Bob Cropf

Executive Pay

In miscellaneous on February 6, 2009 at 1:35 PM

Reed Hastings, Netflix CEO, wrote an op-ed in the New York Times today criticizing the moves to limit CEO pay in general and specifically for companies getting bailout money. He argues instead of capping pay, tax it at a much higher rate. I find this a bit disingenuous because there isn’t much argument that the nomial and real tax rate that the top 20% of the income distribution has declined precipitously over the past 30 years.

The questions I would pose to him if given the opportunity are:
(1) If all CEO pay is capped, what alternative is there for the current pool of CEOs? Retirement, something else? What else pays as well that they are also qualified to do? Or is the argument that they will simply go abroad? Might not other countries institute similar caps if the US leads? We are in fact the American in the Anglo-American style of capitalism. If we change our rules, would that not make political room for others to follow?

(2) If the current pool of CEOs is unwilling work for the new pay cap, will not a new pool be created out of the next, possibly better equipped (not married to the “old way” of doing things), generation of business people? $500K is nothing to sniff at… unless of course you’re are used to $20m.

(3) If the companies are not able to attract star CEOs with better compensation packages (note to Congress: if you want this to be effective, you have to limit TOTAL compensation), would they not be “reduced” to looking for the CEO that best meets their actual needs. Wouldn’t both sides be more concerned with finding the right fit instead of trying to attract the biggest name?

(4) Do we really like what this “star culture” has done to the business? Are the stars actually more effective or have they been more beneficiaries of good timing? For example, is a banking CEO who retired in 2007 really a star or someone who jumped ship before anyone realized there was a problem? Or is a CEO who took over in July 2008 really awful?

Thoughts anyone?


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