The Obama Administration recently unveiled another part of their economic policy; legislation aimed at changing executive compensation at companies who have received government funds.  With the CEO of the troubled, and federally bailed-out, Citigroup receiving $38 million in total compensation last year, clearly there is a severe disconnect between performance and pay at many of America’s flailing business giants.  After producing several piece-meal solutions last February and March, the Obama administration has put forward to Congress a more detailed and concrete policy for dealing with executive pay at companies the U.S. Government is keeping afloat.

The Obama administration has named a well-known Washington lawyer, Kenneth Feinberg, as ‘pay czar’ with the responsibility of overseeing executive pay for the seven most troubled companies - the American International Group, Citigroup, Bank of America, General Motors, Chrysler and the financing arms of the two automakers. Along with this, the Administration proposes ‘say on pay’ legislation to Congress, which according to Stephen Labaton in his New York Times article ‘Treasury to Set Executives’ Pay at 7 Ailing Firms’ would, “let shareholders vote on pay levels and require public companies to strengthen the independence of board panels that set executive pay.”

The idea of a Washington lawyer sitting in the Treasury Department dictating corporate pay seems to be rank with economic and political pit-falls. Will this interjection into the workings of some of America’s biggest companies be a needed jolt to get these companies back on their feet? Has the U.S. government now gotten too closely involved in these organizations’ corporate affairs to ever get out? Will government business policy prove to be just as disastrous as the overly greedy leadership on Wall Street was? As one would expect, the controversial naming of a ‘pay czar’ is being met with political chagrin from conservatives. In the Wall Street Journal article, ‘The New Wage Controls’, it was stated that, “Some in the White House may figure these measures will be enough to sate the political taste for revenge. But once you concede the principle that government should influence pay, it’s hard to stop Congress from actually setting it.”

As liberal pundits and politicians entertain the idea of a lasting Democratic majority, they would be wise to pay heed that political posturing and maneuvers will have little affect on whether this liberal hope becomes a reality. The future success of the Democratic Party lies with President Obama’s ability to navigate the treacherous waters of this great global recession to find a way back to growth, stability, and prosperity. While the idea of a ‘pay czar’ will sound reasonable to most liberals, conservatives perceive it as an anathema. Many conservative publications, like the Wall Street Journal, have stated their amazement that this legislation has not gotten more press and outrage. The general public, however, will quietly wait and see if the ‘pay czar’ helps restore sanity to executive pay and whether the economy gets out of recession and stabilizes. If these things do come to fruition, liberal ideology will flourish and Democrats will become a long-lasting majority party. If they do not, President Obama’s election and democratic control of Congress will simply be a brief anomaly, rather then the beginning of a new era.

Sean McBride has a BA in Economics and Political Science from the University of Wisconsin-Madison and is currently doing monitoring and evaluation work on education and CSR projects in Johannesburg, South Africa.

More Info

Stephen Labaton’s New York Times Article ‘Treasury to Set Executives’ Pay at 7 Ailing Firms’ 

Wall Street Journal Article, ‘New Wage Controls’

Kenneth Feinberg