Sheila Bair, former chair of the Federal Deposit Insurance Corp. (Dennis Brack/Bloomberg…)
WASHINGTON -- Pay for performance works in the corporate world, and it might be the way to fix the dysfunction in the nation's capital, said former Federal Deposit Insurance Corp. Chairwoman Sheila Bair.
Just as corporate directors frequently get half of their compensation in stock, members of Congress and the president should get half their pay in 10-year Treasury bonds, Bair said in a blog post Tuesday at Fortune.com.
"Running a business and running a government are obviously different, but when it comes to compensation, government could probably learn a few things from well-managed corporations," said Bair, who served as the head of the FDIC from 2006 to 2011.
"Aligning pay with long-term performance can be a good way to change behavior for the better. We should give it a try," she said.
Most incumbent members of the House and Senate will get reelected Tuesday. And with the overall job approval for Congress below 20%, Bair said the nation needs to do something new to motivate lawmakers to address the nation's economic problems, particularly the so-called fiscal cliff of large tax increases and government spending cuts coming Jan. 1.
By providing half of corporate director pay in stock that must be held for several years, companies encourage decisions that are good for the firm's long-term health. The same could be done with members of Congress and the president to make them look out for the nation's future, not just short-term political gains.
The Treasury bonds that would make up half their pay would have to be held until maturity, Bair said.
"If the economy does well and if they get our fiscal house in order and institute pro-growth tax and spending policies, those 10-year bonds should hold their value," Bair said.
"But if we continue our profligate ways, inflation spikes and interest rates skyrocket," she continued, "those bonds may end up being worth as much as the stuff Czar Nicholas issued shortly before the Bolshevik revolution (some of which I bought at a flea market and now use as wallpaper in the bathroom)."
The plan could be further enhanced by linking the bond portion of the salary to certain benchmarks, such as economic growth or labor-force participation, Bair said.
The public could also cast an advisory vote every two years on whether they think Congress and the president collectively are doing their jobs. If not, they would lose a third of their bond payments.
"No more blaming our problems on the other guy," Bair said. "We vote on how well they are working together, and if we like what we see, they get the final third of their bonds."
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