Indecision, Doc fix, Enemies, Money (11-3-09)

Obama Dithers, While Our Image Withers

As days turn to weeks, and weeks to months. Many feel the Obama administration is second guessing his earlier statements of support for the Afghan war effort. Critics abound and few have a rational defense of this delay. A number of active duty and retired senior officers say there is concern that the president is moving too slowly, is revisiting a war strategy he announced in March and is unduly influenced by political advisers in the Situation Room. Some of the best and brightest have either been ignored or overlooked in favor of political hacks who have determined the unpopular war to be of too great a risk to the administration and the Democratic party in general. I'm beginning to believe the executive branch has returned to the poll-driven type policy decisions not seen since the Clinton administration. Allowing the political popularity of an issue to control the policy is neither wise nor presidential. The president himself needs to find the resolve to shut out the noise of politics and learn to be "The Decider".
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(Obama: Just 7 months ago)
The future of Afghanistan is "inextricably linked" to the future of Pakistan, President Obama argued as he announced a sweeping new policy toward Afghanistan that will include more troops for the country and more aid for its increasingly unstable neighbor. In stern, forceful language, the president sought to make the case to the American people -- and to the world -- that the security situation in Afghanistan and Pakistan was a shared responsibility that would require a sustained international effort to go after Al Qaeda and to help with economic development in the region.

"For the American people, this border region has become the most dangerous place in the world," he said. "I want the American people to understand that we have a clear and focused goal: to disrupt, dismantle, and defeat Al Qaeda in Pakistan and Afghanistan, and to prevent their return to either country in the future."

Obama called Al Qaeda and its allies a "cancer that risks killing Pakistan from within," and he said intelligence estimates had warned the group was actively planning attacks on the United States from its safe haven in Pakistan. He argued that failure in the region would be a threat to nations across the world, reminding them that attacks in London, Bali, North Africa, the Middle East, Pakistan, and Afghanistan were tied to Al Qaeda.

"To the terrorists who oppose us, my message is the same: we will defeat you," he said, though he insisted America would not give Pakistan a "blank check" and that it must show a willingness to root out Al Qaeda and other extremists. The president said a return to Taliban rule would doom Afghanistan, but he also stressed that America had no wish to control the country or dictate its future, even as it sought to strengthen its democracy and fight corruption.
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(Two months ago)
President Obama defended his administration's new approach to the fierce fighting that rages in Afghanistan, calling it "not only a war worth fighting" but also one that "is fundamental to the defense of our people."
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(Former Vise-President Cheney, in an award acceptance speech at the Center for Security Policy)
"Make no mistake. Signals of indecision out of Washington hurt our allies and embolden our adversaries," Cheney disputed remarks by White House chief of staff Rahm Emanuel that the Bush administration had been adrift concerning the war in Afghanistan. "When you go through all the analysis, it's clear that basically we had a war for eight years that was going on, that's adrift, that we're beginning at scratch, and just from the starting point, after eight years," Emanuel said. To the contrary, Cheney said, the Bush administration undertook its own review of the war before leaving office and presented its findings to Obama's transition team. "They asked us not to announce our findings publicly, and we agreed, giving them the benefit of our work and the benefit of the doubt," Cheney said. The strategy Obama announced in March bore a "striking resemblance" to what the Bush administration review had found, the vice president said. The U.S. commander there, Gen. Stanley McChrystal, has reportedly asked for as many as 40,000 additional troops to combat the Taliban insurgency and Al Qadea fighters. Cheney said the Obama administration seems to be pulling back and blaming others for its own failure to implement the strategy it had embraced earlier this year."The White House must stop dithering while America's armed forces are in danger", the former vice president said. "It's time for President Obama to do what it takes to win a war he has repeatedly and rightly called a war of necessity." Cheney also criticized Obama's decision to drop plans begun in the Bush administration for missile defense interceptors in Poland and a radar site in the Czech Republic, calling the move "a strategic blunder and a breach of good faith." The Obama administration said it will instead pursue a higher-tech system that is also more cost-effective. "Our Polish and Czech friends are entitled to wonder how strategic plans and promises years in the making could be dissolved just like that with apparently little if any consultation," he said. "President Obama's cancellation of America's agreements with the Polish and Czech governments is a serious blow to the hopes and aspirations of millions of Europeans."
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-Robert D. Kaplan (The Atlantic)
"The Democrats, for their part, are often accused of being wobbly on national security, lacking both toughness and gumption. Unfortunately, President Barack Obama's recent handling of the war in Afghanistan plays to those charges. Being awarded the Nobel Peace Prize will only intensify the perception that he is a weak war leader. Even if Obama does end up making the correct decision on Afghanistan strategy (by which I mean adding troops, since counterinsurgency is manpower-intensive), the public agony over his deliberations may already have done incalculable damage. The Afghan people have survived three decades of war by hedging their bets. Now, watching a young and inexperienced American president appear to waiver on his commitment to their country, they are deciding, at the level of both the individual and the mass, whether to make their peace with the Taliban—even as the Taliban itself can only take solace and encouragement from Obama's public agonizing. Meanwhile, fundamentalist elements of the Pakistani military, opposed to the recent crackdown against local Taliban, are also taking heart from developments in Washington. This is how coups and revolutions get started, by the middle ranks sensing weakness in foreign support for their superiors. Obama's wobbliness also has a corrosive effect on the Indians and the Iranians. India desperately needs a relatively secular Afghan regime in place to bolster Hindu India's geopolitical position against radical Islam, and while the country enjoyed an excellent relationship with bush, Obama's dithering is making it nervous. And Iran, in observing Washington's indecision, can only feel more secure in its creeping economic annexation of western Afghanistan. So, too, other allies far and wide—from the Middle East to East Asia, and Israel to Japan—will start to make decisions based on their understanding that Washington under Obama may not have their backs in a crisis. Again, the awarding of the Nobel Peace Prize to Obama only plays to such fears. It's perfectly legitimate for Obama to review Afghanistan strategy and troop numbers. But by calling into question the very strategy that he put into place earlier in the year, when he called Afghanistan the "necessary war," and promised to properly resource it, Obama is courting charges from the right that he is another ineffectual Jimmy Carter—that other Nobel Peace Prize winner. What to do? Obama needs to get behind his chosen general as soon as possible and put this spectacle of indecisiveness behind him. Gen. McChrystal must become the face of a policy that is supported at every level of the Administration, just as Army Gen. David Petraeus was the face of the surge in Iraq during Bush's last two years of his presidency. Obama must capture the toughness and competence that Bush displayed as a war leader at the end of his term. Otherwise, in the coming months, the Democrats may be seen as having lost a war. And if that happens, not even the Nobel Peace Prize will rescue Obama's reputation."
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-Charles Krauthammer (The Washington Post)
"So what does their commander in chief do now with the war he once declared had to be won but had been almost criminally under-resourced by Bush?
Perhaps provide the resources to win it?
You would think so. And that's exactly what Obama's handpicked commander requested on Aug. 30 -- a surge of 30,000 to 40,000 troops to stabilize a downward spiral and save Afghanistan the way a similar surge saved Iraq.
That was more than five weeks ago. Still no response. Obama agonizes publicly as the world watches. Why? Because, explains national security adviser James Jones, you don't commit troops before you decide on a strategy.
No strategy? On March 27, flanked by his secretaries of defense and state, the president said this: "Today I'm announcing a comprehensive new strategy for Afghanistan and Pakistan." He then outlined a civilian-military counterinsurgency campaign to defeat the Taliban in Afghanistan.
And to emphasize his seriousness, the president made clear that he had not arrived casually at this decision. The new strategy, he declared, "marks the conclusion of a careful policy review."
Conclusion, mind you. Not the beginning. Not a process. The conclusion of an extensive review, the president assured the nation, that included consultation with military commanders and diplomats, with the governments of Afghanistan and Pakistan, with our NATO allies and members of Congress.
The general in charge was then relieved and replaced with Obama's own choice, Stanley McChrystal. And it's McChrystal who submitted the request for the 40,000 troops, a request upon which the commander in chief promptly gagged.
The White House began leaking an alternate strategy, apparently proposed (invented?) by Vice President Biden, for achieving immaculate victory with arm's-length use of cruise missiles, Predator drones and special ops.
The irony is that no one knows more about this kind of warfare than Gen. McChrystal. He was in charge of exactly this kind of "counter terrorism" in Iraq for nearly five years, killing thousands of bad guys in hugely successful under-the-radar operations.
When the world's expert on this type of counter terrorism warfare recommends precisely the opposite strategy -- "counterinsurgency," meaning a heavy-footprint, population-protecting troop surge -- you have the most convincing of cases against counter terrorism by the man who most knows its potential and its limits. And McChrystal was emphatic in his recommendation: To go any other way than counterinsurgency would lose the war.
Yet his commander in chief, young Hamlet, frets, demurs, agonizes. His domestic advisers, led by Rahm Emanuel, tell him if he goes for victory, he'll become LBJ, the domestic visionary destroyed by a foreign war. His vice president holds out the chimera of painless counter terrorism success.
Against Emanuel and Biden stand Gen. David Petraeus, the world's foremost expert on counterinsurgency (he saved Iraq with it), and Stanley McChrystal, the world's foremost expert on counter terrorism. Whose recommendation on how to fight would you rely on?
Less than two months ago -- Aug. 17 in front of an audience of veterans -- the president declared Afghanistan to be "a war of necessity." Does anything he says remain operative beyond the fading of the audience applause? "

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Health care reform update
"One too many shells in this shell game"

After months of struggling to put together a comprehensive health care reform package, democratic leaders attempted a new strategy goal of passing two health bills:

1. To expand health insurance coverage, hold down costs and increase government regulations

2. To avoid cuts in the payments doctors receive from Medicare that the first bill did not address.

The "Doctor fix" originally was expected to be part of Obama's sweeping health care reform legislation. But separating it would have allowed Democrats to prevent the measure from pushing the cost of health reform legislation over the $900 billion ceiling set by Obama. So why has the Senate suddenly adopted a two-bill strategy? Budget politics. Both the President and Congressional leaders have repeatedly pledged that any new spending on health insurance would be paid for through spending reduction or increased taxes elsewhere in the budget. In other words, any health reform needs to be budget-neutral or better. They could not include the "Doctor fix" as part of the health care reform bill and not add a single dime to our deficit and debt. So, as Congress stumbles to enact the roughly $900 billion health reform bill, it also tried to rush through a separate $245 billion permanent doctor fix bill. Moreover, Democratic congressional leaders wanted to pass the permanent doctor fix without paying for it. All $245 billion would then have been added to our debt. When you add the two bills together, that's two-to-three trillion dimes.

Under current law, the reimbursement rates that Medicare pays physicians are scheduled to decline by more than 20% at the end of the year. This cut has its origin back in 1997, when Congress passed the Balanced Budget Act. It contained a provision, called the sustainable growth rate mechanism (SGR), designed to hold down Medicare costs by setting yearly and cumulative spending targets. If actual spending on physician services in Medicare exceeds the target for a given year, reimbursement rates for doctors are lowered the next year. Not surprisingly, spending did eventually rise above targeted levels and the SGR has been triggered to cut payment rates in response. But Congress has repeatedly flinched. Expenditures have exceeded projections for the past seven years and Congress has passed legislation to override the fix all seven years. That’s why there’s an accumulated “debt” under the SGR that would require a 20+% cut in payment rates today. This "all at once" increase would lead to fewer doctors accepting Medicare patients or dropping their current ones.

No one, least of all the doctors, wants this to happen. So Congress has been looking for a way to fix the problem. Up till now, the Medicare doctor fix had been included in the larger health bills winding their way through Congress. A House bill has a permanent fix, at a cost of $245 billion over ten years. The Baucus bill was only able to find enough budget reductions to cover a one-year fix, at a cost of $11 billion. Many Republicans bitched and moaned about the Baucus bill being calculated for ten years, but only having a one year doctor fix. Personally, I prefer a one year fix that's paid for, over this ten year fix that ain't.

So Senate leaders tried a new strategy in which the main health insurance bill would still be budget neutral, while the doctor fix would get passed separately and passed to debt. In defense, proponents offer two justifications for this legislative strategy. First, they argue that it is essential to fix physician payments once and for all. Second, they point out that Congress has enacted doctor fixes repeatedly in recent years and argue that doing so today would just be yet another correction to an ongoing problem. For these reasons, they believe the bills should not be added together as "Health care reform".

Neither of these statements are true. First...health care is health care. They are the ones who wanted an all inclusive, comprehensive health care package. Many believed the issue would have been better addressed through smaller, more focused legislation. (Insurance subsidies, Insurance reform, Expanded medicaid enrollment/cost reduction, Medicare reform,etc.)
Second...The only imminent problem is the reduction in payment rates at the end of "this year". To avoid those cuts, Congress needs to enact only a one-year fix to payment rates, not a permanent fix. A permanent solution might well be good policy, but only if it’s suitably paid for. Last year, when Congress enacted its most recent doctor fix. Payment rates had been scheduled to fall by 10.6% starting in July 2008. Congress stepped in, however, and enacted the Medicare Improvements for Patients and Providers Act (MIPPA), which cancelled the scheduled cut and gave doctors a 1.1% raise for 2009. That action cost $9.4 billion and, to its credit, Congress found a way to pay for it; with all its various pieces, MIPPA was exactly budget-neutral.

If Congress passes a doctor fix without paying for it, however, that would raise serious doubts about its willingness to pay for other new spending programs. Consider, for example, the Baucus health bill, which would expand Medicaid, introduce new subsidies and tax incentives for health insurance, and make various expansions to other federal health programs. The total cost (excluding the one-year doctor fix) is just short of $900 billion over the next ten years. The bill proposes to pay for that spending through a combination of future spending reductions (e.g., reduced payment rates for hospitals in Medicare) and tax increases (e.g., a new tax on expensive health insurance plans). On paper, the offsets in the bill appear to be larger than the new spending and, as a result, the bill scores as reducing the deficit over the next ten years. But that assumes that the offsets will really happen. Which leaves us with the trillion-dollar question: If Congress enacts a $245 billion doctor fix without paying for it, why should anyone believe it would ultimately allow the payment cuts and tax increases included in the health reform bill?

If Congress believes this issue is so important that it needs to be fixed once and for all, then it should do so and pay for it. Finding the political will may be difficult, but finding the money isn’t: the Senate Finance Committee has already identified more than $435 billion in Medicare spending over the next ten years that it deems unnecessary. Congress could use a portion of that money for the Medicare doctor fix, and would still have almost $200 billion left over to help pay for other priorities, such as an expansion of Medicaid and give up on the "Too big to pass" health care reform bill.

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Vindictive administration or politics as usual

The Obama administration appears to be launching a Richard Nixon-like political strategy of making an "enemies list" of people who disagree with the president.

Republicans have all but been shut out of the health care reform process. Obama is using Chicago type politics to "neuter" the U.S. Chamber of Commerce from its traditional Washington role as the chief representative for business because it disagrees with the White house on Cap and Trade and the public option for health care reform. And most disturbing of all, he now uses the office of the Presidency to shut out a news organization that offers political criticizm.

The Obama administration, through The Department of Health and Human Services, imposed a gag order on a health care company, Humana, who had sent its Medicare Advantage customers warnings that their benefits might be reduced in Democratic health care reform proposals (the gag order has since been removed thanks to Republican Senator Mitch McConnell). The White House has also been reportedly "taking names” of bondholders who resisted the GM and Chrysler bailouts." Remember when Sen. Jon Kyl of Arizona, said to ABC that the stimulus plan wasn’t working? The White House then writes to the governor of Arizona and said, “If you don’t want the money, we won’t send it.”

Whether it's Fox News, the Chamber of Commerce, or companies that sponsor reports that take issue with the administration's assessments, there seems to be a cast of mind that views critics as enemies, as individuals and institutions that need to be ridiculed, delegitimized, or destroyed.

The president bypassed "Fox News Sunday" during a string of appearances on news shows recently, and Fox News officials have said the White House threatened a boycott. In an appearence on ABC's "This Week," senior Obama adviser David Axelrod said Fox News shouldn't be treated as a news organization. "And the bigger thing is that other news organizations, like yours, ought not to treat them that way, and we're not going to treat them that way," he said.
White House communications director Anita Dunn said Fox News operates "almost as either the research arm or the communications arm of the Republican Party." On Sunday, Rahm Emanuel, President Barack Obama's chief of staff, said, "It is not a news organization so much as it has a perspective."
"The only argument Anita was making is that they're not really a news station. ... It's not just their commentators, but a lot of their news programming. It's really not news. It's pushing a point of view."

Were not going to treat them as a news organization and other news organizations ought not treat them as one either!!! (WTF?)
Was that a threat to all other news organizations to stay "in-line"? Who gave them the right to say what is and what is not? I'm not going to treat Obama as the respected leader of my country, but I'm not threatening others to do the same.

Then, the White House stepped up its attack on Fox News, announcing that the network would no longer be able to conduct interviews with officials as a member of the Press Pool. The Pool is a five-member group consisting of ABC, CBS, CNN, Fox News and NBC organized by the White House Correspondents Association. Its membership is not subject to oversight by the government.
Before an interview with "Pay Czar" Kenneth Feinberg, the administration announced that Fox News would be banned from the press pool. This marks the first time in history that an administration had attempted to ban an entire network from the press pool.
To their credit, the other networks objected. They told the White House that if Fox were banned, none of the other networks would participate. The White House relented, but in an apparent act of petulant retaliation, it restricted all the member networks to only two-minute interviews instead of the standard five.

So what ass gave Obama the right to blackball people and organizations out of existance? This was not on the ballot... or on any binding legislation that I am aware of. Someone needs to inform the Obama administartion that he is the President of the United States, not Venezuela. An independent and free press is critical to and independent and free people.

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The administration also has taken on the Chamber of Commerce, for example, suggesting the group is out of touch with the business community on health care, climate change and other issues. The uneasy relationship between the Obama White House and the U.S. Chamber of Commerce has steadily eroded over the past several months, with the business group's opposition to health care and climate change legislation triggering an all-fronts backlash from the administration. White House spokeswoman Jen Psaki....it does give us pause that they continue to throw millions of dollars against productive efforts under way to reform the regulatory structure, provide access to affordable health insurance for more Americans and reduce the impact of greenhouse gas emissions -- all plans essential to the continued growth and recovery of our economy."

Chamber executives met frequently with Obama aides and supported the administration on the bank bailouts, the stimulus package and it's high-level nominees. Then came the health care debate, during which the Chamber actively opposed . Not long after the group had rallied opposition to Democratic reform plans on climate change and regulatory reform.

(President Obama)
"The U.S. Chamber of Commerce is spending millions on an ad campaign to kill it" "They're trying their hardest to weaken it. ... And they're very good at this, because that's how business has been done in Washington for a very long time. In fact, over the last 10 years, the Chamber of Commerce alone spent nearly half a billion dollars on lobbying -- half a billion dollars."

The Chamber of Commerce needs the support of every American who gives a damn about free markets, private property, and fears of creeping fascism. This country cannot afford for the private health insurance industry to cave. This country cannot afford the cost of every energy sensitive product and service to skyrocket. This country needs the Chamber of Commerce to defend American business to prevent them, and us, from being screwed by this administration's policies. It is, in fact, the administration that is out of touch with the business community on health care, climate change and other issues. So now the Chamber is their enemy.

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Earlier this week, the health insurance industry released a study concluding that the Finance Committee bill - one of five competing House and Senate health care measures - would raise premiums significantly for millions of people who already have health coverage. AHIP sent reporters and its member companies a new accounting firm study that projects the legislation would add $1,700 a year to the cost of family coverage in 2013, when most of the major provisions in the bill would be in effect.
Premiums for a single person would go up by $600 more than would be the case without the legislation, the PricewaterhouseCoopers analysis concluded in the study commissioned by the insurance group. The study "confirms that the current legislation will make coverage less affordable for individuals, families and employers, and the study shows that costs will go up even faster than they would under the current system. The industry said the cost increases would result from new taxes and from a weakening of the Mandate penalties for failing to get insurance - a change that would let Americans postpone getting coverage, and delay paying a premium, until they actually get sick.
The report drew intense criticism from the White House, Democrats in Congress and other advocates of the bill.
OBAMA: The insurance industry is rolling out the big guns and breaking out their massive war chests to marshal their forces for one last fight to save the status quo. They're filling the airways with deceptive and dishonest ads, they're flooding Capitol Hill with lobbyists and campaign contributions, and they're funding studies designed to mislead the American people. Of course, like clockwork, we've seen folks on cable television who know better waving these industry funded studies in the air. We've seen industry insiders and their apologists citing these studies as proof of claims that just aren't true. It's smoke and mirrors, it's bogus, and it's all too familiar.

A kind of right wing conspiracy, Barack?

OBAMA: Every time we get close to passing reform, the insurance companies produce these phony studies as a prescription and say, "Take one of these and call us in a decade." Well, not this time. The fact is, the insurance industry is making this last-ditch effort to stop reform, even as costs continue to rise and our health care dollars continue to be poured into their profits, bonuses and administrative costs that do nothing to make us healthy; that often actually go toward figuring out how to avoid covering people. And they're earning these profits and bonuses while enjoying a privileged exception from our anti-trust laws, a matter that Congress is rightfully reviewing.

This man is paranoid! And ready to act on it.

All they were trying to get accross was the fact that the mandate penalties were too low for the system to make sense. If people can no longer be denyed insurance, or even have to endure a waiting period, and the fine for not having insurance is low, the smart money says people will pay the small fine instead of the premium. They will wait on getting insured until such time as they need it. Kind of like buying car insurance after an accident. If people are allowed to scam the system in this way, it will cost the insurance companies millions that will be passed on to policy holders in the form of higher premiums. It's fairy easy to understand. It's actually easily corrected. But the Chicago hitman, knee jerk response was to demonize and ridicule.
Now, top Democrats are now constructing a bill to revoke the antitrust exemption of the health insurance industry and will try to add it to the House healthcare overhaul when it comes before the Rules Committee. Wow, You bring a knife...they bring a gun. What ever happened to stick and stones? It's time you all learn not to go public with your opposition to these people. Why do you think I write under the name "The Conservative"?

Sen. Lamar Alexander of Tennessee, who once worked in President Nixon's administration, warned the White House that such a "street brawl" approach of attacking political opponents "can get you in a lot of trouble."

This is a White House engaging in its own version of the media enemies list, And it's not only unhelpful for the country, it's pety and undignified for the presidency of the United States. The Obama administration is using the type of intimidation tactics that might work well in the wards of Chicago, but they have no place within the beltway of Washington D.C. My fear, this early in his term, as political tensions continue to build, his paranoia intensifies beyond the few constraints remaining and he oversteps his power. Don't get me wrong. I believe he has already overstepped on a moral and political measurement. I'm referring to a, Nixon level, legal overstep of our constitution.

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The Democrats war against our best and brightest

The administration has faced an uninformed publics outrage due to Wall Street firms, who were recently propped up by federal assistance, having returned their bonus payouts back to pre-crisis levels. Feinberg, the "pay czar" appointed by the President in June, announced plans to cut total compensation by an average of 50 percent for the top earners at seven bailed-out firms. These seven bailed-out firms under Feinberg's jurisdiction are AIG, Bank of America, Citigroup, General Motors, Chrysler, GMAC and Chrysler Financial.

On Wall Street, reaction to Feinberg's ruling was swift, with some executives arguing that it will further handicap the most troubled firms by driving away their top employees while at the same time causing companies unwilling to promote their rising stars for fear of bringing them to Feinberg's attention. Many executives have already been driven away by the uncertainty of working for companies being micro-managed by Washington, opting instead for firms not under the thumb of the Obama administration, including competitors that have already returned the bailout funds to the government. The move by the Obama administration is, for now, limited only to the seven top bailed-out companies and will not touch firms like Goldman Sachs and JP Morgan Chase, which have already repaid the government. But at Bank of America, for instance, only 14 of the 25 highly paid executives still remained by the time Feinberg announced his decision. Under his plan, compensation for the most highly paid employees at the bank would be a maximum of $9.9 million. The bank had sought permission to pay as much as $21 million, according to Treasury Department documents.

President Obama on Wednesday announced plans to increase lending to small businesses and to give them greater access to the TARP rescue fund, leaving some to question whether Feinberg might have authority to dictate executive pay at those firms as well. Plus, the Federal Reserve is now proposing to police pay policies of all F.D.I.C. insured banks...even for those that didn't receive a bailout.

This is nothing more than a populist political maneuver designed to placate taxpayers' anger by claiming their interests come before those of the shareholders and incumbent management of the beleaguered firms. The fact that Washington is again meddling with contracts, following a stalled attempt by Congress in March to halt the AIG bonuses, has revived charges that the federal government is overstepping its bounds. Some lawyers believe Feinberg could be trampling on legally binding contract agreements. Most liberals believe, since these companies owe money to the federal government, that gives the Obama administration political leverage to exercise its ownership stake, or to embarrass the executives in the press, or to target the companies in any number of other ways.

A major criticism of executive pay is that executives are overpaid relative to the performance of the companies they manage. Critics who say this believe the reason for this disconnect is due to managerial power, which basically says that executives have enormous power over their boards of directors, who just rubber-stamp their pay packages. Both aspects of that statement are incorrect. When people say there is no pay for performance, they are looking at the wrong measure.

Typically, pay of CEOs and other executives is set to be competitive with other executive salaries in the market. The use of compensation beyond base salary is intended to motivate executives to reach certain organizational performance goals, for example, specific profit levels, and reward them for reaching these goals. The executive bonus consists of two types of reward incentives. Short-term goal incentives and Long-term goal incentives. Short-term goal incentives are a one-time cash payment tied to some performance goal, may be based on any number of performance outcomes, ranging from judgments of executive performance by the board of directors, to levels of company profits or market share. Long-term goal incentives are rewards that are linked to specific long-term goals of the organization. The most common long-term incentive is the stock option, which either gives the executive free company stock, or allows him or her to purchase company stock at a reduced price for a period of time. These stocks become more valuable as the company improves financially, and therefore, ownership of stock is intended to encourage the executive to make the organization more profitable.

External equity is the assessment of the fairness of pay in similar jobs in different organizations. Executives who compare their pay to executives in other similar firms are making an assessment of external equity. External equity can be determined through market pay surveys, in which companies share information about the pay and benefits in their jobs. Additionally, the pay levels of executives may be public knowledge, either in company publications to shareholders or in trade organizations. If an executive is compensated highly as compared to others in similar companies, he or she is likely to feel positively about this situation; however, executives who are compensated at a lower rate than comparable executives in other companies may attempt to have their salary raised or may look for another position.

To examine the fairness of executive pay, several factors must be assessed. First, the executive pay package should be responsible to shareholders, which means that it is not so high that it detracts from company profits or that its incentives discourage unethical influence of stock prices. Second, pay packages must be competitive with those of other similar organizations so that executives can be recruited, rewarded, and retained successfully. If a pay package is not competitive, there may be motivation problems or turnover. Third, executive pay should fit with the company's strategy so that it encourages overall company success. This is particularly relevant in regards to short-term bonuses and long-term incentives which can be used to steer the performance of the executive and the organization. Finally, compensation for executives must be in compliance with regulations. There are a number of laws regarding retirement plans, stock options, and other compensation components which must be followed when designing executive pay plans.

One concern about the high pay level for American executives is that they may encourage executives to make business decisions that benefit themselves rather than the organization in order to meet performance goals necessary to receive incentive pay. This is particularly likely if incentives are short-term in nature. For example, an executive may drive up short-term profits that cannot be sustained, only to collect a large bonus and leave the company before long-term financial problems are revealed.
A second concern with the ethics of high executive pay is the use of stock options as an incentive. Recent evidence of illegal practices in some high-profile American companies has prompted the enactment of the Sarbanes-Oxley Act of 2002. This act prevents executives of companies from keeping profits or bonuses acquired from selling company stock if they have misled the public about the financial health of the company to increase stock price.

The minimums on executive pay aren’t high because the executives are setting their own pay. It’s high because of the tight labor market of high quality upper level managers. Boards are agreeing to pay this much because they think the executives are worth it. The executives are highly motivated by the upside. There are people who are outraged by how much [former Home Depot CEO] Robert Nardelli and [former Hewlett-Packard CEO] Carly Fiorina made when they left their companies, but they were disappointed too, because they should have made hundreds of millions of dollars when compared to the performance of the companies they ran.

The current outrage over executive compensation is largely a perception vs. reality issue. The perception is that a $5-10 million compensation package is out of balance because it's either too large of a multiplier of an average employee's salary or it's greater than shareholders' perceived rate of return on investment. Or both. This perception was a key factor in passage of a House of Representatives bill requiring public companies to put executive pay packages up for an advisory vote by shareholders. And, while some employees might think their executives are overpaid, most employees at successful companies do not begrudge their CEO’s high pay because that success prevents layoffs, downsizing and/or wage stagnation.

The reality is that the free market is alive and well, and is the true dictator of executive pay. While what one's peers are making is still a legitimate barometer, critics should look at the macro economics of "stars" in all fields, and not just the micro economics of executive pay, if politicians are serious about understanding the calculus in determining compensation. This assessment must factor in the track record of the executive; their reputation on "the street"; his or her future potential; competing job offers; personal enticements; what he or she is leaving behind; and the resources of other executives he or she has accumulated throughout their career.

Few people can perform like Bono, write like J.K. Rowling, or golf like Tiger Woods. They have unique talents the free market has decided are worth millions of dollars each year, even though Woods doesn't win every Major and every album of U2's doesn't go double platinum. Yes, they drive product sales and ad revenue, and in many cases, spearhead major philanthropic initiatives. Yet, like executives, their compensation is usually established long before the success, or failure, is obvious. (Nike signed Woods years before he donned a green jacket) Likewise, only a handful of people are capable of running a major multinational corporation with thousands of employees and billions in annual revenue. Bottom line: true stars are in short supply and high demand. It's Economics 101. These unique people create more than just entertainment value. They create thousands of jobs, deliver a lifetime of wealth for legions of investors, and drive life-changing innovation. IBM's Lou Gerstner saved an American institution. Harvey Golub at American Express increased shareholder value by record numbers. Many of us became rich as lifetime investors in GE, or were saved by GE medical products. And yes, Jack Welch did have something to do with it. Jack would be the first to say that it was a collective effort of great executives and talented employees. But let's not forget those who created the enviroment that attracted, developed, inspired, and retained those folks. Unlike an artist with a distinctive talent, an executive's craft and contribution is highly subjective. Often, the fruits of their labors don't show up in the short term, as Wall Street demands, and are not apparent until long after they take the job.While most executives are in fact compensated at a far lower rate than Rowlings and Woods, the criticisms lobbed at them come far more frequent and severe.

In large multinational corporations, $5-10 million is likely a budget line item amount for office supplies such as Post-It Notes and paper clips. Executive pay shouldn't just be weighed against aggregate employee salaries or benchmarked with similarly-sized companies. It should be compared with, and judged against, all of a company's expenditures and the rate of return they generate. Who creates more value in the company, the executives or a bunch of paper clips? Institutional shareholders understand this dynamic. Individual investors, and the media in general, often do not.

We need to find an objective means of separating an executives overall performance from the number attached to his or her base compensation. From there, we must move closer to a merit-based bonus system. When this is established, however, shareholders need be prepared to award perhaps even larger payouts than we have seen thus far. Shareholders will, justifiably, continue to demand more openness, and a greater correlation between pay and performance, each passing fiscal year. Fact is, most companies really do tie executive pay to corporate performance. It's just a little more complex than the uninformed populus realize.