Guest Blog by Jennifer McKitrick
[cross-posted at JenMcs Blog]
It seems to me much of the criticism about executive compensation has been misplaced.
Whats supposed to be so horrible about CEOs getting big bonuses?
- They just dont get it.
- Theyre idiots.
- They dont understand that people are hurting and angry.
- Theyre insensitive to public perceptions.
That might be true. But is that really the problem? Is that whats important whether or not CEOs know or care what we think?
- They dont deserve it.
- Its rewarding failure.
OK, imagine this… Suppose that certain executives at these companies had been working really hard, doing their best, etc., etc. And lets even suppose theyre not the people who had made bad decisions, but they are doing their darnedest to repair the damage. And suppose we had good evidence that, if it werent for their work, things would be much worse. Given the circumstances, they might be described as moderately successful in their endeavors. Even if this were the case, how would you feel if millions of taxpayer dollars that was intended to help save their companies was used to give them bonuses instead? Myself, personally, would still not be happy about it. (I find it implausible that the bonuses, in the current environment, actually help the company be more profitable.)
On the other hand, suppose that a private company that has taken no bailout money decides to give a reckless and irresponsible executive a multi-million dollar bonus that he doesnt deserve. This might be a bad idea for many reasons. It will probably be bad for the company, and in turn, bad for everyone who depends on that company. But, hey, if they want to shoot themselves in the foot, thats more or less their problem. Investors and other people who depend on this company should be aware and take caution. If such practices are harmful to companies, companies that are determined to engage in them should fail.
Bonuses for well-meaning, deserving executives for bailed out companies Grrr!
Bonuses for reckless, undeserving executives for private (un-bailed-out) companies Oh well.
Ergo: The executives being undeserving is irrelevant to how bad an idea the bonuses are!
So why are the bonuses so horrible? In my opinion, its because they constitute the transfer of vast sums of wealth from millions of Americans who cant afford it to a privileged few, which serves no other purpose than the interests of the few (who also happen to have been a lot better off in the first place).
Who cares what they do or dont understand, what their motives are, or what they do or do not deserve? I dont.
This has got to be the biggest rip-off perpetrated against the American people in the history of our country. And all people can complain about is that the beneficiaries of this scam are insensitive and undeserving?!
But if we stop talking about the character flaws of CEOs, well have to start talking about the people who just handed them billions of dollars that we dont even have. I mean, its not as if they broke into Fort Knox and stole it.
- This is a red herring. Its such a small percentage of the bailout (or TARP or whatever) money. Complaining about it is great political theater, but in the big picture, the bonuses are irrelevant.
OK. Heres how to get away with wasting a billion dollars: First, spend a trillion dollars. Then, when someone asks about how a billion of it was spent, point out that that is only 0.1% of the total. (Recall that the same kind of response was made in defense of various parts of the stimulus package. It is so huge that to complain about multi-billion dollar expenditures looks like knit-picking.)
The sums of money here are just beyond my comprehension. But Im not supposed to worry about amounts that are far more than I could earn in 10 lifetimes, because its a drop in the bucket of what the U.S. taxpayers are on the hook for. And this is supposed to make me feel better why?
Jennifer McKitrick is Associate Professor of Philosophy at the University of Nebraska – Lincoln, and Vice-President of the Molinari Institute and Molinari Society.