03/09/2009 05:12 am ET Updated May 25, 2011

Not for Nothing: Reforming TARP Compensation

"They don't get it...What planet are these people on?" cried Senator Claire McCaskill (D-MS). Billionaire investor Carl Icahn called it "egregious" and "absurd." The only people happy about bloated executive compensation? The late-night talk show hosts.

So this week, President Obama -- while calling these pay packages "shameful" and "the height of irresponsibility" -- slapped a $500,000 cap on salaries. Smackdown!

At, we asked kids what they would do if given a million dollars.
I'd buy homes for homeless people.
I'd buy some land so I could hunt and fish on it.
I'd invest it. Make lots of Money. Then buy the Red Sox.
I'd New Zealand.
I'd pay off all the bills.
I'd give some money to my parents to enjoy.
I'd start my own hotel chain.
Funny, none of them said they'd spend it on renovating their personal office at Merrill Lynch.

Nobody thinks Wall Street executives should work for free. But I think everyone believes that their compensation should be within a reasonable range. Does a cap make sense? Maybe. Here is another suggestion: learn from the not for profit sector. I believe companies who take funds from TARP should adopt the executive compensation policies of the charitable world.

In defining executive compensation for not-for-profit's, the Board of Directors look at (a) the size of the not-for-profit, (b) its geographic location, (c) the total number of employees, (d) the level of responsibility of the executive to be compensated, and (e) the public good sniff test. (In other words, what would donors stomach as acceptable.) It makes sense that an executive seeking TARP funds at a larger more complicated company should receive a higher compensation then his counterpart at a much smaller company, but it ought to be in line with other organizations in that region and a figure acceptable to shareholders. Let them vote!

Defining executive compensation in this way shifts the focus away from earning a profit to boost individual bonuses to one where company growth and stability is tantamount. Executives of troubled companies will be rewarded for creating jobs, reinvesting earnings and TARP funds back into the company, and increasing market capitalization. By having a fixed compensation based on these metrics, rather then an arbitrary salary cap, you eliminate baseless discretionary bonuses but allow companies to have the autonomy to make competitive compensations.

Written with James C. Elbaor