Thursday, November 22, 2012

A better pay scheme for Washington?

If we paid our lawmakers for performance, said Sheila Bair, “maybe we could get them to focus on doing their jobs.” Performance-linked pay has improved management practices in the private sector, so why not devise a pay scheme that encourages our elected officials to spend less time fundraising and more time governing? Corporate directors typically make half of their compensation in company stock, to align their incentives with a company’s long-term profitability. Similarly, we could give members of Congress half their pay in Treasury bonds. “If the economy does well and if they get our fiscal house in order,” those T-bonds should hold their value; if they continue their profligate ways, their pay would drop. We could go even further than that and make their pay dependent on hitting certain economic benchmarks. A third of their bonds, say, could be linked to keeping the labor participation rate high, and another third contingent on economic growth. The final third could depend on how well voters think lawmakers are working together. It’s worth a shot. Aligning pay with long-term performance has worked on Wall Street. “Why not try it with the folks in D.C.?”

Sheila Bair

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