Washington - Corporate America is feeling a chill from a new clampdown on executive pay for firms receiving government aid and congressional efforts to recoup AIG bonuses.
The efforts result from a public backlash against corporate excesses of recent years.
But some analysts say the moves, part of a broader effort to rein in extravagant pay deals, could backfire.
Scott Schaefer, professor of finance at the University of Utah, said efforts to regulate pay may be counter-productive for firms trying to lure or retain talented executives.
"Smart people have lots of opportunities, and are going to make money one way or the other. And if they can't make money in the banking system, they'll find some other way," he said. "They may become consultants or work in other sectors of the economy."
Ire over high executive pay has been raging since before the economic crisis. One 2007 study showed chief executive pay had hit a record 411 times that of an average worker.
Hotly debated is whether US executives, paid much higher than their counterparts in most other countries, deliver value to their shareholders.
The administration of President Barack Obama has ordered that executive pay be limited to $500 000 a year at firms receiving government aid, with limits on bonuses and stock compensation.
Robert Brusca at FAO Economics said that would not sit well on Wall Street, which revolves around executives generating business and getting compensated proportionately.
Fire-storm over bonuses
"Wall Street is not an auto assembly plant where you can take out any assembler and stick in another and expect the same result," he said.
Don Lindner, head of executive compensation at the nonprofit human resources group WorldatWork, said he fears that government intrusion in compensation policies will stifle the innovation that American firms are known for.
In the banking sector, the cap of $500 000 represents "a huge decrease" for many major firms, Lindner said.
"In a competitive market, you're not going to find people to take those huge, highly complex jobs for a fraction of what they could get paid elsewhere," he added.
The fire-storm over bonuses worth a total of $165m at AIG after the insurance giant was bailed out with more than $170bn taxpayer dollars has generated even more debate over pay, especially after Congress moved to tax these sums at 90%.
Many Americans are seething over the size of executive packages.
"It is absolutely obscene for those most responsible for our nation's financial crisis to walk away with millions of dollars in bonuses while America's hard-working families struggle to pay their mortgages, health insurance, and children's education," says Anna Burger, chair of the union federation Change to Win.
Despite the outrage over the payments, the efforts to recover the monies "could make America resemble Russia, where trumped-up charges are used to prosecute companies that fall out of favor with the ruling elite," said Diana Furchtgott-Roth, a senior fellow at the Hudson Institute.
Schaefer argues that both AIG and the government made mistakes: "What AIG is doing right now is paying a lot of money to people whose actions destroyed a lot of value. But, what the administration's pay restrictions are doing is preventing people who are brought in to clean up the mess from being rewarded for doing so," he said.
No easy formula
Nell Minow, editor at the shareholder activist group Corporate Library, said the government should not set compensation but ensure checks and balances.
"Corporations have been effective at short-circuiting all the normal mechanisms for shareholder oversight," she said. "The executives have taken control of the process."
Schaefer said there is no easy formula for determining executive pay.
He said much of the economic mess resulted from policies that encouraged executives to take too much risk to boost stock prices and their own compensation, but that it would be wrong to discourage all risk-taking.
"We want good risks to be taken," he said.
"If Congress says executive pay can't be high and pay can't be tied to shareholder wealth, then executives won't have incentives to make their firms grow and will sit around doing nothing."
John Challenger, chief executive at the consultancy Challenger, Gray & Christmas, said the lavish pay deals may soon be coming to an end.
"I think we're entering a new era in executive and CEO pay and there is going to be a different understanding of what's acceptable and what's ethical," he said.
"Executive pay got ratcheted up in the US as companies tried to tie pay to stock performance, and it really got out of hand."
He said that in the US entrepreneurial system "the pot at the end of the rainbow is part of the American culture but the excesses will be wrung out of the system."
- AFP