Changing the Culture of Greed

The Obama adminstration yesterday nominated attorney Kenneth Feinberg to the newly created post of "compensation czar" from which he will help the government, as Treasury Secretary Timothy Geithner said, "rein in pay practices that motivated executives to take excessive risks in pursuit of profit."

This will surely be popular at first blush: The outrage over executive compensation and bonuses at companies that were simultaneously begging for federal bailout money is still fresh in Mr. Geithner’s memory. Rewarding people who had run their own companies into the ground seemed perverse to the American taxpayer because it is perverse. This is not merely a question of divergent interests but of comparative justice. The administration also proposed legislation that would give shareholders a more direct role in setting executive compensation and the SEC more authority to ensure that corporate committees that set executive pay are truly independent of the company’s executives.

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There is a fine line here. Americans certainly felt a sense of revulsion at the indifference of pay packages to performance: CEOs got rich whether their companies prospered or not. But, Americans were ambivalent about the pay packages themselves. Now, they use words like "excessive" to describe these compensation packages, but the glamour of wealth, and Americans’ endless fascination with it, kept most Americans from objecting until the economic downturn. We were too busy flipping through the pages of "Architectural Digest" which was a great magazine about architecture when I was a boy growing up but became, in the last decade, a kind of materialist pornography. There was a television show, "Lifestyles of the Rich and Famous." Donald Trump became a celebrity.

Neither do Americans want government officials intruding into the specifics of running companies and I suspect that the Republicans will use this latest appointment to portray Democrats as embodying "the nanny state."

There is a better alternative to the creation of a compensation czar. Raise taxes on the super-wealthy. American rates for high-end earners remain low by comparison to European standards which, in the Western democracies, run from 40 to 55 percent. Complaints that Europe’s economies are always somewhat anemic compared to America’s cannot obscure the fact that their growth rates may lag slightly behind American growth rates, but they achieved that growth while simultaneously achieving a more just and humane society. Government funded health care, shorter work weeks and more vacation time so that families can spend time together, less expensive higher education, etc., these are the hallmarks of a more just society. And I know just the people to pay for it: the rich.

I always go back to Arthur Schlesinger Jr.’s description of American liberalism in "The Age of Jackson" in which the great historian argued that while the moneyed interest is normally the most powerful in our free society, it is the historical calling of liberalism to use the power of government, the only actor powerful enough to stand up to the moneyed interest, to pursue those social goods the moneyed interest has ignored or betrayed. We should raise taxes not only to change the culture of executive compensation, but to fund health care, lower education costs, and in various ways make America a more just society. And, go ahead and cancel that subscription to "Architectural Digest."

 

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8 years 6 months ago
I cannot stop laughing at the bit about Architectural Digest.
8 years 6 months ago
How little do America's very richest pay today in taxes? Some context: In 2006, the latest year with IRS stats available, America's 400 highest-earning taxpayers collected an average $263,306,000 each in income. They paid 17.2 percent of that, after exploiting all the loopholes they could find, in federal income taxes. In 1955, the top 400 collected on average, in 2005 inflation-adjusted dollars, just $12,257.000. They paid, after exploiting all available loopholes, 51.2 percent of that in taxes.
8 years 6 months ago
The companies being talked about are owned by - the stockholders. They elect the board that sets the direction,policies,agenda, and salaries. In a communist country the government would do these things. So, how is it that stockholders have allowed disgustingly immense salaries and bonuses to be given to some top management that did worse in decision implementation than a toss of the dice would do; to say nothing of the stockholders losing huge amounts of capital (money)and return on capital? Who really dropped the ball?
8 years 6 months ago
Michael, If you think taxing the rich will rein in excessive compensation, you've probably  never worked with top executives at any company. In fact, it might just make them pay each other more in order to make up for the money lost to taxes. The answer does lie with shareholders, who can help reform pay practices. As is detailed in the business book "Good to Great," big pay packages, stock grants and golden parachutes for CEOs are not really drivers of company performance. The answers are more complex, and the sooner shareholders learn this and take an active role in setting compensation for their execs, the sooner we'll get real reform. 
8 years 6 months ago
As funny as it is on the surface, the comment about Architectural Digest could be used as a metaphor for all the intrusions greed has made on our society. Well done!
8 years 6 months ago
Taxing the rich alone won't correct excessive compensation alone.  This is the President's point.  You are correct that executives will pay eachother more if given a free hand.  The President's proposal are progress in tying up that free hand and giving shareholders a say in the process.

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