Too Much Meddling

Americans are sore at the Wall Street high rollers whose recklessness contributed to the economic collapse. So President Barack Obama's move to tame their compensation isn't likely to raise much outcry.

But even if you live far from Manhattan and earn less in a year than these Masters of the Universe do in a day, Obama's appointment of a pay czar to regulate salaries ought to trouble you. The move takes the federal government into an area where it doesn't belong.

A case might be made for the right of the administration to set limits on compensation at those financial firms that received relief funds from the Troubled Asset Relief Program. Taxpayer money shouldn't be used to lavish rich perks and paychecks on managers who've failed in their duties.

But the market is already righting itself in that area. Wall Street bonuses fell 44 percent last year, according to the New York state comptroller's office.

The administration says it wants pay packages that focus executives on long-term performance and discourage the type of risky behavior that led to the meltdown. But the White House shouldn't be setting goals for executives. That's the job of the shareholders whose money is at risk.

Obama signaled he is setting his sights beyond the securities industry and those automakers that are on taxpayer life support. He says he'll ask Congress for legislation that limits compensation across the corporate world, reflecting the view he expressed during the campaign that government should take an active hand in closing the income gap.

But even if that were a legitimate goal, the ability of the government to accomplish it is limited.

Executive talent is globally competitive.

Top managers aren't likely to join companies where the government is setting salaries when they can choose foreign or privately owned companies that are beyond the White House's reach.

Pay restrictions will undermine efforts to incentivize performance. This is particularly true at financial firms, where profits depend on the willingness of executives to take reasonable risks to maximize returns.

Once the wage control door is cracked, the temptation to swing it wide open will be irresistible for those in Congress who would pander to voters by beating up on rich guys.

Justification for meddling in pay inevitably will be extended to any company that enjoys a federal tax break or gets a government contract or is under the jurisdiction of a federal agency.

Shareholders of publicly traded companies can already limit executive compensation. Obama wants to strengthen their ability to set up independent compensation committees, and that's one piece of this proposal that has merit.

Most of the best governed public companies have already established compensation committees with no ties to management.

The tight credit markets will increase the leverage of stock and bondholders, who should use it to make sure executives are working to benefit the owners of the corporation.

Companies that enrich executives at the expense of shareholders ultimately will be shunned by investors.

The responsibility for setting executive pay belongs to the owners of the company and not to a politically driven federal pay czar.

REPRINTED FROM THE DETROIT NEWS.

DISTRIBUTED BY CREATORS SYNDICATE INC.