Look! It's a Dead Horse - Let's Hit It With This Stick!

Senator McCaskill proposed limiting executive compensation for Wall Street firms receiving federal money to the same $400,000 annual amount that the President of the United States is paid. She went so far as to call bankers who paid employee bonuses this year "idiots". Fair enough, I called those of her ilk stupids yesterday. Let's think about what it would mean for people to be paid the same as President Obama. There are plenty of sources on the interwebz where you can put together your own data on Presidential compensation. I'll make mine very simple:

• Cash compensation: $400,000; full health benefits with no deductible or co-pay
• Housing allowance: unlimited use of 55,000 square foot home in good neighborhood, adjacent guest house complex, and private 125 acre mountain retreat
• Transportation allowance: fleet of chauffeured cars, helicopters, and aircraft available around the clock for unlimited use
• Household allowances: full kitchen staff (food included), maid staff, staff of personal assistants for recipient and spouse, drivers, pilots, press agents
• Retirement: $200,000 annual pension; lifetime health benefits
• We'll ignore the value of security services and gifts received as a result of the job since those are unique to the Presidency.

Essentially the Presidential compensation package includes most non-discretionary expenses and provides all the amenities to allow the world's most powerful person to focus on running the country. I'd be the first to sign up for a $400,000 cash compensation cap if it also included free housing, travel, food, and healthcare. (You mean I have to pay for my own movies? That's a slap in the face! Oh wait, we can use the White House theater.) Because I'm a generous guy, I'd even be willing to live in my current home rather than the White House. Wouldn't mind the multiple hundred thousand dollar remodeling budget, but I digress. The point is that holding up what the President of the United States is paid in cash as some kind of "more than fair" amount for anyone is ridiculous.

The latest plan comes from the Obama administration and calls for an annual cash limit of $500,000, with additional funds payable in restricted stock that vests only after government funding is repaid. This is far better than McCaskill's plan, but still misses the point. I don't believe that people need the prospect of making millions of dollars to enter this business. However, limiting compensation won't change how people who are paid to take risks do their job. (And it completely ignores the impact on the vast majority of Wall Street employees whose jobs entail taking zero capital risk.) If government wants to eliminate traders putting on positions that jeopardize the financial system, clawbacks of past earnings would be better. Use Warren Buffett's method of paying bonuses three to five years after performance is booked to minimize short-term gamesmanship if no one can come up with a better idea.

Indiscriminate responses to complex problems tend to not work out so well. Is it asking too much to hope for a little nuance and understanding?