August 11, 2009 5:49PM

The Rule of Law or the Rule of a Man?

The Obama administration’s pay czar is busily making plans for America’s financial companies:

Kenneth R. Feinberg has the unprecedented task of deciding executive compensation at seven companies that received large government bailouts. His meetings with American International Group, Citigroup, Bank of America, General Motors, Chrysler, Chrysler Financial and GMAC have been conducted in secret, with neither Feinberg nor the companies willing to say much in public.…

Feinberg, who has sole discretion to set compensation for the top 25 employees of each of those companies, has 60 days to make a determination after the proposals are complete. Under the administration’s initiative to curb excessive pay practices, each of the seven companies must also receive his approval for how it pays the rest of its 100 most highly compensated executives and employees. The companies must submit pay plans for these employees by Oct. 12.…

During the videoconference with AIG employees, Feinberg mostly avoided giving them detailed answers to their questions. Many of the employees left frustrated because he gave them no sense of whether he would seek to modify contracts that promise them upcoming bonuses, said people familiar with the session.…

Senior Treasury Department officials say they do not want Feinberg to set precise prescriptions for how companies compensate employees. Instead, his task is to evaluate pay according to several principles. For instance, does an employee’s compensation reward short‐​term, risky business behavior? Or, on the contrary, is the compensation tied to longer‐​term performance goals? Does it allow the company to remain competitive and recruit top talent?

Note also: “Mr. Feinberg’s decisions won’t be subject to appeal.”

Classical liberals often talk about “the rule of law, not the rule of men.” This isn’t even “the rule of men,” it’s the rule of one man. Let us hope that Kenneth Feinberg is a wise, merciful, and incorruptible ruler.

NOTE: I recognize that Feinberg’s authority extends only to companies that have received large government bailouts, and there’s a certainly a case to be made that if companies take taxpayers’ money, they can darn well live with government salaries. But it’s just that kind of political intrusiveness — along with demanding that auto firms keep all their dealerships, or make “green” cars, or build their cars in this country, or whatever — that makes government‐​run or -dominated companies inefficient. So as Gary Becker says, it’s a “fatal conceit” to assume that Kenneth Feinberg knows better than the market how much top talent should be paid. And some of the people who support the idea of a “pay czar” want his authority to extend beyond the government‐​supported companies.