While the Dow has taken an upswing, there is still plenty to worry about in the economy. Meanwhile, people are still upset over the AIG bonuses. On the plus side, the mystery of who allowed the exception that made such payouts legal was solved: Chris Dodd.
Dodd claimed that the Obama folks made him put the exception into the law. Two reasons are given for this decision by the Obama folks: 1) concern about the possibility of legal problems and 2) the view that such compensation would be needed to retain the top people.
I can understand the concern about legal worries. After all, breaking contracts after the fact does seem to be a rather thorny area-especially when the contracts are held by people who have access to some of the best lawyer (and politicians) money can buy.
As far the retention argument, that requires some consideration. The argument is that such exceptional compensation is needed to get top talent to stay with (and supposedly save) bailed out companies.
Is it the case that people will only take a job that pays exceptionally well? Clearly not-people routinely take jobs that pay very poorly. These people often work very hard at these jobs-witness the typical sweat shop laborer. Those folks work long, grueling hours for tiny amounts of cash.
Of course, most people who work such jobs do so because they have no choice. The top talent folks have a choice, hence they can demand more compensation or go elsewhere to get it.
Of course, people who do have choices often work very hard for less than exceptional compensation. One might wonder why these top talent folks should be entitled to such exceptional compensation when other folks would be glad to have such jobs even at a fraction of the pay. In other words, what justifies the claim that such folks should get that exceptional compensation? Why not just say “godd riddance” to these folks and get people in there who will do the job for less? After all, isn’t that what companies do to save money? For example, when companies outsource they are getting people to do the same job (or so they claim) for far less. Surely the same logic should apply all the way to the top.
It might be argued that the top talent cannot be replaced in this manner-that they are so top in their talent there are no other folks that can be hired to do the same quality of work at a lower price. Of course, given that many of these top talent folks were instrumental in wrecking the economy, one wonders about their talents and motivations.
Of course, there are top talent people that do earn their money. As odd as this might seem, a professional athlete or a top actor can be good examples. For example, if a star player or actor is paid $50 million, but she brings in $75 million in profits, then she has certainly earned her pay-just as a McDonald’s worker who gets paid minimum wage but whose labor makes a profit. The basic principle is that compensation is justified by contribution. So, exceptional contributions earn exceptional compensation.
In the case of athletes, actors and other stars, it is obvious that they can bring in massive profits and hence earn those massive paychecks. For example, a single star can significantly impact the box office take of a film. This is because people will see the film because of her and would not see the same film if it had not starred that actress.
However, is the same true in the case of the top talent in business? Does a top talent person really create wealth in proportion to their compensation? Prior to the economic disaster it seemed as if they did-top talent worked all sorts of “magic” that created money out of nothing. But, as it turned out, that money largely went back to nothing once again.
So, my view is this-if a person really does contribute exceptionally to the success of a company, then they have earned exceptional compensation. Such people would be well worth the price. After all, if paying $30 million in salary and bonuses gets a person whose efforts and ideas single handedly generates $100 million for the company, then she is a good deal. Unless, of course, you can get a person who would generate $80 million in return for $5 million and so on.
No doubt some top talent earn their keep and then some. However, I suspect that in many case, the “top talent” of corporate folks is somehow getting sweet bonuses in return for little or nothing.
I’ll also repeat an offer I made before: if I can get permission for a leave of absence from Florida A&M University, I’ll gladly be a top executive for a bailout company for that oh so pitiful $400,000 a year. I bet I’ll do far less damage than most of the current “top talent” has done.