Archive for February 15th, 2009

The Chris Dodd addendum to the American Recovery and Investment Plan of 2009, may prove to be the most transformational element within a package touted by the Democrat leadership to be transformational for America. Dodd, the Connecticut Senator, included a provision in the stimulus package that will limit executive compensation for those banks and institutions that have received TARP funds.

The compensation cap, could apply to as many as 25 of the highest compensated executives within affected companies. The provision, severely alters incentive compensation for senior executives in firms that have historically provided competitive base salaries with lucrative incentive plans. The provision, undermines the compensation infrastructure of an industry that has provided performance based incentives to attract, recruit and maintain the professionals that comprise its executive and middle management ranks. 

Most corporations in America, large, mid size and small cap, provide compensation in the form of  performance based incentive plans. These programs are in place because they have proven over time to be successful in optimizing results through the attainment of corporate objectives.

 When people elect to pursue a career in the private sector, one of the primary considerations in their decision, is compensation and the opportunity to earn without the restrictions that are predominant in the public sector. They recognize, that they can be a member of an organization in which the goal is to optimize performance thereby, optimizing profits for stakeholders and ultimately allowing them to benefit individually.

The public sector, in the form of the federal government, has made enormous inroads into American business since the advent of the TARP fund. By providing capital to prevent the collapse of America’s financial infrastructure, the government has now elected to create policies that are ultimately socialist in nature. Not satisfied with solely preserving our nation’s largest financial institutions the government has decided they have the right to alter the structure and policies of these institutions, in order to safeguard the American taxpayer and their investment  in these institutions.

When the government begins dictating  policy on something as sacred to business as its’ executive compensation practices , we have as a captalist based society lost our way. At what point do we decide that it is in the public interest to alter the compensation structure of executives or middle managers in other industries. Business practices tend toward migration from one industry to another. If  the Dodd addendum is enacted into law we are on a path to become a nation of mediocre performers that embraces government intervention in our most fundamental business practices.

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