting clerks and sales staff.

As for James F. Reda — fire him.

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Anonymous Anonymous said...

No one should be compensated at a rate of more than $300,000 a year.

Do you mean anyone receiving bailout money, or anyone period?

8:18 PM  
Blogger Rick Seifert said...

Anyone, period.

Your thoughts?

9:53 PM  
Anonymous Anonymous said...

Hmm, I have to disagree. I think your statement that $300K is enough is misleading. Your example of powerful and self-indulgent living in a world of Riviera mansions, Aspen ski chalets, private jets and pearl-handled toilet plungers is obvious excess and if the wealth is acquired illegally or unethically then I also would have a problem with it.

Let's look at it from another angle. I was laid off in 2003 (I was in my early 30s at the time). I was earned over $100K the last couple of years I worked 'for the man'. I was single, had low living expenses and didn't lead a life of excess. It's always been my goal to retire by 50-55 so I was saving like mad.

So, I get laid off (site closure) at a time when my industry was shrinking, jobs going overseas, etc. Rather than take a 40-50% pay cut and try and compete for the very few remaining jobs, I chose to start my own business. I invested my own savings to start this business and took 100% of the risk if it failed (well, technically I had a business partner but you get my point I'm sure).

In the last 6 years I've grown my business now to the point where I employ 7 others. I pay 100% of my full-time employee's health insurance, I offer paid vacation, and flexible schedules. My office staff job shares and works from home so they can be home with their children. My 4 full-time employees are all well-compensated and will be receiving raises this year.

2008 was a good year for my business, we grew revenue by 50%. I personally had my highest earning year in 6 years, but some of my employees earned more than I did. I still haven't come close to earning what I did before I was laid off.

I've depleted a lot of my savings while I was building the business to the level it is now. My hard work is now starting to pay dividends, and I hope to be earning in the 200-300K range (and maybe more) sometime in the next 5-7 years. It's the only way I'll be able to retire when I want to. My retirement accounts have been devastated just like everyone elses.

I would argue that the vast majority of businesses in America are run by people like me with similar philosophies. Of course there will be the examples of excess as you describe and while obscene, it is the job of the marketplace (or shareholders) to shake these things out.

Having the government arbitrarily say 'ok, you've earned too much' is just doesn't sit well with me. Who gets to decide? What about me? How many years should I be forced to work until? Why shouldn't I be able to enjoy the fruits of my hard, hard labor? Isn't that truly the American dream, to be able to be self-sufficient, while also providing for my neighbors in the form of jobs?

You can't look around your own living room and say 'gee, what I have is sufficient to sustain life, therefore it should be sufficient for everyone else'.

I definitely support salary caps for any business that received any bailout funds. If there is public money involved at the scale of TARP and this new stimulus then the public has a right to set limits.

10:53 PM  

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