Does Capping Executive Pay Violate the Constitution?

Short answer: no. But, some people who are stuck in the 1920s seem to think so. For example, Andrew Napolitano (a senior judicial analyst for Fox News) argues, “Salary caps are unconstitutional because they violate the well-grounded doctrine against unconstitutional conditions.” In other words, the government may not require someone to give up a constitutional right in exchange for some sort of governmental benefit. He analogizes: “The government cannot say to individual welfare recipients that they may not criticize the Congress or their welfare checks will be cut off.” Apparently the right to enter into a $15,000,000 contract is just as constitutionally protected as the freedom of speech. Who knew?

So, Mr. Napolitano is relying on the “right to contract,” an idea championed by the oft-maligned Lochner v. New York, which held unconstitutional a statute limiting the number of hours a baker could work (if a baker wants to work 100 hours a week, who are we to stop him?). The same idea was applied to strike down minimum wage laws in Adkins v. Children’s Hospital (if someone wants to work for $.01 per hour, who are we to stop him?). The theory is that the 14th Amendment’s guarantee of due process of law protects the so-called “right to contract.” While Lochner has not been technically overruled, it has been de-fanged, and it has been held that the Constitution does not protect a fundamental right to contract. So, unless we are to jump in a time machine and travel back to 1920, Mr. Napolitano’s argument doesn’t work.

But wait, there’s more. He also asserts that the salary cap is an unconstitutional “taking.” The “takings clause” of the Fifth Amendment reads, “…nor shall private property be taken for public use, without just compensation.” You may be thinking, “How is a salary cap an unconstitutional taking?” Napolitano attempts to explain:

High ranking executives are corporate assets with experience and knowledge unique to their employers’ businesses. By arbitrarily reducing their salaries to serve the government’s political needs, deflating their worth to their employers, incentivizing them to work less, or chasing them away, the government has stripped these individuals of their personal value and of their value to employers without just compensation.

It seems Napolitano is arguing that reduced executive pay will force executives to flee the industry. In other words, the government is “taking” executives away from the industry. However, this requires us to believe that executives are the “private property” of corporations. If I’m not mistaken, America stopped believing that people can be private property about 150 years ago. Indeed, I think we fought a war about just that. And I think the good guys won, but I may need to double-check that.

In addition, the government is not actually taking anything. It is not as if the government is taking $14,500,000 of some executive’s $15,000,000 salary. It is setting a cap; the difference should not need to be explained. And even if the government’s actions compel executives to flee their industry, the executives are not being put to “public use” by the government. Indeed, they are not being put to any use by the government. Their fleeing would simply be an unintended consequence of a governmental attempt to regulate how the corporation’s spend the aid money they are to receive.

Furthermore, even if the salary cut were a “taking,” the cut comes along with significant federal aid, which could pretty reasonably be described as “just compensation.”

So, if we accept the jurisprudence of the 1920s and strain our reading of the 5th Amendment (this guy rails against Roe v. Wade for the same kind of straining), then yes, capping executive pay violates the Constitution.

Image courtesy of newshounds.

That is, the reader feels as if the writer is speaking to him blog there personally.
Published in: on February 7, 2009 at 6:35 pm Comments Off on Does Capping Executive Pay Violate the Constitution?
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