EXECUTIVE PENSIONS….Here’s a story from the Wall Street Journal that comes with a hearty dose of cognitive dissonance for well-meaning liberals. The good news is that Congress is set to pass a bill that prevents companies from funding lavish executive pension plans if the pension plan for their regular workers is underfunded and going bankrupt:
Disclosures about bankruptcy-proof supplemental executive retirement benefits at some airlines, including a $45 million fund set up a few years ago for 35 top officials by Delta Air Lines Inc., have galvanized bipartisan support for reining in such perks at other beleaguered companies.
“We’ve heard too many stories of top executives of bankrupt companies sticking workers with unfunded pensions while running off with millions of dollars of so-called nonqualified pension benefits,” says Senate Finance Committee Chairman Charles Grassley, an Iowa Republican.
Hooray! I say. The brewing pension fund crisis is a scandal of epic proportions, and anything that helps rein in the venal behavior that caused it in the first place is fine with me. But then there’s this:
For decades, executives relied on the same pension plan as other company employees, so they had an incentive to make it generous. The shift toward a dual system started in 1994, when Congress passed a law intended to limit the cost to taxpayers of runaway executive pay. The law barred companies from taking a tax deduction on compensation in excess of $1 million a year for any current employee. The result: Companies began setting up supplemental pension plans that encouraged senior managers to defer compensation.
Well. That’s certainly a good example of the law of unintended consequences, isn’t it? I mean, I’m sure the $1 million cap seemed like a good idea at the time.
So the lesson is to be careful. Corporate executives are greedy and devious and they get upset when anyone suggests their pay should be less than 500x that of the average worker. With that in mind, a simple requirement for transparent present-value accounting of all executive pay would probably be a better idea than the one-off reform on offer right now, and an even simpler requirement that all employees be paid out of the same pension fund and accept the same risks would be better yet.