Tuesday, May 5, 2009

Legislating executive pay is bad: part 100


Citigroup, which needs to turn around more than any other bank, is in trouble because all of their good employees are leaving for hedge funds and foreign banks cuz they can't get paid. They may have to spin off their most profitable businesses (Phibro, etc) because otherwise they become valueless.

Legislating positional externalities (in this case, that of inflated executive compensation) for some actors and not others is a formula for the legislated actors to die if the positional externality affects performance... which in the case of Citi would cost taxpayers a lot more than executive compensation.

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