Ex-FDIC Chair Bair: President, Legislators Need Pay for Performance

Wednesday, 07 Nov 2012 07:58 AM

By Michael Kling

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Pay for performance is the tool to fix Congress and get the nation's economy rolling again, argues Sheila Bair, former head of the FDIC.

The current setup encourages fundraising and negative campaigning, while Congressmen keep their paycheck no matter how bad the nation's fiscal situation, Bair writes in an article for Fortune.

Pay for performance, however, has worked for corporate management so should work for government management, she asserts.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Half the compensation of corporate directors is often paid in stock, which they must hold for several years in order to align their interests with their company's.

In a version of government stock ownership, Bair proposes paying the president and Congressmen half their pay in 10-year Treasuries. That equals $90,000 in the government bonds a year for Congressmen and $200,000 in T-bills for the president.

The Treasury bonds should hold their value if the economy does well and our fiscal house is in order, Bair writes.

"But if we continue our profligate ways, inflation spikes and interest rates skyrocket, those bonds may end up being worth as much as the stuff Czar Nicholas issued shortly before the Bolshevik revolution."

Bair's additional idea: Make the bond payments conditional on meeting certain benchmarks. A third would be conditional on keeping the labor force participation rate at least 66 percent, a third on keeping the gross domestic product above 3 percent, and a third on the feelings of taxpayers, just like shareholders do.

At elections every two years, voters would decide if the president and Congress as a whole are earning their pay.

"No more blaming our problems on the other guy," Bair writes. "We vote on how well they are working together, and if we like what we see, they get the final third of their bonds."

Linette Lopez, editor of Clusterstock, calls Bair's idea “brilliant.”

Bair, Lopez notes in an article for Business Insider, asks why taxpayers cannot provide input into Congressional pay when shareholders vote on nonbinding resolutions on executive compensation.

"It's a good question — even considering the dramatically varying power shareholders have — so we'll be considering it."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

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