Salary caps for executives issued by White House

June 10, 5:50 PMAlexandria Political Buzz ExaminerJung Lee

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In accordance to $700 billion Troubled Asset Relief Program (TARP), executives of programs who have been assisted by TARP will have their salaries capped.  Executives will not be able to make more than $500,000 in total annual compensation other than through restricted stock.  Furthermore, these restricted stock options will not be able eligible for top executives until certain qualifications have been met, such as repayment of the original loan.

"I think boards of directors did not do a good job," Treasury Secretary Tim Geithner said Tuesday. "I think shareholders did not do a good job in terms of discipline and compensation practices."

It would only make sense if those who had been assisted by the bailout to have terms to abide by.  Rich CEOs had originally failed in the first place.  To think they could use tax payer money as a golden parachute is just ridiculous.  A golden parachute is when a high ranking executive is insured with compensation even though a business fails.  Quite literally, the risks are diminished and incentive is increased.  There is also the argument if a business fails and goes bankrupt, the government does not assist in recovering its assets.  The concept of a government for the people, by the people becomes incoherent if the government insures banks but not the ordinary small business.

"Well, I think he's (Obama) absolutely right [to give executive salary caps]," said Donald Trump, businessman CEO of Trump Organization, during a Larry King interview.  "Billions of dollars is being given to banks and others. You know, once you start using taxpayer money, it's a whole new game. So I absolutely think he's (Obama) right."

Donald Trump is a very successful businessman and when it comes to money, he is someone who has become successful.  Executives on the other hand who had accepted TARP bail-out money were unsuccessful.  Hence, being the reason they became bankrupt.  Here is a plausible theory on what had transacted in accordance to their failure.  The greed with the lack of barriers for the financial world had created a totally unrestricted system.  Rules and regulations had not been set for finances as credit companies, up until recently, had laws to regulate interest rates and quotas.  Before, banks and credit financiers could charge and change interest rates as they pleased.  A simple interest rate could have inexplicable charges and finances behind it that is written in small print.  The idea was for the bank to siphon as much money as possible in the principle of credit.

Ten of the largest banks in the US were able to pay back the full share of the bail-out money.  However, companies like Citigroup, Bank of America, the American International Group, Chrysler and General Motors were unable to.  In turn, the executives of these companies will fall under the new bonus limits. 

Many would argue this enactment is an outrage.  That by setting such caps would only force their best executives to go and work for a bank without pay restrictions. 

"One risk of the plan is putting the survival of firms at risk by handcuffing their ability to pay top performers," says compensation consultant Alan Johnson. "The unintended consequence is you end up killing the institution you tried to save. You drive away the good people."

However, executives still left in companies that had bankrupt, have already ended in failure.  It was their business practices and ethics that drove their company to disaster, only to grovel before the US government begging for a handout.  There would be no need for TARP and handouts if CEOs of these companies were sound.  The point of even discussing the issue of whether or not setting a pay cap on these CEOs would even have occurred.

"We've got to change corporate culture that says the leadership at the top can often take its compensation without regard for what happens with the employees or the future investing or the well-being of the company and taxpayers," said Sen. Frank Lautenberg, D-N.J.

Senator Lautenberg's statement is true. "Change" is required, especially when $165 million bonuses were issued by American International Group (AIG) to executives of these bankrupt corporations in March.

AIG headquarter, NYC (AP Photo/Mark Lennihan, file)