A Surtax on Corporate Greed and Stupidity
by John Russonello, Fri Jun 12, 2009 at 11:52:41 AM EDT
(Cross-posted from Think it Through)
Here is a suggestion for President Obama to overcome Republican objections to a cap on executive pay on the grounds that it interferes with the internal decisions of businesses: instead of proposing a cap on executive pay, borrow a theme from Ronald Reagan, who used the themes of individualism, freedom, and self-determination to employ the tax code as an incentive and a substitute for government regulation.
I propose the Democrats give up on the idea of a cap and instead offer a government incentive for merit pay for corporate executives. This would come in the form of disincentive for businesses to pay billions to executives who have failed. Here's how it would work: a corporation that loses money but chooses to pay bonuses to its top executives at the end of the year must pay the federal government a large tax equal to ten times the bonus - call it surtax on corporate stupidity and gluttony.
It is a conservative approach to good behavior. Do not dictate. Incentivize. Who would be affected?
- Insurance giant AIG would have thought twice about paying its directors $38 million in bonuses when it was losing $99 billion last year. If they were that determined to give the bonuses, the federal government would not have stopped them, but they would have had to pay $380 million for their decision.
- Citigroup might have balked at paying its top execs $60 million in bonuses when they led the company to become $18 billion in the hole; and
- General Motors might have hesitated before paying its top officers $26 million in bonuses last year while it was losing nine billion dollars.
Merit pay. What a concept. It works in small businesses and in corporations at the lower levels. Why stop there? It is an idea that both Democrats and Republicans could embrace.
John Russonello is a partner with Belden Russonello & Stewart:Public Opinion Research and Strategic Communications in Washington, DC. He writes the blog "Think it Through."