Executive Compensation Limits: Not Allowing Executives To Ride Without A Helmet

I'm generally opposed to helmet laws.  If someone wants to take the risk of riding a motorcycle without a helmet, who am I...or the government...to tell them otherwise?

But to my way of thinking, any motorcycle rider who rides without a helmet shouldn't receive any government assistance if that ride goes wrong for any reason.  The deal should be simple: if you ride without a helmet and get hurt in a crash, no ambulance comes to get you and no emergency room treats you unless you have private insurance to pay for it.  You also get no government assistance of any kind after the injury for medical help, unemployment, welfare, long-term care, or anything else.  You get hurt while riding without a helmet, the only one you hurt is yourself.  My tax dollars don't bail you out.  You want to take that risk, be my guest.

That's more or less the way I feel about executive compensation limits: If a company wants to take risks, it should do so with its own, rather than my, money.  If it's playing with just its own money, it can pay the execs whatever it wants.  God bless them.

The problem with this analogy is that few motocycle riders have the ability to drag the economy down with them if they're in an accident.  By contrast, the failure of some companies and private firms (think Long Term Capital Management) does create the type of real or perceived systemic risk that makes it very hard to set up the equivalent of my "no helmet, no government assistance" standard for motorcycle riders.  The simple truth is that in most cases, denying assistance to some companies that refuse to wear a helmet is impossible for public policy purposes.

This is the context in which I'm evaluating the Obama executive compensation limitation plan Pete addressed yesterday.

If a company needs the extraordinary government assistance noted in the plan because it did the corporate equivalent of riding without a helmet and got into an accident, why shouldn't at least some conditions be imposed on the company that made the decision to engage in the risky behavior?  Executive compensation is obviously part of that; other restrictions may also be justified.

In fact, the Obama plan actually treats these companies better than the helmetless motorcycle rider to which I would deny all assistance.  The plan allows the executives to get additional compensation when the government assistance, with interest, is repaid.

I have more of a problem with executive compensation limits for companies that are receiving no extraordinary government assistance.  If stockholders are willing to  invest in a company that pays its execs execptionally well and there's little or no chance the government will have to pay the emergency room bill after an accident, so be it.

There are obviously some huge problems with this issue.  The executives whose pay is being limited may not be the same ones who rode the company without a helmet.  That argues for restrictions on dividends or a tax surcharge as well executive compensation limits so that the stockholders who either encouraged or watched while the risky business decisions were made and implemented are held responsible in some way. It also argues for the company and stockholders to be able to recover the previously paid compensation to former executives.

Here's my question: Many motorcycle riders would likely respond to my "no helmet, no government assistance" standard by getting some type of insurance that would pay their expenses if they got into an accident withot a helmet.  I wonder whether there's not a corporate equivalent of that insurance.  Could we create a private insurance product for corporations and private firms that would take the place of government assistance if the company got into an accident?