Is a Pay Czar a Good Idea?

This week, the Obama administration appointed Kenneth Feinberg as the new "Pay Czar." Feinberg, a Washington lawyer best known for overseeing the 9/11 Victims Compensation Fund, will have responsibility for determining whether TARP participating companies (and a few others) are properly paying their executives. Initially it looks like his reach will extend only to financial companies and automakers.

Is this a good idea? Many in the media think not, but not because they're concerned about sustaining long-term performance for shareholders. They're more concerned that Feinberg's authority won't be able to reel in "runaway," "excessive," and "irresponsible" pay programs. That is, the media want more oversight so that executives can be brought down to levels of pay deemed appropriate by the media judges.

Let's acknowledge that pay programs in some companies are really bad. It's not so much the size of the payments, it's the fact that shareholders did not get appropriate returns before the execs got paid. But strong boards have meaningful systems in place to tie executive pay to true performance metrics. And they have effective means to measure the return on all elements of their pay structure.

But now, the Federal Government (actually a single person) will oversee pay decisions.

As a taxpayer I now own a piece of these companies (or so I've been told). So what am I interested in? I want the best talent available to run those companies. I want people who can walk on water and leap tall buildings. I don't want wimps in charge. How will "my companies" be able to hire the best available talent with the restrictions on pay now being imposed?

I hope the next appointment will be a "Recruiting Czar." He or she will know how to recruit executives with great talent, commitment and drive. Of course those executives will be told their incentive plans will be subject to approval by Kenneth Feinberg. Good luck!

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