Congress, please stay out of executive pay

There are several reasons why the government should not get involved in executive pay .

1.From a purely philosophical point, the government has no business interfering with private contractual agreements between people or groups of people. With the bailout funds, they have some excuse for this limited set of companies. But otherwise, it’s simply not their job. I agree that encouraging companies to switch to long term goals for bonuses is a good idea, but it’s not for Congress to mandate.

2.Even if you disagree with #1, the government has competing objectives. You can’t expect any bill coming out of Congress to be effective because they would be trying to serve way too many masters in constructing the bill and it would turn into a mess.

3.Even if #2 didn’t happen at first, in order to get anything passed the legislation authors would have to do enough horsetrading to make a small mess into a big mess.

4.Even if the legislation turned out OK, the private sector is excellent at finding loopholes. This is how we got into the current financial mess in the first place. By discouraging executive salaries, Congress encouraged the use of stock options. These are easier to give out, so companies gave out more of them.

5.Even if none of the above happened and the legislation started out effective, Congress can’t react quickly to changes in the marketplace. So over time, it would get outdated. The harm it could cause in our unknown future is likely to be greater than the short term benefits we see in the present.

So given all this – please Congress, please stay out of executive pay except in very limited circumstances (temporary limits on TARP recipients maybe).