Waking up to Pravda

Posted by Marc Hodak on October 6, 2009 under Invisible trade-offs, Reporting on pay | Be the First to Comment

This morning’s headline in the Wall Street Journal made me wipe my eyes and blink a couple of times to make sure I didn’t wake up in some sort of Kafkaesque twilight zone.:

Pay Czar Targets Salary Cuts

That appeared right above a headline about how the government wants to restrict gifts to bloggers.  Nice.

Relative to the title of this post, Pravda, of course, would have reported on the glorious plan of a commissar instead of a czar, but that is a fine distinction for our purposes.  The more relevant distinction is that the pay czar story is really two stories.  The nominal story is about a government official who has ideas about how individuals in private firms ought to be paid, when most everyone agrees that the way they had been paid is defective.  It’s stated as a matter of fact problem-solution story.  The second, more subtle story, is about a government official harnessing state power to implement his ideas.  This is about the unstated premise that it’s a good idea for government officials to implement their good ideas about how people should be rewarded in companies representing a significant chunk of the economy.  Those who read the nominal story in its narrow sense will say, “Hey, these measures only apply to firms with significant government investment.”  True enough, but that ignores the trend in government intervention in pay practices over the past couple of decades under Republican as well as Democratic administrations.  The intent about this pay czar’s reach is clear:

However, the Obama administration is hopeful that Mr. Feinberg’s pay structure will be viewed as something of a “best practice” and that other firms may voluntarily seek to use similar methods in determining compensation.

And what if firms don’t seek to do so voluntarily, and generally shrug off these suggestions as they have every other government suggestion for how to structure the pay of the most sought-after talent on the planet?  The trend is not good.

Kenneth Feinberg is a bright guy.  He claims to have the best interest of taxpayer-as-reluctant-owners at heart:

At a speech before the Chicago Bar Association last week, Mr. Feinberg said he will not have done his job if companies react to his decisions by saying “that’s great, we’re going to lose all our people and we’re not going to be competitive.”

But the commissars who drew up the Soviet five-year plans wanted their companies to succeed, too.  They wanted their economies to thrive.  They considered it their patriotic duty to insure that success.  For many of them, success was literally and personally a matter of life and death.  But the commissars failed, and turned Soviet Russia into an economic basket case.  Ken Feinberg has never designed a corporate incentive plan.  He has never had his compensation ideas market-tested.  But this morning’s headline reports his intent as if none of these things matter.  All that matters is what was stated in the lead, that Mr. Feinberg is “clamp(ing) down on compensation at firms receiving large sums of government aid.”  Because the people could not tolerate paying their proxy functionaries so much.

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