"For top executives to award themselves these kinds of compensation packages in the midst of this economic crisis isn't just bad taste. It's bad strategy. And I will not tolerate it as president," he said.The problem is these companies have already been rewarded for bad behavior by the Bush administration, and by Congress in the form of $750 BILLION. And if Obama has his way, the federal government will dump another $900 plus BILLION of borrowed money into spending programs that have very little to do with stimulating the economy.
No doubt that today's move will be popular with the American public. In fact, a Rasmussen poll indicates that some 88% of Americans say that executives that receive federal TARP money should not receive bonuses. But there is a down side to all of this.
[Sidebar]If the value of your work and experience on the open market was $20 an hour and someone like Obama decided that since your company took a TARP injection you should only be paid $5 an hour, what would you do? We dare say most people would start looking to find a position that pays their market value at a TARP free company. The same thing can be said of corporate executives.
Before some of you absolutely freak out... a lender has the right to set conditions on the use of the money being lent - that includes the government. The problem is that governments are driven by polls and politics that are arbitrary in the best of times. And governments have the power to impose restrictions and terms retroactively - regardless of how arbitrary or capricious those terms may be.
While allowing companies to pay corporate executives BILLIONS in salaries and bonuses is obscene when the very companies they lead are tanking, having government step in and mandate compensation is truly frightening and could handicap corporate recovery by making it impossible to attract top talent.
The yahoos that have run GM, Chrysler, and Wall Street into the ground can't and shouldn't be able to demand huge salaries on the open market. In fact, they shouldn't be able to demand a plugged nickel, but that's a question for each company's board of directors and their share holders. Compensation should be based on performance not mandated from Washington by politicians - many of whom are at least as responsible for the current financial situation as corporate executives.
In the long run, capping compensation for positions at any level restricts a company's ability to compete with their non-TARPed competitors. Companies should think long and hard about accepting bailout money from the federal government.
When a company gets caught in the TARP, they are no longer just answerable to their share holders but to 536 politicians in Washington that already have done too much damage to markets through ill-advised legislation and have too much power to do even more damage. Before TARP, the damage was done externally. Companies that take a TARP injection may find it to be a fatal poison that cannot be removed short of death.