Can Congress Limit Executive Salaries?by Tim Manni
The Obama administration has announced that executives at certain banks which have received TARP funds will have their pay capped:
The Obama administration outlined plans today to tighten restrictions on executive compensation for future recipients of federal aid under the government’s financial rescue program, but the large majority would be able to opt out of most of the limits.
Companies that take the largest chunks of help would face mandatory restrictions on compensation for their senior executives: no more than $500,000 in salary, and no additional compensation other than shares of the company’s stock that can only be redeemed after the government investment is repaid.
…The mandatory standards would apply solely to companies that receive assistance beyond what is generally available to other companies ["exceptional assistance"].
Without getting into whether this is a good idea or a bad idea — I can see both sides of that issue, and I invite comments on why you think so — I have a question that I haven’t seen asked or answered yet:
Assuming that the affected excutives signed a contract with their employer, and that the contract spells out their compensation, by what statutory authority can Congress unilaterally void private-sector contracts – particularly where no crime has been alleged?
All the news accounts just presume that such authority exists, but what is it? Is there a law by which Congress can do this? If there is, I haven’t heard of it. Any lawyers out there want to take a stab at this?
This part of the article should give us all pause:
A senior official said the administration intends the rules as the first step in a process to make sure that corporate leaders are guided by long-term interests and not lured into the type of risky bets that have undermined the economy.
What does that mean, exactly? That mean that Congress will decide what kinds of loans they will be allowed to make, and at what terms? And who will decide what those “long-term interests” are?