One of the most misguided policies of the Obama administration is focusing on ways to reduce executive’s pay. Even having a pay czar is a waste of valuable time and money! This is contrary to everything I have learned about the free market system.
In theory, this policy has some merit including placing a huge chunk of compensation into stock that cannot be touched for several years. This supposedly will better link a manager’s efforts with the economic well-being of the company. Unfortunately, this will also have many bad side effects including complicating efforts to recruit the best and brightest to run underperforming companies like Bank of America, which is currently recruiting for Kenneth Lewis’ replacement.
Instead, the “invisible hand” espoused by Adam Smith has guided companies and managers through free markets for centuries. True, there are criminals that misuse their power, but does any evidence exist that criminals are less prevalent in highly regulated situations? In fact, evidence shows the contrary. Look no further than communist countries like Russia and China where payoffs and corruption run rampant!
Instead of trying to reduce executive’s pay, having a pay czar and focusing in on all these big government programs, the administration needs to re-focus on the real engine for jobs creation, small businesses. To that end I have two suggestions: 1) providing more and easier access to capital and 2) expanding successful programs like SCORE (Service Corps of Retired Executives), which provide training to entrepreneurs to start and expand small businesses. These will be the real drivers for more jobs, which will do more for our economy than being on an executive pay witch-hunt.
