American Madness

Intelligent Criticism in the Service of a Better Nation

The “Best Men” for the job

Posted by Josh Friedlander | 5 Comments

There’s been quite a lot written about executive compensation now that Obama has made it clear the banks accepting government money will only be allowed to pay $500k in cash to their chiefs (it’s a bit more complicated than that, but whatever).

The push back is that companies can’t get the best people for those prices. As John Stewart has said, and I paraphrase, the banks don’t have “best” people, unless if by “best” one means “most capable of losing money.”

The idea that someone can, personally, be worth more than $500k/year is interesting. It would have to mean that such a person can, either through their own work or through leveraging the work of others, produce immense value relative to others. This may or may not make sense. Certainly, someone can definitely be found to actually run most companies for $500k or less.

But if a company relies more on connections than producing a product, one begins to see where there might indeed be people worth more than $500k/year because a company’s product is its relationships and not anything tangible. This is the crux of the issue. If Wall Street made Coca Cola, it wouldn’t matter who ran the company. But Wall Street just bundles risk, and hasn’t proven particularly good at it, so it’s vital to have people who can convince other captains of industry that they are paying for a useful service instead of overpaying for a commoditized service (clearly, there’s nothing especially difficult about issuing securities or buying other companies that necessitates the fees Wall Street charges).

So, there it is. Find me a company that requires a plugged-in CEO in order to function and I’ll show you a company that doesn’t have much of a product. As Warren Buffett has said, an investor should pick companies that could be run by idiots, because someday they will be. If Wall Street needs decamillion-dollar bonuses to attract talent, then it has a crap product. Hiring marketing help to put lipstick on the pig works for some people, but the U.S. government has decided not to pay too much for it anymore. Bye bye, trough.


5 Responses to “The “Best Men” for the job”

  1. Joel Friedlander
    February 5th, 2009 @

    Well said, but of course we should never have gotten into the rescue business in the first place. After these huge banks and corporations had gone down there would soon be an end to overpaying incompetents.

  2. Howard Roark
    February 5th, 2009 @

    I think journalists make too much money. If they were any good at what they did, they would have warned the public about the impending disaster. The public would then have been able to move all of their money into CDs and lock in 30 year mortgages.

    Since any idiot can be a journalist, I think we should cap journalist pay at $20,000 per year.

  3. Josh
    February 5th, 2009 @

    Howard: who said anything about the appropriateness of capping pay?

  4. Ben
    February 6th, 2009 @

    This reminds me of the end of Raiders of the Lost Ark:

    “We have top men looking at it.”
    “Top. Men.”

    (cue economy being wheeled into Hanger 51…)

  5. Amy
    February 7th, 2009 @

    (Psst… it’s JON Stewart). :)

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