Thursday, February 05, 2009

Thoughts on pay

President Barack Obama limited the compensation of top executives at firms receiving extraordinary assistance from the US to $500,000. That means Bank of America, Citigroup, AIG and a few other firms. These firms could still give additional compensation in stock.

There's bound to be some caterwauling. Some people will say that these firms may lose talent to other firms which can pay higher.

I know that $500,000 really isn't much to live on. But these folks got the United States (directly) and the entire world (less directly) into quite a big mess, not to mention losing a lot of money for shareholders. There have to be consequences. A blogger on MSN Money contends that Wall Street is out of touch with the real world, and that we cannot afford their lavish practices to continue.

That brings me to another topic. The religiously-affiliated nonprofit hospital I last worked gave its CEO a total compensation of about $1 million in 2006 and $1.8m in 2007. On their IRS Form 990, their net patient revenue was about $1.9 billion in 2007; this is the revenue they generated serving patients.

Running a nonprofit hospital is good work and deserves to be compensated well. They certainly delivered better benefits to society than Citigroup. The question is, does it deserve to be compensated that well? The President of the United States makes about $400,000 - and he runs the entire country. $400,000 seems reasonable to me. $1.8 million does not.

I've heard that corporate salaries in other Western countries are significantly lower than the US, where compensation is really outsized. It's not impossible that we'll see salaries at the top coming down. I would be happy. If I were running a nonprofit with $2 billion of revenues, I would be glad to take $400,000 or so.

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