Sun Media writers Brian MacLeod and Paul Berton debate the merits of government-imposed salary caps for private-sector executives
MacLEOD: Paul, capping executives’ salaries isn’t going to work. There are so many things wrong with this heavy-handed approach.
BERTON: Like what?
MacLEOD: Let’s start with the overseers. Who would be in charge of scrutinizing each company’s performance and arbitrating pay? Likely some government-appointed person or body. How many government agencies have had their own spending scandals? And now we’re suggesting governments oversee private companies’ compensation? This can only end badly.
BERTON: It has already ended badly. People are getting bonuses amid bankruptcies. And how many cars, houses, jewelry and junk does one chief executive or vice-president need, anyway? Government is not perfect, to be sure, but surely it can bring some sanity to the situation?
MacLEOD: Since when does politicizing an issue bring sanity?
BERTON: Well, the financial sector or the automotive industry for starters. Just try and imagine the chaos they'd both be in — we'd all be in — if politicians had not decided to step in with public money.
MacLEOD: And imagine the chaos we’d be in if governments actually ran these companies. Britain tried it with British Leyland, which suffered an undignified end. Look, governments that go into specific areas of private enterprise to “fix” them do not fix anything. They screw it up. Skew the playing field in the industry. That includes corporate pay. Let the shareholders decide how to pay their top dogs.
BERTON: First, if companies are taking government money, and plenty of them are, the taxpayer — and the shareholder — should have a say in compensation. Second, shareholders clearly need help, regardless. Wall Street firms paid out more than $18 billion — billion! — in cash bonuses in 2008 amid one of the worst years in financial market history.
MacLEOD: Just about every industry gets some sort of government help through tax breaks. And yes, a lot of execs got too much money for our liking, but the truth is Wall Street’s bonuses were down last year more than 30% from 2007. That's a pay cut. Governments like to cherry-pick —“hang the bankers” makes for good politics — but fiddling with their bonuses won’t fix problems any more than cutting Wayne Gretzky’s salary will fix the Phoenix Coyotes.
BERTON: That remains to be seen. New York Attorney General Andrew Cuomo says pay is clearly unrelated to performance in the financial sector, at least. As many as 5,000 Wall Street bankers got bonuses of at least $1 million last year amid a disaster they themselves caused. They were paid well regardless of whether the banks did well or poorly. Meanwhile, eight Nortel executives got $7.3 million in bonuses about the time the now-bankrupt company laid off 1,100 people.
MacLEOD: Ever seen a politician take a pay cut during a recession? If governments want to change the rules for executive compensation, they would have to keep the playing field level. That means they would have to measure pay against similar jobs in other countries. Financial executives aren’t restricted by borders. And don’t pick certain businesses to regulate just because they needed aid. That will just create unproductive job-hopping. People will still get their big bucks; they’ll just move to other firms, leaving regulated companies’ hands tied when they’re competing for good people.
BERTON: If the folks I mentioned above are the ones leaving, I say good riddance.
MacLEOD: And there you go making personnel decisions on behalf of private businesses. See what I mean? Regulating pay isn’t just a slap on the wrist of well-paid execs. Like most things government does when it sticks its nose in, there are ramifications it doesn’t anticipate, or even care about. Private businesses must be able to decide who they want to work for them, not governments.
BERTON: I'm not really advocating for government intervention, and it would be great if shareholders had the power to regulate salaries, but the fact is they don't, won't or can't. Ultimately, it is government and the justice system that must come to the rescue of shareholders when executives run amok. Can we at least agree that executive compensation is out of hand?
MacLEOD: Few would try to justify huge executive salaries. But regulation of pay may cause execs of firms that take government aid to make decisions for the wrong reasons, such as paying back loans to free the firm from the yoke of regulation, instead of, say, investing in needed capital.
BERTON: Investing in needed capital. Hmmm? I guess that's what John Thain, former chief executive of Merrill Lynch, was doing when he spent $1.2 million last year at the height of the financial meltdown to renovate his office, including more than $87,000 on a rug and almost $1,500 on a waste basket. "Investing" indeed.
MacLEOD: Yes, yes, BMO Nesbitt Burns CEO Tom Milroy made $6.2 million last year, and RBC Dominion Securities CEO Chuck Winograd made $5.4 million and on it goes. We can all shake our heads at fat corporate salaries, but it isn’t up to governments to fix them. Public scrutiny is a better watchdog than regulation. Companies can be forced to disclose more information on how executives are compensated, with detailed explanations included in annual reports. Public (read shareholder) sentiment has changed. The race to the top won’t apply anymore. Shining a light on all that excess might stir up shareholder meetings.
BERTON: We can only hope, I suppose, that shareholders will take more interest in these things than they do in unreasonably high returns.
Join the debate at:
Canoe.ca/salarycaps
