Do we need a salary cap for CEO’s???
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I am a big sports fan. In fact, I can watch the exact same SportsCenter no less than five times in a row without getting bored. My love of sports has introduced me to the idea of a salary cap. All teams in the NBA, NFL, and NHL (Major League Baseball has a “luxury tax” instead) have a salary cap that limits the amount that each team can pay to their entire team. These salary caps are designed to maintain a competitive balance between large and small market teams. The owners of these teams would also argue that these salary caps have allowed them to keep ticket prices reasonable and to only charge $7.50 for a hot dog or beer. 
Could salary caps work to better serve taxpayers? Well, both McCain and Obama have talked about regulating CEO salaries during their campaign. It doesn’t take a brain surgeon to realize that there is little sympathy for CEO’s that take home millions a year. Obviously, suggesting that their pay be regulated will be met with little or no opposition to the average voter and is an extremely easy thing to say on the campaign trail. However, I could not find any specific plan on how CEO salaries would be regulated from either candidate.
How would I regulate CEO salaries? Here is my simple proposal:
1. The cap for CEO total compensation (including stock options and any other perks) will be $50 million a year. According to this Forbes list, 21 CEO’s would have to take an immediate decrease in pay and find a way to live on less than $50 million/year.
2. If your company does not make a profit, your maximum salary can be $10 million a year. As a result, CEO’s such as Stanley O’Neal of Merryl Lynch (they reported a $8 billion dollar loss on subprime related investments in 2006) would have had to take a $36 million dollar pay cut before he resigned. It is one thing to pay these gigantic salaries to companies that are actually making a profit, but if your company is not producing, you and your $10 million/year salary are going to be cutting coupons and costs like the majority of Americans.
3. Immediately dissolve any “golden parachutes” that allow CEO’s to run from failures with tens of millions of dollars. I dare you to read this article and not get sick to your stomach. My rule of thumb would be that the maximum “parachute” that you could leave with would be determined by years of service with the company X $1 million dollars.
4. Lastly, since I do believe in capitalism and believe that everyone should be rewarded for truly outstanding results, I would propose this slight amendment to my first rule. CEO’s will be eligible for an additional bonus (even if they are at the $50 million limit) if their company’s profitability increases from the previous year. This bonus would be at a flat rate of 10% of the increase of profits. For example, Exxon was the most profitable company in 2007, making a whopping $40.61 billion in profits–an increase of 2.8% from 2006. As a result, the CEO of Exxon would be give a generous $11.37 million bonus for his great results.
Can you imagine if my plan was implement and the amount of money that companies would save on CEO compensation? Imagine if that saved money was divided up and given to the employees of each company. Okay, someone pinch me. Yes, I do know that my above plan would be impossible and unpractical to implement as law, but it was fun to type my ideas out. Still, I do believe that as current CEO contracts expire, some Board of Directors and especially stockholders should insist on reigning back some of these out of control CEO salaries and might consider some of my suggestions?
Have any better ideas?? Let’s hear them.
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Filed under: Economy, Election 2008, If I were King, Uncategorized
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Could salary caps work to better serve taxpayers? Well, both McCain and Obama have talked about regulating CEO salaries during their campaign. It doesn’t take a brain surgeon to realize that there is little sympathy for CEO’s that take home million…
Could salary caps work to better serve taxpayers? Well, both McCain and Obama have talked about regulating CEO salaries during their campaign. It doesn’t take a brain surgeon to realize that there is little sympathy for CEO’s that take home million…
This is why gas is the price it currently is… CEO making 10 billion a year!
Great point about the owner/founder “clause” I do believe if someone built up the company from the ground, they deserve special consideration.
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There’s a reason that a free market economy is generally so successful and that’s because it is free. Or at least as free as it can be. If we start regulating how much a person can make in a private business where does it end? When do we say enough is enough?
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Those that accept these people as donors to their charities, having them sit on their boards, donors to their political campaigns… should be treated just as someone else that had ill gotten gains. Luckily more and more people are seeing this unethical looting of others funds for the private gains of a few people (that pay each other a cut of the loot) as unacceptable. Slowly those that have engaged in this immoral behavior will be held accountable.
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