Summary
By setting up Kenneth Feinberg as the bad guy, the Obama administration can claim that it is taking a hands-off stance with respect to executive pay. Nothing can be further from the truth. Mr Feinberg derives his authority from the same government that claims to be taking a hand-off approach. This is not to say that the federal government should not have a "say on pay" for banks and automakers that have been bailed out with taxpayer funds, many of whom would not be in business otherwise.
Analysis
Executive compensation is a complicated arena, one that at least in theory should revolve around the executives of the firm and the shareholders who pay them. Academics, for example, Lucien Bebchuk of Harvard, argue that managers via their power over dispersed shareholders control the terms of their own employment and hence their own pay. So in theory there is a need for governmental intervention of some sorts. However past efforts by the government to regulate executive pay have no achieved the intended impact. Examples include sections 162(m) and 280(g) of the Internal Revenue Code. Section 162(m) limited, with numerous exceptions, the amount of pay a corporation could deduct for its top executives to $1 million per executive. Unfortunately as research I conducted illustrated, compensation committees who made these decisions were more willing to forfeit deductions (the cost of whom was born by shareholders) than they were to cut executive pay. Other research I've conducted indicated that Section 162(m) may have been one of the influences in the use of stock options in the late 1990's. Christopher Cox, then Chairman of the SEC stated that section 162(m) belonged in the "museum of unintended consequences". Similarly section 280(g) imposed an array of excise taxes if golden parachutes were too large. This of course led to gross-ups, where corporations (that is shareholders) not only paid the golden parachute, but also the excise taxes on those parachutes. These are but two examples, but overall governmental intervention has not had its intended,or at least stated impact.
