Easing into exec-pay limits

The office of the Obama administration’s Pay Czar released the long-dreaded new regulations on executive compensation, and Wall Street breathed a sigh of relief.  Kenneth Feinberg didn’t go nearly as far as some had feared, and except for strict limits on pay for seven specific TARP recipients, more or less left the status quo in place.  That, however, is just the opening round:

Corporate executives breathed a sigh of relief Thursday after examining the fine print on broad new executive compensation rules and proposals put forth by the Obama administration.

While the White House’s new so-called special master for compensation, prominent Washington lawyer Kenneth R. Feinberg, has been given unprecedented powers to set pay at seven of the most troubled firms, the plan that was laid out Wednesday largely maintains the status quo for compensation practices at all other publicly traded companies, including hundreds that are receiving taxpayer assistance. In addition, the administration got rid of a previously announced $500,000 salary cap at financial firms that in the future take the kind of exceptional assistance that firms such as Citigroup and Bank of America have received.

“Our people kind of thought it was a non-event,” one executive of a large bank said. “There’s nothing in there that’s radical. It’s not like the horrible and unethical action from Congress where they were putting artificial caps on pay or trying to steal back bonuses. . . . I don’t think there are worries about it on Wall Street.”

Feinberg and the Obama administration eliminated “gross-ups”, the practice of firms to reimburse their top execs for the state and federal tax on their incomes.  Even some of the groups protesting the idea of a Pay Czar didn’t mind that change.  Most people would agree that everyone should pay their own taxes, after all, and the practice of “gross-ups” is hard to defend.

Of course, one also has to remember that the most famous of gross-up recipients was Feinberg’s boss, Tim Geithner.  He got reimbursed by the IMF for his federal taxes, which he never bothered to pay — not until he got picked by Obama to run Treasury.  If Obama and his administration really found this practice objectionable, why did he pick Geithner to run Treasury in the first place?

Wall Street may feel relief now, but that doesn’t mean they should get complacent.  Feinberg might be benign, but he also could be just getting started.  It makes good political sense to ease into pay restrictions and to tighten the leash slowly.  The issue will drop off of the media’s radar, but Feinberg and Obama can get the control they want over executive pay in due course.  The federal government rarely fails to fully use power it seizes for itself, and the Obama administration has seized a lion’s share of it already.  Benevolent czars were still czars, and all of them became despots.

Update: Business groups are wondering why Obama won’t limit executive pay at the unions:

Business groups are daring President Obama to impose pay caps on labor union bosses in light of indications the White House will limit how much corporate executives can be paid.

Mr. Obama has argued that “corporate greed” has contributed to the economic crisis and appointed a “compensation czar” to review executive pay for several companies receiving taxpayer bailout money. Now White House officials have told the press that legislation should be enacted to limit executive pay in private companies through nonbinding shareholder votes.

The Workforce Fairness Institute, which has lobbied heavily for the defeat of the Employee Free Choice Act, which would ease organization rules for unions, argues that labor officials have acted just as poorly as the “greedy corporate executives” who the president has blamed for the economic downturn. The group points to a 2008 Hudson Institute study that suggests unions have short-changed benefits for their rank and file in favor of generous executive compensation packages and to pad the coffers of their political allies, who are mostly Democrats, as evidence.

Add to this the whopping bailouts for unions in the way the government and its 31-year-old clerks handled the GM and Chrysler bankruptcies, and they have a case.  And hey, both unions and Wall Street execs were big contributors to Obama as well.  I guess the latter group is just discovering which of the two are indispensable to Obama, and which can get thrown under the bus.