Reed Hastings, CEO of DVD-delivery company Netflix, isn't a fan of President Obama's decision to put caps on executive compensation. Hastings, of course, isn't subject to such caps -- Netflix hasn't hit up Congress for any sort of bailout, after all. Hell, in the fourth quarter of 2008, Netflix was expanding subscribers, cutting costs, and posting some boffo profit numbers. Hastings argument is basically one of principle. But: it's also very principled. And in an op-ed in the New York Times, he puts forth an alternative: "Instead of trying to shame companies and executives, the president should take advantage of our success by using our outsized earnings to pay for the needs of our nation."
What's that again?
The difference between salaries like mine and those of average Americans creates a lot of tension, and I'd like to offer a suggestion. President Obama should celebrate our success, rather than trying to shame us or cap our pay. But he should also take half of our huge earnings in taxes, instead of the current one-third.
Then, the next time a chief executive earns an eye-popping amount of money, we can cheer that half of it is going to pay for our soldiers, schools and security. Higher taxes on huge pay days can finance opportunity for the next generation of Americans.
Naturally, Hastings finds himself on an island of his own among CEOs. But interestingly, his remarks seem to dovetail with the oft-mocked statement of Vice President Joe Biden that paying our share of the common weal is an intrinsically patriotic act.
Hastings lays out the case logically:
The reality is that the boards of public companies hate overpaying for anything, including executives. But picking the wrong chief executive is an enormous disaster, so boards are willing to pay an arm and a leg for already proven talent. Putting limits on the salaries at public companies, or trying to shame them into coming down, won't stop this costly competition for talent.
Of course, it's galling when a chief executive fails and is still handsomely rewarded. But with the concept of "tax, not shame," a shocking $20 million severance package would generate $10 million for the government. That's a far better solution than what we have today, not least because it works with the market rather than against it.
Another advantage is that it would also cover the sometimes huge earnings of hedge fund managers, star athletes, stunning movie stars, venture capitalists and the chief executives of private companies. Surely there is no reason to focus only on executives at publicly traded companies.
I'll put it to the commenters. Reed Hastings: champion or sham?