Pay Czar Folly

This report from The New York Times notes how Obama’s appointed executive compensation czar has broad authority to set the pay of top executives and employees at companies aided with federal bailout money. Here is one interesting and telling part of the article:

From his nondescript office in Room 1310 of the Treasury building where he will serve with the unwieldy title of special master for compensation, Mr. Feinberg will set the salaries and bonuses of some of the top financiers and industrialists in America.

Even if you accept the ability of the government to attach such strings to the money they dole out to companies, would you really want this power in one man’s hands? One man gets to decide what is reasonable compensation for these companies?

The folly here is the notion that either one man or several people, regardless of their experience or intellect, can mandate certain compensation amounts, disregarding any market forces. In a truly private economy, which we do not have, it is all individuals who decide compensation through their voluntary actions in the marketplace.

Any other method of determining what is reasonable pay inevitably creates further unintended consequences. One consequence is that the most talented individuals suited for such positions may decide to leave a company whose top compensation packages are determined by the government — or should I say, the government’s appointed man. This would further lead a failing company down the road to more failure.

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