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Compensation Case

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A close review of the executive compensation case indicates that there are negative and positive consequences, which are likely to occur. One of the positive consequences of appointment of Feinberg is that the government, through the U.S Treasury Department, will be able to identify firms that offer extremely high compensation packages to their executives at the expense of the government. Identification of such firm would save the government the agony of bailing them out when they experience financial problems. Instead of the government spending significant amount of money bailing-out such firms, the government can identify other sectors or areas in the economy, which have genuine needs for financial assistance. For instance, the government can use the money to reduce the rate of unemployment: by providing, the money as capital to the unemployed to start income generating activities.

However, appointment of Feinberg may contribute to closure of some firms in the country. This is a negative consequence, which is likely to occur in the long-term. This is likely to happen if, Feinberg successfully identifies the firms that offer their executives very high compensation packages at the expense of the government and as a result, the government takes immediate actions against them. For instance, if the government decides that those firms should repay all the amounts that have been used to bail them out it the past, some of the firms will be forced to sell their assets in order to raise the required amounts. For those firms whose assets would not be enough to raise the required amount, the government may decide to put them under receivership or declare them bankrupt. All these actions may result into closure of such firms in the future.

Principles affecting the Executive Compensation Case 

The principle of justice and fairness can be used to support the above-mentioned positive consequence of the appointment. The principle of justice and fairness states that all subjects are equal before the law. In this case, the term subjects refer to the firms and their executives. It is not fair that some firms struggle to bail themselves out when faced with financial problems, while others spend their money unscrupulously, yet they receive government assistance when faced with financial problems. If the principle of justice and fairness was to be applied in this case, government’s financial assistance should only be given to firms, which spend their money responsibly, and those that prove that they would only experience financial problems due to occurrence of events, which are beyond their control.

However, for Feinberg to be able to identify the firms, which were receiving government’s financial assistance unjustifiably, he would have to violate the principle of privacy. This is because, in some instance, he will have to conduct investigations on the financial positions of the firms’ executives. For instance, to be able to determine the exact amount of money the executives receive from the firms, he might have to look at their personal bank accounts and observe the nature of transactions in their accounts that originate from the firms’ bank accounts.

Virtues and Vices of a Compensation Czar

From a personal perspective, virtues necessary for a good compensation czar should include high level of discretion and good analytical skills. High level of discretion would enable a compensation czar to undertake the work of investigation without making irrational judgments. A combination of high level of discretion and good analytical skills would enable the individual to undertake the work, and present the findings based on facts and not on assumptions. Therefore, being judgmental would be a vice that is likely to make an individual appointed in this position look bad. 

In conclusion, it would be better if the government sets a maximum wage limit in the way that it sets a minimum wage. This is because; maximum wage limits will safeguard the taxpayers’ money from being spent to bailout firms, which spend their money unscrupulously. When maximum wage limits are set, firms will be confined to a particular amount of money to spend as compensation to executives. Therefore, the firms will not deplete their financial resources; resulting to the need for financial bailout by the government. This way, the government will not spend taxpayers’ money in such firms; instead, the money will be channeled to other productive sectors of the economy. Therefore, taxpayers will be better off than harmed if maximum wage limits are set.

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