Distressed companies receiving money from the government’s Troubled Asset Relief Program (TARP) are resisting restrictions imposed on executive compensation. They argue that the government is less likely to get its money back if the pay and benefits offered to prospective hires are too low to compete with pay packages from other companies not subject to restrictions. They’re probably right. In a market-based economy where people are expected to seek the best return for their efforts, why would top-notch talent — the kind needed to fix fouled-up operations like General Motors or Fannie Mae — settle for sub-par compensation? So if companies receiving TARP money have to offer below-market pay packages, that may doom them to hiring second-rate managers, further impairing their operations.
Doesn’t this reasoning raise questions about the way we run the Department of Defense? Military spending represents about 5% of the U.S. economy, and the Pentagon is a much bigger operation than most of the enterprises receiving TARP money. But the levels of compensation for senior government executives are so far below what comparable positions pay in the private sector that most people aren’t willing to take the jobs. So the top jobs often get filled by a mix of retirees, partisan activists and inexperienced congressional staffers — not exactly the cream of the crop from the Darden School. It takes a long time for these people to get up to speed on the complex activities they must oversee, and often they leave just about the time they become proficient because the greener pastures of the private sector beckon.
Is it any wonder that money gets wasted and programs get mismanged on an Olympian scale in our defense establishment? We entrust budgets worth tens or even hundreds of billions of dollars to people who are paid not much more than the median family income in nearby Fairfax County. And then we’re surprised that the Pentagon doesn’t seem to be as well managed as Apple or Oracle. Despite all the political obstacles to paying government executives what they are really worth, it might save the Treasury considerable sums to compensate Pentagon policymakers and managers at a level commensurate with their responsibilities. Sure it would be controversial to pay the Army’s top acquisition official a million dollars per year, but if that saved us a billion because of the talent the job could attract, wouldn’t it be worth taking the heat?
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