Wall St. vs. Congress

Is it the role of government to dictate what individuals on Wall Street can make? Does the Federal government have the Constitutional authority to cap the pay of CEOs and other cooperate executives on Wall Street (or anywhere else in the country)? The answer to both of these questions is simply, "No."

I read this from FoxNews.com:
http://www.foxnews.com/politics/2009/07/28/frank-wants-tougher-rules-wall-street-pay/

The proposal by Rep. Barney Frank, which will be considered Tuesday by the House Financial Services Committee, would give the government unprecedented power in how financial executives are rewarded.

Obama has shied away from such direct intervention, even as administration officials argued that excessive compensation in the private sector contributed to the financial crisis.

"If the risk pays off, you make money," Frank said at a National Press Club luncheon Monday. "And if the risk doesn't, you suffer no penalties. Heads you win, tails you break even. It's like selling lottery tickets that only cost you money if they pay off."

Here is the fundamental problem with all these arguments that the Obama administration and Congressional Democrats are using; as previously stated, Congress does not have the authority to dictate executive compensation or pay. The whole idea behind the concept of capping executive compensation is that if these executive were not paid so much then their companies would not go under (i.e., financially collapse). However, is there really a direct cause and effect relationship between executive compensation and their companies going under? Did the executive compensation cause the company to go under? We are dealing with an extremely complicated causal chain in which the cause of a companies downfall cannot be isolated to one particular cause.

So, not only does Congress not have the Constitutional authority to cap executive compensation, the premise which the argument for capping executive compensation is fundamentally flawed because it assumes that executive compensation was the cause of the downfall of some of the Wall Street companies.

A company can choose to pay their executives anything they want because the company has the freedom to do so. If the company pays their executives too much and that contributes to their downfall then that is the companies problem. Did the company act in an unwise manner? Yes they did, but that is the nature of running a company in the first place. A company that makes unwise decisions will fail, such in the nature of capitalism. However, it is not the governments job to step in and begin dictating to companies what they can and cannot do insofar as executive compensation. That is up to the company to decide, not the Federal government.