It think the biggest problem I have with the McCaskill proposal for paying senior executives like the president is that it gets it all backward. Most of what executives get is variable compensation. Say what you want about pay-for-performance, but when was the last time senior government officials saw their pay drop 44 percent for a bad year? It think the president and congress should get much higher pay, but most of it variable, based on performance.
Since I design this stuff for a living, let me propose something simple and definitive, something that points us in about the right direction. How about:
- A target bonus equal to current salaries, e.g., $400,000 for the President, and something similar for every senator and congressperson,
- A bonus pool for these 536 elected officials that adds $1 for every $1,000 in budget surpluses to those target bonuses, and reduces them by $1 for every $1,000 in deficits. (I’m talking cash surpluses and deficits; none of this “off-balance” sheet stuff that only the most Enron-friendly accountant would accept.)
So, a $230 billion surplus, like Clinton and the Republican congress produced in 2000, would create a bonus pool of $230 million, to be divided among our president and legislators in proportion to their respective salaries. That would average about $430,000 per pol, with a little more for the Prez and little less for a House member. Remember, this would be on top of their respective target bonuses.
On the other hand, if they bring home a Bush-sized $400 billion deficit, their bonus pool would be -$400 million, which would wipe out their target bonuses. Don’t even ask what a $2 trillion deficit would do.
Actually, let’s ask. That would create a negative bonus of over $2 million per pol. Should we institute clawbacks? Or perhaps do it like the hedge funds that we love to demonize, and have our new bonus babies earn back the negative amounts before they can get more bonuses in the future.
I know my libertarian friends will complain that this will encourage tax increases as much as spending decreases, but I wouldn’t fret too much about that. We like to joke about the financial literacy of our elected representatives, but I think they are actually smart people, and will quickly realize what most of us economists already know, which is that they don’t control the lever of overall tax revenue nearly as much as they control expenditures.
And I solemnly promise not to complain about their massive layoffs of government employees while getting paid large bonuses. Not one peep.