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Salary Cap is Talent Cap


Best and brightest will get top dollar elsewhere.

Is President Obama trying to kill Wall Street and drive its talent to London?

It sure looks that way.

Obama's proposal to limit executive salaries at companies receiving bailout funds could easily have that effect. Limiting executive pay and bonuses also would take a huge bite out of income-tax revenue for New York State and New York City, both suffering severe budget crunches after years of overspending during the boom years.

Just asking, but where's the Constitutional authority for Uncle Sam to limit executive -- or anyone's -- pay? Obama's proposal will appear to make eminent good sense because it will apply only to financial firms receiving federal bailout bucks - for now.

Companies that thought they could take federal money without tacit federal oversight are nuts, or simply unconscious. But Obama and Congress shouldn't compound a bad situation by substituting their judgment for the market's and making it a matter of law.

In any case, Wells Fargo (WFC) cancelled a planned employee trip to Las Vegas after it was reported by the press. AIG (AIG) took a bit longer to understand the public-relations implications of spending $440,000 on a retreat at a spiffy Southern California resort -- and another $87,000 to send 4 top executives partridge hunting in England -- but finally got it right.

Both companies missed a basic point: It's not smart to spend big bucks on executive perks after taking federal bailout money, even if no federal dollars were used to fund the junkets. Apparently, public perception is something new to the resident knot-heads in the executive suites of many American corporations.

Last week, Obama said it was "shameful" that Wall Street firms handed out about $20 billion in bonuses as taxpayers bailed them out. It may be unwise, but do politicians believe that top talent can be recruited and retained without the possibility of a hefty payout?

What's more than a little annoying is that a bonus is supposed to be tied to performance, and Wall Street's recent performance has been dismal. Do we want to compound this stupidity with federal intervention not known for its brilliance?

The Wall Street Journal reports that Obama is considering a $500,000 cap on salaries for executives whose companies receive what's loosely called "substantial" government aid.

This is a horrendous idea.

Half a million bucks may seem like fat city for a former community organizer, but it's not much for a talented and successful executive, especially one who makes money for his company's clients and stockholders. It's also a lot less than top athletes or movie stars make. Has any politician ever argued that Hollywood stars (who admittedly haven't received any bailouts lately) make "too much" money?

Obama and Congress need to understand that Wall Street's top talent, if they can't make top dollar in New York, will go elsewhere. London comes to mind, but Hong Kong or Singapore would do in a pinch.

During the stagflation of the 1970s, many long and windy chin-pullers were published in major newspapers and magazines, noting the coming shift of power and prestige from New York to DC. Luckily, tax cuts revived the economy, and New York remained the nation's most powerful city. The market, once again, topped politics and bureaucracy.

Obama changes that dynamic at his -- and the nation's -- peril. But if he wants to turn us into a nation with high taxes, low productivity and chronically high unemployment, he's right on track.
No positions in stocks mentioned.
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