Archive for November 4th, 2009

Pay Brain Drain?

Wednesday, November 4th, 2009

Pay czar Kenneth Feinberg acknowledged concerns on Monday that his mandated executive compensation cuts at bailed out firms may cause some talent to leave these firms for those not facing pay restrictions.

In his latest column, Smeal’s J. Edward Ketz questions this assumption that talented executives will jump ship:

I find it amusing to hear the arguments of bank managers and directors.  Their major complaint is that the administration’s cap on executive salaries will drive talent away.  That is such a self-centered argument!  If they cannot live comfortably on $500,000 per year, then I really feel sorry for them.

But wait—aren’t these the same guys who misunderstood the nature of the derivative instruments that their firms were dealing in?  And didn’t these managers make faulty decisions with respect to the housing market and counter-party risk?  In short, didn’t these executives bring their own firms to the brink of destruction?  Given the foolish and reckless behaviors of these managers, one has to ask what talent they are talking about.  If this is talent, let’s give some untalented people the chance the run these companies.  They couldn’t do worse.

Besides, where would these executives go?  Before these talented people leave their firms, they would desire other positions with salaries greater than $500,000.  I doubt that there are enough open positions that pay that much for so many executives.  The labor market is slim for this end of the pay spectrum.

And there are other people who could easily replace these businessmen and who could do a credible job.  For example, competent university presidents must have great managerial skills.  With a median salary of $427,400, some of them might be willing to accept the new challenges of running a bank.  And take a pay boost.

There are several legitimate concerns about Obama’s intervention into the pay of bank managers and others who accepted government bailouts.  But, concern over the flight of talent is not one of them.

Tags: Executive Compensation, Ketz, Politics
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