This is a bad idea for two reasons.
First, pay is not the federal government's business. Period. It smacks of a command economy like the economies that existed in the eastern block. Those economies were at best jokes. They did succeed in making everyone equal -- everyone eventually became poor. The US is based on a capitalist model where the market sets the rates. Period.
But most importantly, this is a shareholder issue. For those of you who are unfamiliar with corporate law, the basic structure of a corporation is the shareholders are the owners of the company. They hire the board of directors who implement macro-level policy for the shareholders. The board also hires the managers who carry out the day to day operations of the company. However, this whole situation boils down to the shareholders -- it is their responsibility to vote for or against directors. It's also up to the shareholders to get rid of directors they don't like or who are not doing well for the company. If you don't like the way the company is being run you have two choices: sell your shares and stop being an owner or figure out a way to start working with other shareholders to effect change at the company.
This does lead to a second point: does US corporate law need to change? That is, do we need change the way corporations are governed? That is always a possibility. However, that is something that has to happen at the state level where corporate law is created.
Consider this passage from a blog posting of activist investor Carl Icahn:
It is unfortunate that it took a force the size of the U.S. government to shake up the board and management at GM. In effect, the government has become the world's biggest activist investor, making the same kinds of demands that any activist or creditor should rightfully make in return for its investment.
Shaking up managements and boards is a no-brainer at underperforming companies for activist hedge funds and private equity firms, including Quadrangle Group, which Rattner co-founded. Why should investors tolerate poor performance? Why should taxpayers?
I have shaken up boards and managements at many companies in which I have invested, including Blockbuster, ImClone, Stratosphere, Philips Services, Federal-Mogul and many others. Generally, but not always, the net result has been very positive for the company and the shareholders. It is important to get new blood, new strategies and new ideas into underperforming companies.
As the saying goes, 'if you do the same thing all the time, you get the same result.' This applies to many managers. Too many are one-trick ponies. America is losing its economic hegemony because of it.
But most importantly, it is up to shareholders to step up to the plate and demand changes at their companies. For too long and for a variety of reasons, shareholders have been complicit in allowing management excesses and incompetence by not taking a stand.
"Shareholders have reelected these directors, have approved these pay plans and have been enablers for the addictive behavior of the corporate community," said Nell Minow, editor and co-founder of the Corporate Library in a recent BusinessWeek interview.
Let's hope the global economic meltdown causes shareholders to demand more changes on the part of their companies -- and not leave it to the government.
