by Pamela Tremblay

Created on: October 01, 2008

In a culture where we measure our success against the success of our friends and neighbors, it's impossible not to compare our own income to the astronomical salaries of executives at AIG, Lehman Brothers, Wachovia, or Freddie Mac, just to name a few. In our minds, not only is their pay grossly inflated, but it is also outrageous that they were so richly compensated for running their respective organizations into the ground. Now they have the audacity to expect taxpayers pick up the tab.

Taxpayers can't be faulted for wanting some kind of justice. Frankly, the Wall Street suits that contributed to this mess should go to jail or be barred from the industry permanently. However, placing limitations on executive salaries is an ineffective and weak solution: expensive to monitor and impossible to enforce.

It may make us feel better to know Wall Street will be somehow punished for their bad deeds, but if anyone believes Congress can effectively control executive pay on a permanent, or even on a short-term basis, they are naive. Any Internal Revenue Service Agent can tell you determining the exact compensation of executives at America's largest companies is sometimes like trying to catch a greased pig.

Corporate America has spent a lot of cash and brainpower to create hefty compensation packages that make executives happy and avoid "taxable events." This is not to say the packages are illegal, but they are extremely complicated and take advantage of every loophole available. Rest assured they would employ the same creativity to avoid any limitations placed on them by the bailout legislation.

In order to implement a salary limitation, Congress must be prepared to police the industry on an intimate and very long-term basis. It may even be necessary to spend more taxpayers' money to create a new agency or beef up an existing agency. Whoever is charged with riding herd on the bailout participants has to be pretty powerful, or it will be a reprise of OFHEO's weak and under-funded supervision of Fannie Mae and Freddie Mac. When the regulator is weaker than the regulated entity, it is a waste of taxpayer money, as well.

Some bailout participants may agree to operate under salary caps now, but there would be nothing to stop them from awarding bonuses or much larger salaries in the future after the crisis is over and no one is looking.

It is time for executive salaries to match the performance of their companies. It needs to start with the hiring process, and company directors should ensure employment contracts are written to address company performance in relation to compensation. Stockholders need to hold the directors' feet to the fire and make sure bad management doesn't walk away with rich severance packages.

Expecting government to further regulate corporate compensation packages is unrealistic. It's like slapping a Disney band-aid on a bullet hole and telling taxpayers that should make it better. It may make us feel better briefly, but in the end it is only distracting, voo-doo medicine that has no effect on the bigger problem.

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