Summary
We are today in a situation where socialist practices are making their way into capitalist economies. The restriction on executive pay is only one such instance. The players in the market themselves are to blame for this situation which is not very healthy for capital development and economic growth. All this is coming in the context of the TARP and TARP2 (yet to be finalized) programmes. In this analysis I take a look at how this will impact productivity and have adverse effects on financial management and the growth of capital markets and growth.
Analysis
1. Business efficiency depends to a great extent upon the reward given to the persons at the helm of affairs. When such persons are involved in public service one can expect them to work pro bono.
2. The working of organizations depends upon the true economic costs being charged. When executives work at less than the full economic market cost problems arise. This is not to say that I in any way support exorbitant rates of remuneration which again are not a result of market forces.
3. A straight jacket figure for all companies taking TARP money without reference to the complexities of the task at hand would definitely be a major drawback in getting out of the present grim economic situation which has stopped responding to monetary policy.
4. Attempts are now being made to directly interfere in executive decisions as well as the manner in which Accountants present economic information.
5. In my opinion all this will only backfire and will have no effect except to put the concerned organizations into a further tailspin.
