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The Meredith Mortgage Team~ The Bay Area’s Premier Mortgage Team
From FOX  Business
Maybe we’re going about this backwards.

We’ve seen the White House pay czar, Kenneth Feinberg, closely scrutinize bonuses and options for bankers and other Wall Street types, bonuses and options tied to profitability or, in some cases, stock prices. To be sure, there’s been a lot of hand-wringing over what government control – or even intrusion – into private enterprise might do to capitalism. It may not be that controlling compensation has gone too far – it may not go far enough.

We’re driven by metrics, but don’t use all of them.

In the private sector we look at net profits, revenues, earnings per share and compare those data with the prior quarter – or perhaps the prior year, if that comparison looks better. Those measures go into determining the salaries – including bonuses and stock options – of CEOs and others high up the corporate ladder.

In the public sector we have other measures – and economists spend countless hours (you should probably never use the adjective “countless” referring to an economist) poring over government data: unemployment rates, changes in payroll jobs, GDP and other acronyms which describe the myriad of statistics used to gauge the country’s economic strength.

But, as PNC Chief Economist Stuart Hoffman suggested, economic recovery will be spelled J-O-B-S, not G-D-P.

“Feinberg and [Fed Chairman Ben] Bernanke,” according to economist Bruce Yandle, “may be on to something. But they have the wrong targets,” noting Feinberg picked up an ally in Bernanke in the efforts to control executive pay.

Yandle, alumni distinguished Professor of Economics Emeritus at Clemson University and Distinguished Adjunct Professor of Economics at the Mercatus Center, George Mason University, wrote recently, “It is high time that pay and investment guidelines be mandated for all top level executives who may in the normal course their daily work push the entire economy too close to or even over the edge of systemic risk falls. If nothing else, this Great Recession has taught us that top executives can practically capsize the economy.”

The presidents and vice presidents of too-big-to-fail banks and other bailed-out enterprises who have been singled out by Feinberg and Bernanke, Yandle said, “are small potatoes relative to the big generators of systemic risk.”

Instead, “the critical concern is with top government executives who can create national and international panic, lay the groundwork for international inflation or deflation, and just by voting and writing regulations can change the risk profile of entire industries,” he wrote.

As an alternative, Yandle offered a new compensation scheme not for the titans of Wall Street, but the lions of Congress suggesting “a set of risk-sensitive compensation guidelines that will mandate pay and wealth-management rules for all federal government top executives starting with the president of the United States and all cabinet members and their deputies.”

He added: “while we’re at it let’s include all members of Congress and every member of the commissions and boards that manage the nation’s independent agencies, including, of course, the board of governors and chairman of the Federal Reserve System.”

Under Yandle’s proposal, the government officials would be paid a base pay — some 75% of the current salary — plus incentive pay — the remaining 25% — based on improvements in real GDP growth over a five-year period that begins the day of their appointment or election.

“The base pay,” he said, “would be provided on the normal Office of Personnel Management pay schedule. The incentive pay, with recommended details worked out by Feinberg, would be provided on the basis of a three-year rolling average gain in real GDP, which means that the first incentive payment would be received three years after an executive’s first day of office.”

And that’s only part of his plan.

Yandle noted elected and appointed officials routinely place their investments into a blind trust to be unaffected directly by actions they take as public officials.

“While this action satisfies those who may be concerned primarily with ethics and upright behavior, simply being blindfolded as to capital gains and losses does not get to the systemic risk problem,” he said. Instead, he suggested all high government officials should have their personal portfolios invested in visible S&P 500 index funds, not to be redeemed until one year after leaving office.

In that way, he said government executives would not be “blindfolded as to gains and losses” but would “know exactly what is happening to the Great American Bread Machine, our economy, while they are in office. We want them to feel our pain and our gain.”

Whether public officials can truly be influenced in executing their public duties by their salaries is questionable. After years of routinely missing the deadline for approving a balanced budget, New York State legislators had their pay withheld for missing budget deadlines. It didn’t help.

Since re-election isn’t always enough of an incentive to get elective officials to do the right thing, perhaps bonus payments might work.

Or would such a plan just be another version of Cash for Clunkers?

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