See the Pay Go

There is broad support for Feinberg's actions, at least for now, in Congress. Congress is only continuing a string of recent decisions to redistribute wealth from one segment of the population, to those now in greater favor. Folks can debate the merits of the Pay Czar's recent decision, and there is plenty of support for limiting the amount of money and executive can earn for firms that are heavily dependent upon taxpayer subsidies. Others, too correctly, argue that the Pay Czar's decision is an erosion of privity of contract, and view Feinberg's decision as the tip of an ice berg they have long tried to melt.

I would like to suggest that the issue of whether the 175 Wall Street folks deserved to have their salaries and bonuses retroactively negotiated, is not the most important issue. The most important issue is the dangerous precedent that the Pay Czar has now set. The likelihood that the government's role in setting pay and bonuses for owners and executives is almost certain to grow.

Just one day after Feinberg's startling announcement, the Obama Administration extended the government's role in setting pay and bonuses levels. Under the latest government edict, banks and financial institutions that did not accept TARP money will also face government review of executive pay, in a distinct trend toward a more expansive government role in setting pay and bonuses.

So, what's next?

We have already seen other CEOs demonized by Congress for creating profits and making high salaries in other industries. My guess is that we should now expect the government to continue to expand control over other businesses and industries that are either subsidized by the government or dependent upon the government for its revenue.

Perhaps high on the list to be reviewed will be highly paid CEOs from the largest government contracting firms, many of whom make salaries in a similar range to the Wall Street CEOs whose pay just got slashed. Government contractors have long been singled out as ‘beltway bandits", and there is already a well-established effort in Congress to demonize these firms. So it's not much of a leap to think that the large government contractors, most of whom have large compensation packages, will soon face a similar government crackdown on pay and compensation.

Consider the compensation of some of the leaders of some of the government's largest federal contractors. James McNearney, CEO, Boeing, $15,410,000; Linda Gooden, President, Lockheed Martin: $5,454,383; Mike Lapham, CEO, CSC, $7,825,926.00; Ronald Sugar, CEO, Northrup Grumman, $8,560,000; Sam Palmisano, CEO, IBM, $30,033,000; Stephen Rohleder, Accenture, $6,206,646.00.

Of course, these kinds of compensation figures don't take into account stock options and indirect perks of the job such as sky boxes at sporting events, use of private jets, chauffeurs, limos and the like, all of which are costs paid by the business. Once Congress and the Pay Czar star to understand these costs are then passed on to the government as overhead costs on federal contracts, the heat will be on. But are we ready for that?

Our country used to believe that a worker was worthy of his hire, and we also used to believe that the market sets the price. As we move forward, one of the greatest challenges, apart from getting the government out of the business of business, will be to make sure that the government is not picking and choosing which markets it interferes in, setting wages, perhaps setting the price of goods sold, perhaps setting the price of profits earned.

Free market capitalism is an amazing, time-tested economic system that has made the U.S. a powerhouse envied by the world. Free market capitalism has created the affluence which has paid the taxes and generated the philanthropy that has made the education and welfare of most of those in Congress, as well as the President and the First Lady, possible.

The current government leaders, with one or two exceptions, have never created an enterprise, have never created a job from scratch, have never manufactured an idea that became a product that was sold and contributed to the nation's GDP, and thus, formed the basis of the wealth that these same leaders find so offensive.

Because of this kind of colossal ignorance of the way in which free market capitalism works, and because they have only reaped the benefits of the innovation, labor and perseverance of entrepreneurs who came before them, it is no wonder that they are now, inadvertently , killing the goose which has laid the golden egg.

Salary and compensation are best set by the market. Had the government not abandoned the principles of free market capitalism, had the government not bailed out these businesses, claiming, in an anti-capitalist way that they were "too-big-to-fail", then the government's pay czar would not now need to weigh in on the salaries those executives earn-- the market and lack of profits would have corrected any such problem.

Whether it's Wall Street executives, banking executives or federal contractor executives, Ken Feinberg set a dangerous and mercurial precedent last week. When the pay czar, seemingly without consulting the President, and without what appears to be a consistent metric or formula for decision-making, set salaries of executives of seven Wall Street firms, he set the world of capitalism spinning like a top. Now, the world watches and can only wonder: who is going to be next on the government's hit list?