Thursday, June 11, 2009

I Am All For Compensation Based On Performance

In today's Wall Street Journal, they are reporting that Barney Frank (D-MA) wants new laws governing how executives are compensated. In a hearing on Capitol Hill, Frank said:
"We are not talking here about the amount. We are talking here about the structure of compensation. And I believe the structure of compensation has been flawed."

In a CNBC interview, his chief complaint was that execs were compensated heavily for risks that paid off and not 'punished' (monetarily) when those risks fail. This, he said, encourages executives to take undue risk. "Heads they win, tails they break even," he said.

I have to agree with him, but not for executives. I am more of the mind that this standard should be applied to our political class in Washington, D.C. Some simple metrics would allow us, the taxpayers, to reward those holding the purse strings for growth in our economy. For example, ecomonists agree (if that is possible) that roughly 2% to 2.5% GDP growth is optimal for the economy. Not too little (causing resession); not too much (causing inflation). Just right. If Congress hits that, bonus time. How about deficits? Is the budget balanced? And no loop holes. If we have to borrow money to pay for a war, too bad. Everyone has to sacrifice a bit during wartime. Discretionary spending counts. Non-discretionary spending counts. Trade surplus? Bonus. Unemployment under 6%? Nancy gets a killer new pant suit.

What's good for the goose, must certainly be good for the gander. Right?

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