Salary caps - good for the goose, good for the gander

"Good for the goose, good for the gander" is a saying I heard often from my mom & dad. I've been thinking a lot about the idea of salary caps and I have to say it bothers me.

The idea is that companies that take bail-out money (banks, auto companies, etc) would cap salaries of their CEO's etc at $500,000. In the interest of full disclosure, I have to admit that I would NOT be affected by this cap and probably won't be affected for at least the next 2-3 years.

But I got to wondering, if this is good for bank and auto CEO's, why not for other people? I saw this article that writes about two college presidents that make $900,000 and $1.4million. Seems like those colleges take scholarships handed out on the federal level, shouldn't they be capped also? (I'm ignoring the football coaches, as that will start a different argument).

More importantly, how about politicians? Well, the president is typically the highest-paid official, his salary is only $400,000. But if you tack on his expense account, travel account and entertainment account, he's over the cap at $569,000. Reckon President Obama can afford a $69,000 pay cut?

And how about past politicians? Remember, what's good for the goose is good for the gander. According to an April 2008 article, the Clintons made about $20million in 2007. Now since there's two of them, they would be capped at $500,00 each, so they get a cool $1million. Shouldn't they give $19million back to the government (in fairness, they did pay about $5.1million in taxes and typically gave around 10% to charity - that means they are only $12million away from this cap).

Let's not stop with education, business and politics. What about sports? Seems that Tiger Woods makes about $227million, LeBron James $40m and A-Rod $35m just to name a few. (thanks to Sports Illustrated for the reference). And if we look at the left coast (Hollywood), George Clooney rakes in $15m (paltry compared to Tom Cruise's $25m) according to bankrate.com.

Once we dictate what CEO's can make, why not stop there? Why not establish salaries up and down the line? We're already dictating the minimum wage. It's the middle class that's left out of the picture.

Ok, my opinion should be clear, but just to be sure: I'm against salary caps.

How much can you make in 3 weeks?

I usually don't speak out about CEO pay. I feel like it's an issue between the company and the CEO. If they want to pay the CEO a lot, that's their business. My paycheck is the amount my company and I have agreed on. If I think it's too much (not likely) I can return some of it and ask for a lower check. If I think it's too little, I can ask for more and even go somewhere else. I don't want someone else saying how much (or how little) I should get.

But sometimes, the facts need to be brought out. Take for example, Alan Fishman, CEO for Washington Mutual (WaMu). To be fair, Fishman came into a company that was on the way down. Mat McCormick who is a portfolio manager for Bahl & Gaynor Investment Counsel said that WaMu's "goose was cooked long ago."

So when he signed on, he received a decent package. It started with a sign-on bonus of $7.5million. Well, I guess he needs to buy some new suits to match his new job. So he needed that sign-on bonus. His annual salary was only $1million, small in CEO terms. Since the company went under in less than 3 weeks, he will only receive about $60,000. How can anyone expect to live on that?

And since he knew the company was having problems, he planned for the possibility that he may have to leave early. He will receive termination pay of $6.15million.

There are a few unknowns, what about his annual bonus? He was set to receive $3.65million, but since he didn't work a full year, how much will he get? That works out to about $10,000/day, but it's unclear if he will get the whole amount or just a daily amount.

And, if he made it through all of 2009, he was slated to receive a "long term" incentive of $8million. Now that he's being fired, it's not clear if he will receive that. (since when is one year "long term"?)

All totaled, he may receive more than $18million on 3 weeks based on this report. Another report said it was $20million for 17 days.

Regardless which of these figures is right, it's a lot of money. And I would have been glad to do the job for half that amount.

Now, as a free market believer, I say leave this up to the company. Don't buy stock in the company and don't do business with them. The free market works. However, in this case, that's not an option. WaMu is no longer in business. The losses (and extreme pay) will be passed on to JP Morgan Chase, who had no part in the talks. So what's a body to do?

Well, I DO NOT favor CEO pay regulation. Instead, I suggest writing to any company where you own stock and telling them how you feel about CEO pay. Also, research the directors of WaMu (or any other extreme company) and don't let them into any company you do business with. It's a lot of work, but I plan on doing some research along these lines.