Restricting GE (GE) Salaries: Regulating Compensation Of Firms That Help Build The Economy

If the government is going to force salary caps on banks, financial firms, and car companies that will get federal money, it needs to go further.

The argument for limited pay at firms like banks is that, if they get billions of dollars in bailout cash, the money should not go to pay big compensation packages. The argument against these caps is that successful managers who make money for their companies should be rewarded under the normal system of capitalism. There is merit to pay-for-performance. In addition, if the best people at financial companies don’t get paid well, they will walk out the door and their skills will go with them

The idea of controlling compensation is probably going to have to extend to companies such as GE (GE) and Caterpillar (CAT). As the federal government pays hundreds of billions of dollars to build a new energy grid, broadband, and medical IT infrastructure, the firms that get that money owe the government something. The new investment will drive revenue that they would not have otherwise. Why should they be treated any differently from companies such as Citigroup (C)?

Of course, if GE gets contracts for infrastructure, it is not being "rescued." It may get revenue that it normally would not have anticipated for its work to build access to more fuel-efficient energy. But, it did not lose billions of dollars making bad financial bets, if its capital markets and money divisions are taken out of the equation.

The system for deciding which companies should face severe financial and compensation restrictions and which should not as the federal government shovels capital into the economy is going to become more and not less complex. A wind power company may have it revenue tripled by new investments in energy. Who is to say if the money is handled wisely or efficiently? The government can hardly be expected to create a huge national police force to make sure that all stimulus money is invested exactly as it should be. Sending $825 billion into the market is inherently inefficient, especially if it needs to be spent quickly to create jobs.

The problem of executive compensation is oddly at the center of the bailout. Management at banks can lose money and need federal aid to stay in business. Companies that need new revenue to remain successful need federal money to help earnings and retain workers. There is a line to be drawn about which executives can get pay windfalls and which should not. Finding it and monitoring it are a different matter.

Douglas A. McIntyre