My wife wants a raise, but Obama won¡¦t let me give it
LIKE MANY MODERN partnerships, my wife and I decided long ago to optimize our efficiency by staffing mission-critical functions on the basis of core competency and comparative advantage. Accordingly, she ended up with such skill-appropriate portfolios as politics, international relations and global climate change. I decide where to live, where to educate the children and how much to spend on what.
Things went well for years, until the current financial crisis. Under pressure from shrinking margins and depleted retirement accounts, we decided to take prudent defensive measures. Nothing contentious, just a bit of de-leveraging and some travel-and-entertainment downsizing.
But one issue has proved troublesome: executive compensation. My wife is pushing for an increase in her share of family revenue. To be sure, she hit all her performance goals in the period just ended, making record contributions to household maintenance and formulating brilliant ideas for restarting the stalled Middle East peace process. Moreover, her operating costs ¡V clothing, cosmetics, hair care ¡V have continued to climb despite recent deflationary trends, so I can see she¡¦s having cash-flow problems. Yet total family turnover is forecast to soften this fiscal year. Besides, in the current climate of opinion, a business-as-usual approach to compensation simply would not look good.
That¡¦s because President Barack Obama and the US Congress, bowing to public sentiment, have proposed limits on the pay of top executives at US corporations that accept federal bailout funds. Salaries and bonuses would be capped, ¡§golden parachute¡¨ payments to departing executives would be banned and the use of company aircraft restricted. In my wife¡¦s defense, her expectations are well below the Wall Street norm. She has made no mention of a golden parachute should, God forbid, our partnership be dissolved. Nor has she hinted about getting a corporate jet or even replacing our Clinton-era sedan.
But she clearly does not grasp the depth of public outrage over CEO pay. People are angry that officers of bailed-out financial firms awarded themselves billions in bonuses last year, even as the crisis these same executives helped engineer cost innocent workers their jobs. At Lehman Brothers, for example, CEO Richard Fuld received total compensation of US$71.9 million shortly before his firm went under, taking a large part of the global economy with it. ¡§Shameful,¡¨ Obama called such behavior.
Indeed, salaries of S&P 500 chief executives averaged $10.5 million in 2007, or 344 times the pay of the average US worker. That worker is not happy. As the first US bailout package was being debated last year, nearly 33,000 citizens signed a petition complaining that ¡§The wealthiest people, those ¡K in the best position to pay, are being asked for no sacrifice at all.¡¨
The grumbling has spread to Europe, where France has banned bonuses at companies accepting bailout funds. In Britain, executives of government-rescued Royal Bank of Scotland must even pay for their own meals on business trips.
So naturally, I told my wife, it would be prudent for the more productive members of society, like us, to keep our heads down and show moderation when it comes to our rewards.
My wife disagreed. She argued that limits on compensation are difficult to enforce and undermine efforts to recruit the best executive talent, namely her. She further noted that compensation is a matter for investors and directors, not governments. That¡¦s a step forward for corporate governance, but I really don¡¦t think my wife wants to give our kids a voice in such matters.
Nonetheless, I know that President Obama and I cannot win this battle. As long as talented executives have more lucrative, less regulated alternatives ¡V hedge funds, private equity firms, technology startups, sovereign wealth pools in Gulf emirates ¡V pay curbs are meaningless. Masters of the Universe can simply go where the grass is greener, the parachutes shinier, the Learjets idling more throatily on the tarmac. In the case of my wife, I don¡¦t even want to raise the prospect of lusher pastures. When it comes to retaining a key employee, she¡¦s got my number.