Of Bonuses and Executive Pay
By Matthew Givens
Posted Feb 4, 2009
I’ve never understood those who attack people who make money. Isn’t that the dream held by every American, that they can make enough money to live the lifestyle they wish? So why are those who succeed in achieving the American Dream criticized and lambasted by politicians and the mainstream press?
Let’s look at an example or two. Recent news that Wall Street employees earned $18.5 billion in bonuses produced an absolute furor. Politicians roundly denounced them, newspapers condemned them, and even President Obama called them “shameful.” Virtually ignored was the fact that the 2008 bonuses were 44% LESS THAN the 2007 total of $33.04 billion. In politicians’ minds, people should not accept bonuses as a reward for outstanding performance. Also ignored were the unintended consequences of lower bonuses: the State of New York saw $1 billion less in tax revenue because of the reduced amount of bonuses, and New York City saw $275 million less in revenue.
How can earning money be bad if paying taxes is good? The paying of taxes is certainly not possible without earning money.
The fact that people earn a lot of money is seen as a badge of evil in the eyes of those on the left of the political spectrum. But those who earn the extra money usually end up spending a good chunk of it to maintain their lifestyle. Isn’t that economic stimulus? Isn’t that economic activity good and much-needed? And they also pay taxes on that money, thus providing governments at all levels with much needed revenue. Many states say they will experience lower tax revenue this year, and wonder what they can do to balance the budget. How can they demonize the very people who put the most money into government hands?
Another example is the now-breaking story about Obama’s placement salary caps on executives of firms who have received bail-out money. This is another example of the shallow thinking in which the wealth-envy crowd habitually engages. On the surface it sounds good, but that surface is very thin. We will ignore the tax revenue that the government will lose if the caps are enacted and enforced. We’ll ignore the ways that these executives would have spent the money, the food and clothes they would have paid for, the businesses they might have financed, the colleges they would have endowed, the charities to whom they would have donated, and even the automobiles they might have purchased. When income is cut, so are expenses… for private individuals and companies, that is. Governments look upon reduced revenue as a good reason to raise taxes so they can increase spending.
No, we’ll ignore all that and focus instead upon what will happen when the salary caps are put in place for the bailout firms. Those companies that did NOT accept bailout money will not have the salary caps, and can therefore pay more than their bailout counterparts. The most talented, skilled, and effective executives will naturally gravitate towards the higher salary, i.e. away from the firms who took bailout money. So the unintended consequences of putting salary caps on executives will be to deprive the bailout companies of the best and brightest, who will instead work at other companies not hampered by salary caps. Do we really want our government forcing substandard management on those firms who accepted bailout money? Does this make ANY sense at all?
High salaries and bonuses are incentives to work harder and achieve more. They are the carrot that dangles in front of employees and management to encourage them to go that extra mile and benefit the company even more. They are also rewards to the employees who put in the extra effort, who work those extra hours, and whose hard work and dedication produce positive results. That kind of dedication and effort doesn’t come free, nor does it come cheap.
So if you feel the desire to criticize somebody because of high salaries or bonuses, be careful. Without those incentives and rewards, the companies will produce less and this economy will get even worse. Without those high salaries and bonuses, the employees spend less, thus causing even more economic tribulations. And of course, government tax revenue falls with individual income. And none of that is a good thing.
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