On Executive Pay Caps

Richard Posner and Gary Becker discuss the $500,000 pay caps on CEO pay for CEO's of banks that get a bailout.  Here's Posner.  Here's Becker.  Both are skeptical that it will work.

Really, these caps are nothing more than price ceilings in executive pay and, over time, they will have the expected results.  Becker expects banks to hire lawyers to find ways to get around the CEO pay caps.  I think he's right because price ceilings are just one type of barrier to trade.  As water flows around and through blockages, people find ways around barriers to trade. 

Also the caps will drive talented CEO's out of the banking industry, perhaps to other industries.  Maybe that's a good thing, societally speaking.  But I rather doubt it.  If their talents are more valuable elsewhere, why wouldn't we expect them to change jobs? 

More importantly, those banks that get bailouts - those most in need of strong leadership - won't be able to pay for it.  Here's Becker:

Companies that take government assistance do so because they fear going bankrupt. Sometimes that is because they were badly managed by the CEOs and other executives in charge. What many of these companies need are new executives who can take a fresh look at their problems. Unfortunately, pay caps that leave total pay considerably below what able executives receive in other companies make it more difficult to attract these executives to companies in distress because they can earn more, and work with considerably less government interference, in companies that do not take or need aid. Moreover, severe limits on severance pay help to lock in incompetent executives who then might refuse to leave voluntarily because they would not receive any significant financial incentives to leave.