Who could have guessed at this outcome? Um, just about everyone who ever worked in the private sector:
Even before the Obama administration formally tightened executive compensation at bailed-out companies, the prospect of pay cuts had led some top employees to depart.
The administration had tasked Kenneth Feinberg, the Treasury Department’s special master on compensation, to evaluate the pay packages of 25 of the most highly compensated executives at each of seven firms receiving exceptionally large amounts of taxpayer assistance.
But Thursday, he ruled only on slightly more than three quarters of the pay packages that were to be under his purview. The balance reflected executives who have left since he began his work in June or will be gone by the end of the year.
Many executives were driven away by the uncertainty of working for companies closely overseen by Washington, opting instead for firms not under the microscope, including competitors that have already returned the bailout funds to the government, according to executives and supervisors at the companies.
“There’s no question people have left because of uncertainty of our ability to pay,” said an executive at one of the affected firms. “It’s a highly competitive market out there.”
This is not exactly rocket science. When firms have to cut compensation for any reason, the employees affected start looking for better opportunities. The mere threat of cuts kick-starts the resumé-writing and networking process. Monster.com probably did great business in the days and weeks after the Pay Czar clauses became widely known in the bailout program.
And who leaves first? The people who can most easily find better-paying jobs elsewhere. Anyone who has worked at a company that attempts to downsize through attrition (or through across-the-board compensation cuts) has experienced this firsthand. The best and brightest find better-paying jobs elsewhere because they are the best and brightest. What does that leave behind? Usually, either people who can’t afford to check out because of their age, or people who simply can’t compete in the open job market because of a lack of marketable skills, accomplishment, or experience.
Of course, this describes exactly what has happened to the firms in which American taxpayers have invested hundreds of billions of dollars. The Pay Czar clawback provisions have resulted in brain drains at all of the firms which have those investments. Most of that damage was done before Kenneth Feinberg started contemplating the government approval of compensation plans, so the announcement this week of them will probably not have much further effect.
Every company sees its employee experience as a major asset, especially in management and executive positions, as well as the proteges who have begun to work their way up the ladder. Thanks to the class-warrior policies of this administration and the bailout policies of the last, American taxpayers have lost a great deal of the resources that could have safeguarded these huge investments.
Update: Good line from Glenn Reynolds: Mr. Galt’s corner office is now available.