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Feb 18, 2009 - 01:15 PM |
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Can someone help explain this line to me? |
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Source: http://www.becker-posner-blog.com/ar...ntrols_do.html
I understood most of what Gary Becker was saying in this piece until I came across this line:
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Quote:
Unfortunately, pay caps that leave total pay considerably below what able executives receive in other companies make it more difficult to attract these executives to companies in distress because they can earn more, and work with considerably less government interference, in companies that do not take or need aid. Moreover, severe limits on severance pay help to lock in incompetent executives who then might refuse to leave voluntarily because they would not receive any significant financial incentives to leave.
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My ignorance of the sort of stonewalling and politicking that goes on between management and corporate boards is going to reveal itself here, but I've always thought that if the Board of Directors wants to fire an executive, they can do so at will. The thought of an incompetent executive seems like a ludicrous one to me, but since my knowledge of contracts between corporate executives is rather limited in terms of how they're structured, maybe someone who has better knowledge can explain this one to me.
Other than that, my only thought is that golden parachutes impose unnecessary costs that prevent a company from running efficiently, so why they exist is beyond my knowledge.
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