I have been hearing a bit that, as a result of the current financial meltdown, the salaries, the golden parachutes and the exorbitant compensation many (if not all) financial executives receive should be reduced due to their incompetence and malfeasance, especially if they expect the fed to bail them out.  On the other hand, the company/corporation and its shareholders are the ones that set the compensation and they are the ones that pay it out.

I would suggest that any annual compensation in excess of the US President’s salary be treated as taxable profit for the corporation.  So the corporation can still pay an executive $1M, $10M, $100M, but everything over $400,000 is taxed as pure profit. ( I also suggest that the President’s salary be no more than 10x the average household income in the US. )

I’m sure that these executives will try to  find a way around this limit – like ‘personal service contracts’ a la sport compensation packages – and I will leave it to the legislators to figure out how to deal with this violation of the spirit of the rule. Maybe something as simple as “executives can’t be contractors”. From my limited understanding of the corporate structure, executives are the ones that can commit a corporation to liabilities by signing a contract or agreement.

The other area of compensation that gets really outrageous is bonuses. I don’t know if bonuses can or should be tied directly back to the salary tax, but I would suggest that bonuses be deferred. An executive’s bonus should be based on how the company is doing 5, 7 or 10 years down the road, and not on what has happened in the past quarter or the past year. If a bonus is premised on an increase stock price, then let it be the stock price 5 years from now.  If the executive is no longer with the company, big deal, they, or their estate, still get the bonus.  Give the executives an incentive to lay a solid foundation for future growth rather than trying to game the system for a short-term spike in the market. That is a call for the board of directors and the shareholders, but maybe we can motivate them to go in that direction.