Marginal benefits

by cactus

How much are all those folks at the various TARP corporate welfare recipients worth? We’re being deluged with stories about how many executives at such institutions are leaving because the big bad gubmint is limiting their pay, and how that’s going to hurt us in the long run. Worse, we’re told that this process is going to hurt us – after all, these are the rain-makers, the guys who bring in the money. Do we want the best people working for us, or do we want to pinch pennies and get a band of oafchucks who don’t know their butts from a hole in the ground.

There are a few problems I see with this. First is that most of the companies that are getting corporate welfare are not doing so because they’re run by people who know what they’re doing, at least in general. Sure, not everyone at BofA is a cretin, but its clear that some disastrous decisions were made there over the past few years by some very high paid people. Keeping people like that onboard is not good for the taxpayer.

But the question of value – how much value individuals bring to an organization – is more general. Essentially its a marginal benefits issue. It is the amount of money that a person can bring into the corporation above and beyond what someone else in that same position would bring in. If a person brings in hundreds of millions of dollars, but they’re able to do so only because they work for that corporation, and anyone else in the same position could bring in the same amount, than that person is not really worth very much to the corporation.

Think of it this way… by virtue of pressing the “print” button at the publishing company that puts out the latest Dan Brown book, someone at the company is allowing that company to sell a heck of a lot of books. But just about anyone could have pressed that button.

That brings up two points:

1. The relevant question, when it comes to a person’s pay, is what are the marginal benefits a person brings to an organization. Off the top of my head, I don’t see how to measure that. And perhaps not all the information necessary to reach that figure is available all at once. Destroying a company takes years (as a number of chief executives have demonstrated, some on multiple occasions), and in the meanwhile, the folks in charge continue getting paid a lot.

2. Its hard to see how the combined marginal benefits of the top twenty five individuals or so in a company that made a serious of disastrous decisions resulting in the loss of tens of billions of dollars – an outcome that would surely lead to bankruptcy if not for the intervention of the government – are positive. For some of them, yes, but on the whole they have to not only be negative, but extremely negative. As per point one, I’m not sure how to measure the contribution of each individual, but, speaking as a shareholder (via Uncle Sam) the fact that folks are leaving in droves from BofA or Citi or AIG doesn’t bother me at all. In fact, I’d feel better about the prospects of those companies if more of them left.
by cactus