Obama administration needs a coherent approach on executive pay

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Speaking on Bloomberg's "Political Capital with Al Hunt," White House senior adviser Valerie Jarrett (pictured) addressed the administration's approach to regulating executive compensation at TARP-supported companies. "There's a huge disconnect between what the average American worker receives in terms of compensation and some of what we're hearing about on Wall Street," she said. "We do believe that when the taxpayer monies are invested that compensation should be fair."

She then added, "Compensation should be aligned with the investors and the shareholders."


The problem is that these two sentiments are contradictory: one can deal with executive pay as an excessive compensation problem, which is the populist-liberal approach, or as a matter of corporate governance, which is the activist investor/Carl Icahn approach.

Ultimately, a CEO who generates $1 billion in value might not be overpaid at $100 million per year. Paying a CEO who creates value is in the best interests of shareholders, especially if his skills might lead a competitor to offer him a better deal.

However, Jarrett's decision to compare executive pay to worker pay doesn't work. The Obama administration needs to get its story straight and decide it if intends to create policies that empower shareholders to set pay standards that make sense -- or, alternately, it it wishes to support arbitrary caps that please unions and populist types.

Obama can't do both. Executive compensation reform is certainly important, but any reform must be done with an eye toward aligning the interests of executives with the interests of shareholders -- not appeasing an angry mob.

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