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Capping salaries to create jobs? It really works!

January 31, 2009

Rocky just read the most brilliant idea to create new jobs in this post-financial crisis world.

Jan. 30 (Bloomberg) … Earlier today, Senate Democrats took the first step toward limiting pay for workers at companies receiving federal bailouts. Senator Claire McCaskill of Missouri introduced legislation to restrict compensation at such companies to $400,000, the equivalent of the U.S. president’s salary. Another measure being proposed would create a court to restrain executive compensation.

Rocky observes that if the government “caps” compensation on the best and brightest employees at a company, those employees will quit. The capped employees will then either launch or join an unregulated company.

Once they settle into their new positions, these employees will count as “new jobs created” in the monthly statistics of the Labor Department (even though they are just moving around). The old positions will not count as “job losses.” (Although the regulated company performance will deteriorate faster, that’s a problem for the Treasury Department, not the Labor Department.)

Perversely, the lower the cap, the more jobs that will be “created.” So, if Obama wants to “create” millions of jobs, he can pick random industries, force them to accept a few government dollars, and just keep lowering the salary cap!

Note to Senator McCaskill: You wrote that the $400k cap is based on the salary of the President of the United States. Does your cap for executive compensation permit the following tax-free FREE perks: Company Residence (White House); private chef and dining room; private jet (Air Force One); private helicoptor; 34 member domestic staff; private security detail; and a personal “needs” expense account, which total tens of millions of dollars each year?

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  1. ld
    January 31, 2009 at 7:50 am
  2. masteroftheuniverse
    January 31, 2009 at 3:46 pm

    Pretty soon, all industries will be under the umbrella of federal salary regulations, and there will be caps on everyone. I wonder about the effect of the unions, which went all in during this last election holding a pair of aces in the hole.

    Jeff

  3. January 31, 2009 at 5:00 pm

    Jeff:

    Using Rocky’s argument reductio ab absurdum, that should result in full employment.

    Rocky also notes that unions representing refinery workers are on the brink of a strike. This might explain the most recent spike in the gasoline crack spread, but he has no clue….
    http://www.bloomberg.com/apps/news?pid=20601207&sid=aPGYJDwgQGnM&refer=energy

  4. Uncle R
    January 31, 2009 at 9:35 pm

    Sounds like Rocky would prefer that the government stay out of the way, then greedy and short-sighted bankers could pay themselves whatever they like, and let their companies fail. I think the majority of such folk may have a harder time getting an equivalent job, and having people trust them, than Rocky seems to believe.

    The correlation between best, brightest and highest paid is not as clear as Rocky believes. Rocky might read about Hertzberg’s Two-factor motivation / hygiene theory, which suggests that achievement, recognition and responsibility are the factors that lead to job satisfaction (although poor working conditions and insufficient salary certainly can lead to dissatisfaction.) See for example http://www.netmba.com/mgmt/ob/motivation/herzberg/

  5. January 31, 2009 at 10:01 pm

    Rocky agrees with Uncle R that some of the top paid executives at many companies are utter nincompoops.

    Rocky notes, however, that the Hertzberg two factor model was based on interviews with 203 American accountants and engineers in Pittsburgh. With no disrespect to the Pittsburgh Steelers intended, Rocky believes that the model is not applicable to the current discussion.

    Rocky’s point is that the most desirable traders, salesman and investment bankers are highly mobile profit centers with a discernible and quantifiable profit, who will always be able to find an opportunity to earn a percentage of their discernible profit. In contrast, engineers and accountants, are by defnition staff, and do not have a scalable, attributable profit. Hence they are generally not standalone businesses which can be easily moved and recapitalized. So while Rocky agrees that financial remuneration is only part of overall job satisfaction, he argues that the job market for wall street traders is, to a degree, more sensitive to profit-based remuneration than the job market for engineers and accountants.

    Nonetheless, Rocky thanks Uncle R for visiting the site and sharing his thoughts.

  6. wtf
    February 5, 2009 at 1:05 am

    the federal government has offered to bail out companies that drove themselves into the ground and in exchange for those loans want to limit salaries of employees of companies that accept the federal loans $500,000 in cash and unlimited amounts of preferred stock. the prefered stock will only vest after the company has paid back their federal loans. i think that is amazingly generous. this means that the overpaid incompetent management (that for some reason people keep referring to as ‘the best people’) is being given a chance of a half million dollar cash salary even if the drive their company into the ground again. and if they happen to somehow turn things around then there is nothing to say that they actually end up with even more compensation do to being given the preferred stock. since every taxpayer is now funding these people that created the problem in the first place, the least the companies can do is show a gesture of belt tighening while they are using our money. why rocky trying to make a mockery of it is just silly. and please, if those people don’t want the half million salary, i am sure another equally incompetent person will.

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