Everyone knows about the freaky fireball that plummeted through the Texas sky last weekend. In an unrelated development, a fireball suddenly appeared in the skies over Proxyland on Friday. That one, however, has been identified: it’s Title VII of the stimulus bill, and it’s zooming straight toward Wall Street’s compensation structure.
The administration, stunned by the amount of heat Congress packed into these compensation provisions, would like to tone them down. But as Fox News gleefully reported, Barney Frank doesn’t want to negotiate. “This is not, frankly, the Bush administration, where they're going to issue a signing statement and refuse to enforce it,” Frank said. “They will enforce it.”
It’s long been obvious that our entrenched executive compensation culture is every bit as crazy as that poor Nadya Suleman. And like Nadya, it doesn’t realize how nutty it looks to the rest of us. So you can't blame Congress for trying to put an end to the insanity. Politically, this is a no-brainer: how can elected officials - after appropriating billions in taxpayer money to save mismanaged banks - stand by and do nothing while those banks assert their inalienable right to bonuses?
This doesn’t mean the route Congress chose, which essentially bans TARP takers from paying any incentive compensation except restricted stock, is the right one, or that it will have the desired effect. (Harvard’s Lucian Bebchuk – a prominent critic of public company compensation – fretted over the bill’s structural flaws in an opinion piece in yesterday’s Wall Street Journal.)
Yes, Congress is wielding some awfully blunt instruments here, and that’s a bit scary. (It would have been fun to see them test out the “malus” approach, which could foster a much-needed multi-year approach to compensation.) Also, the legislation could fall victim to loopholes. Or, as those on the Street predict, maybe all of the “talent” will stream out the door, and it’ll turn out that we actually miss them.
But here’s the part that fascinates me. This country is on the verge of conducting a simple experiment, one the private sector would never have gotten around to on its own: Pay senior executives less, and see what happens. The truth is that no one has the faintest idea how this will work out. Maybe aliens will invade and the world will swiftly end. Or maybe, just maybe, companies will end up being better run, and good things will happen
Image source: anomalymagazine.com