Feature

Obama’s big bailout pay cuts

Is it a good idea to slash executive pay at the seven companies that got the most government aid?

The Obama administration is cutting executive pay at the seven most-bailed-out companies, says Felix Salmon in Reuters, and it clearly means business. Pay czar Kenneth Feinberg is ordering 90 percent reductions in salary, and a 50 percent cut in total compensation, for the 25 best-paid people at each firm. “Feeling outraged?” Don’t. “These guys are effectively civil servants now, and they deserve to be paid as such.”

“There is no way this will work as advertised,” says Alex Tabarrok in Marginal Revolution. If Kenneth Feinberg “actually follows through” on this, the executives at the affected firms—Citigroup, Bank of America, AIG, GM, Chrysler, and the financing arms of the two automakers—will jump ship for higher-paying jobs elsewhere. What will Obama do when “chaos” ensues? “Order people back to work?”

"Going after outrageous executive pay may be a fool’s errand,” says David Callaway in MarketWatch, “but it’s the right thing to do.” The “audacity” of the pay cuts sends a message to Wall Street: Team Obama isn’t “as toothless as the press might make them seem” when it comes to financial reform. And that’s good news. Banking should serve “everybody, not just the elite,” and this is our best shot in 70 years to set things right.

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