{"id":660,"date":"2009-02-16T11:42:15","date_gmt":"2009-02-16T19:42:15","guid":{"rendered":"http:\/\/hodakvalue.com\/blog\/?p=660"},"modified":"2009-02-18T07:39:31","modified_gmt":"2009-02-18T15:39:31","slug":"congress-prohibits-pay-for-performance","status":"publish","type":"post","link":"http:\/\/hodakvalue.com\/blog\/congress-prohibits-pay-for-performance\/","title":{"rendered":"Congress prohibits pay-for-performance"},"content":{"rendered":"<p>There are so many wonderful features of the executive compensation provisions of the new <a href=\"http:\/\/www.readthestimulus.org\/\"><span style=\"text-decoration: line-through;\">giga<\/span>tera-spending<\/a> law that I have to post them one at a time to avoid TLDR from my fans.\u00a0 One of my favorites is the effective elimination of pay-for-performance as a viable basis for rewarding employees.<\/p>\n<p>Actually, the law reads &#8220;&#8230;each TARP recipient shall be subject to&#8230;a prohibition on any compensation plan that would encourage manipulation of the reported earnings of such TARP recipient to enhance the compensation of any of its employees.&#8221;<\/p>\n<p>Let&#8217;s see if we can get this straight; in golf, the score is the number of strokes one takes to get the ball in the cup.\u00a0 Does compensating one based on this standard encourage cheating?\u00a0 How <a href=\"http:\/\/usgtf.com\/articles\/cheating.html\">could it not<\/a>?\u00a0 So, if golf were under TARP, the number of strokes would be forbidden from being used as a standard for rewarding any player.\u00a0 Under TARP, film talent would be forbidden from getting compensation based on net profit (a.k.a. <a href=\"http:\/\/findarticles.com\/p\/articles\/mi_qn4182\/is_19950525\/ai_n10082506\">monkey points<\/a>, a notoriously manipulable figure).\u00a0 Under TARP, paying patients based on the <a href=\"http:\/\/www.thefreelibrary.com\/Outpatient+care+from+the+payer%27s+perspective-a09186067\">care provided<\/a> would be illegal.<\/p>\n<p>I could go on, but the bottom line is that any bottom line serving as a basis for pay is a bottom line begging to be manipulated.\u00a0 An incentive to perform is indistinguishable from an incentive to cheat.<\/p>\n<p>The tightest interpretation of this rule would imply that a company can&#8217;t use GAAP earnings as a basis for pay-for-performance, which would be <a href=\"http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=816825\">bad enough<\/a>.\u00a0 But any driver of GAAP earnings&#8211;revenue, cost control, inventory turns, etc.&#8211;could easily fall under the purview of this law.<\/p>\n<p>So, TARP recipients be warned:\u00a0 pay-for-performance is now illegal.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>There are so many wonderful features of the executive compensation provisions of the new gigatera-spending law that I have to post them one at a time to avoid TLDR from my fans.\u00a0 One of my favorites is the effective elimination of pay-for-performance as a viable basis for rewarding employees. Actually, the law reads &#8220;&#8230;each TARP [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5,21,23],"tags":[],"class_list":["post-660","post","type-post","status-publish","format-standard","hentry","category-executive-compensation","category-politics","category-stupid-laws"],"_links":{"self":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/comments?post=660"}],"version-history":[{"count":9,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/660\/revisions"}],"predecessor-version":[{"id":706,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/posts\/660\/revisions\/706"}],"wp:attachment":[{"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/media?parent=660"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/categories?post=660"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/hodakvalue.com\/blog\/wp-json\/wp\/v2\/tags?post=660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}