CEO Salary Caps: Drawing the Line

March 11, 2009

Comments

TigerHawk wants to know why, if it’s a good idea to cap the salaries of CEOs of companies getting federal bailouts at $500,000 why we shouldn’t do that with universities that get federal funding?

Megan McArdle isn’t persuaded by the obvious answer: one is asking to be rescued by the taxpayer and the other is merely providing a service to the government in exchange for a fee. It’s true that higher education, especially public institutions, are subsidized and not necessarily well managed from a fiscal standpoint. Still, universities are basically functioning as private contractors. There’s no more reason to cap the salaries of their presidents than it is for the CEOs of various companies who wouldn’t be in business without huge contracts from the Defense Department.

5 responses to “CEO Salary Caps: Drawing the Line”

PD Shaw

March 11, 2009 at 3:22 pm

I’m not convinced. We are giving money to banks to serve a public good; we are trying to avoid a meltdown of the economy. We’ve also decided that $500,000 is more than enough compensation for a CEO and it would be a waste of taxpayer dollars to give money to a company that paid more.

We give money to universities to serve a public good, the education of our citizens. We could just as easily determine that $500,000 is more than enough compensation and that it would be a waste of taxpayer dollars to give more.

I think the real difference is that the bank cap is intended to punish the banks; and we are not currently seeking to punish the schools for selling diplomas with exaggerated value.
odograph

March 11, 2009 at 3:23 pm

I think the general punditry are missing a bet by not tying this to the top marginal rate discussion.

If you don’t want government picking winners (losers?) then you want a general rule to prevent excessive short-term compensation.
Dave Schuler

March 11, 2009 at 3:24 pm

Isn’t the obvious answer that they receive what’s politically supportable?

You can’t appeal to the market in either of these cases: the market’s been suspended, they’re working outside the marketplace. Without a price discovery mechanism we have no idea what the actual worth of these people’s services might be.

I find it pretty remarkable when, for example, university presidents make a “comparable worth” argument for their salaries. Its answer is always the same: says who?
Brian Knapp

March 11, 2009 at 3:25 pm

Probably the obvious reason is that we want to de-incentivize company leaders from taking public money. And I don’t want my bank to get comfortable with the idea of “running like a university.”

Of course, an easy way of doing that is to not give them money. But, whatever, too late for that.
JohnG

March 12, 2009 at 3:51 am

I thought the main point was that the people in the stable banks are also getting salary capped for accepting money that the Fed forced them to take in the first place.