Intersecting Minds: Education, Business and Technology at the North Carolina State Jenkins Graduate School of Management

Limiting Executive Pay – the Downside | February 5, 2009

Today President Obama announced a new bill that would limit executive pay to $500,000/year at companies that are receiving federal funding. Video:

This is a very populist move from the President, if not an unexpected one following the outrage over a New York Times column pointing out the exorbitant bonuses Wall Street executives granted themselves in the wake of record losses. John Thain, for example, made $83m in 2007. Slightly ridiculous, no?

However, there is a hidden downside to the limitations Obama wants to put in place. Namely, there are still plenty of other unregulated companies out there. Put another way, if you’re a highly talented and capable individual in upper management, would you choose to work at a company that can only pay you $500k + some long-term stock options, or a company without limits on what they can pay you? If/when this passes into law, don’t be surprised if we see a flight of top talent from newly regulated organizations to unregulated ones. And also don’t be surprised if the best talent available treats these companies as radioactive too.

Does this outweigh the benefits of increased accountability? I’m not sure, but I do know that while it sounds fair on its face, there might be some unintended consequences.

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3 Comments »

  1. Why are these companies being regulated? Didn’t they need a taxpayer bail-out?

    Top talent??? I don’t know…

    Maybe it’s time the talent moved on!

    Just some thoughts…

    Comment by Bob — February 5, 2009 @ 1:12 am

  2. I agree with you on several points, Bob. I’m not particularly excited about keeping who they have. But if they’re going to survive (and keep in mind these are the biggest financial institutions in the country), they’ll need top talent to turn themselves around.

    Comment by Ryan — February 5, 2009 @ 4:02 am

  3. Remember it is a strategic competitive advantage to the stronger banks that the weaker ones have their exec comp limited… I don’t think Barak Obama will stand up to the execs at the stronger banks. I’ve just posted on this, in case you are interested.

    Comment by euandus — October 22, 2009 @ 5:01 pm


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