Bonus Pay Bill: CBO Predicts Huge Costs to Private Sector, Broad Swaths of Employees Affected

Bonus Pay Bill: CBO Predicts Huge Costs to Private Sector, Broad Swaths of Employees Affected

July 31, 2009

Bonus Pay Bill: CBO Predicts Huge Costs to Private Sector, Broad Swaths of Employees Affected

Statement of John Berlau, Center for Investors and Entrepreneurs

Washington, D.C., July 31, 2009—The House today is poised to push through a bill imposing new regulations on incentive pay for corporate executives and many rank-and-file employees.  John Berlau, Director of the CEI’s Center for Investors and Entrepreneurs, put forth the following statement on the bill and a just- released Congressional Budget Office estimate of its massive costs to the private sector:

After the nonpartisan Congressional Budget Office (CBO) calculated the enormous costs of an all-encompassing health care scheme with a bloated public option, members of Congress from both parties asked for more due diligence before rubber stamping the plan.

Yet today, the U.S. House of Representatives may rush through another piece of poorly designed command-and-control legislation that the CBO just yesterday said could have its own tremendous costs.  Though advertised as giving shareholders more ‘say’ over CEO pay, the ‘Corporate and Financial Institution Compensation Fairness Act of 2009 [H.R. 3269],”’would give the government the power to ban performance bonuses for a wide variety of employees – including even office assistants and clerks – at a wide variety of firms.

On Thursday, July 30, the CBO Cost Estimate for the bill, sponsored by House Financial Services Chairman Barney Frank (D-Mass.), found that its mandates would place untold costs on the private sector that could reach upwards of $139 million a year. The CBO report starkly states: ‘The requirements of H.R. 3269 would impose several private-sector mandates … on publicly traded companies, financial institutions, institutional investment managers, and national securities exchanges and associations.’ CBO adds that ‘because the cost of some of the mandates would depend on federal regulations yet to be established,’ the total cost of the mandates may exceed the $139 million a year that under the Unfunded Mandates Reform Act, requires special scrutiny for its effects on the private sector.

As CEI has repeatedly stated, regulatory costs should be seen as a tax. And this tax on publicly traded companies – that would frustrate the incentive pay necessary to foster growth in entrepreneurial firms-- may put a damper on the recent gains of the stock market and slow an economic recovery.

For a summary of the bill, go to OpenMarket.org.