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Should Government Have Say In Exec Pay?

A controversial U.S. Senate bill on minimum wage is set to be voted on later today – it includes a provision that is designed to reign in executive pay by capping tax-deferred compensation at $1 million or a 5 year average of taxable salary, whichever is less.

The issue of executive pay is fast becoming a polarizing issue in the business world; with the President even saying in a speech to business leaders yesterday that companies should tie executive pay to performance – a comment that got a silent response from his audience of executives.

Mike Lapham, director of United for a Fair Economy, Responsible Wealth Project, and Alan Viard, a fellow at the American Enterprise Institute, disagree on the bill’s provision on executive pay. They debated it on “Morning Call.”

Viard makes the point that the issue is skewed in the public’s eye. Indeed, executives are paid huge amounts of money, but that doesn’t necessarily mean they are overpaid considering their workload and responsibility, he says. There are plenty of people in America that are paid heavily including athletes and entertainers, but they don’t seem to attract as much scrutiny as CEOs. Viard says it simply isn’t the government’s business to decide who gets paid what or, in this case, to devise an “arbitrary tax scheme” as a solution.

But Lapham says government has a responsibility to subsidize “outrageous salaries” in any way they can. He makes the argument that there are provisions in our tax code that give huge breaks to companies that, in turn, American taxpayers have to pay for. The system simply isn’t fair as it stands now, Lapham says.

As for the tax deductions – Viard says firms don’t take deductions until the executive reports it and then government takes money from the firm. It’s not unusual for people to defer paying taxes on their income until they actually receive that income, whether they are executives or not.

What about the huge bonuses these executives make? Well, Lapham says the way it works now is companies write off the bonuses as reasonable expenses when they are anything but, and, once again, the public has to pick up the tab. He says the Senate’s bill is a small step in right direction, at least indicating that Washington is willing to take up the issue of frivolous executive compensation. Viard says once more that the bill is unnecessary and there are ways to send signals to corporations that their payroll is out-of-control that don’t include government interference. Most notably, he says if shareholders are unhappy, they could just sell their stock - that would be the clearest way to send a message to the boardroom.